South African Farm Debt-Finance Levels Seen at 35-Year High

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Debt-finance levels among farmers in South Africa, the continent’s biggest corn producer, may rise to the highest in 35 years, curbing growers’ ability to get more funding as they contend with the worst drought since 1992.

Farmers’ ratio of debt to assets, or the proportion of assets financed by debt, may climb to 48 percent this year, said Ernst Janovsky, the head of agribusiness at Barclays Africa Group Ltd. That would be the highest since 1980 and compares with 35 percent in 2014, Department of Agriculture data show. The estimate for U.S. growers this year is 10.9 percent, Mitch Morehart, a senior economist at the U.S. Department of Agriculture, said June 1.

“They’ve got to start thinking of where they are going to get money,” Janovsky said by phone. “You have to start taking out of your own pocket where previously you could have borrowed.”

South Africa predicts a 32 percent drop in this season’s corn harvest to the smallest in eight years after the drought ravaged crops in some of the largest growing regions. Farmers were still recovering from insufficient rains received in 2012, with their balance sheets strained since then, according to Nico Groenewald, Standard Bank Group Ltd.’s head of agribusiness.

“Once we go beyond 50 percent, then we are most probably in a spot of bother,” he said by phone. “We could absorb some of this by consolidating debt.”

Grain SA, a lobby group that’s the biggest representative of South African corn growers, “is aware of a few farmers who decided to put their farms up for sale because of financial difficulties due to the drought,” Chief Executive Officer Jannie de Villiers said, declining to provide more information.

“This is happening again for me, which puts me in a tighter position and more at risk to be considered for funding,” Ryan Mathews, a farmer in North West province who lost most of his crop because of the drought, said by phone. “I already know that a huge part of my land will be written off.”

The local price of white corn, used to make a staple food known as pap, has climbed 48 percent in the past 12 months, while the yellow variety, which is mainly fed to animals, has increased 22 percent.

(Updates with comment from farmer in seventh paragraph.)
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