By Daneel Rossouw, Head of Sales: Agriculture, Nedbank Business and Commercial Banking

South African farmers are no strangers to uncertainty. Weather, input costs, commodity prices, market access, logistics, and interest rates all influence the performance of an agricultural business. The prospect of a particularly strong El Niño this summer, bringing below-normal rainfall across much of the country and above-normal temperatures, adds another layer of risk.

The risk is real but does not mean a severe, widespread drought will necessarily occur. El Niño influences the likelihood of certain weather patterns but does not determine exactly where, when, or how much rain will fall. For farmers, the priority is to prepare for potentially difficult conditions without making decisions based on the assumption that the worst-case scenario is certain. That means combining reliable climate information and appropriate farming practices with sound financial planning.

Understand the risk in context

The outlook is concerning for summer rainfall areas. Higher temperatures can accelerate evaporation and deplete soil moisture rapidly. Livestock producers in vulnerable grazing regions may face additional challenges if rainfall disappoints and veld conditions deteriorate.

However, the impact will vary between regions and farming enterprises. The timing and distribution of rain can be as important as the total received. Even a season with reasonable overall rainfall can be difficult if rain arrives late or prolonged dry spells coincide with critical crop- development stages.

South Africa also enters this season with an important buffer. The exceptionally wet 2025/26 season improved soil moisture and dam levels across many summer rainfall areas. While this does not eliminate the threat, it is an important factor in assessing how the coming season may unfold.Interestingly, history shows that strong El Niño events do not produce the same outcomes. While the 1982/83 and 2015/16 events were associated with widespread drought, parts of South Africa’s summer rainfall region experienced slightly above-normal rainfall during the very strong 1997/98 event.

Climate risk is business risk

Climate is just one of several risks agricultural businesses need to manage, and its effects can compound existing financial pressures. A poor rainfall season, for example, could reduce yields at a time when operating costs are rising, putting pressure on cash flow and a farmer’s ability to meet financial commitments or fund the next production cycle.

The question, then, is not simply whether a farmer can withstand a dry season, but whether the business is financially equipped to absorb a setback without compromising its longer-term viability.
While farmers cannot control the weather or eliminate every risk, they can take steps to ensure that a difficult season – whatever its cause – doesn’t become a financial crisis. That starts with understanding how much pressure the business can withstand and what needs to be in place before conditions deteriorate.

Start with the numbers

A sound agricultural business plan looks beyond the next harvest. Farmers need to understand what lies ahead financially, not only when conditions are favourable but also when yields fall short, input costs rise, or income arrives later than expected.

This means knowing where the money is coming from, where it’s going, and how much room there is to absorb a setback. Working through different scenarios can help farmers identify potential cash flow shortfalls early, decide which investments can wait, and ensure they have enough working capital to keep the business running.

It’s also important to separate seasonal production costs, longer-term investments, and personal living expenses. Understanding these different demands makes it easier to identify where financial pressure could build and to act before it becomes an issue.

Invest in resilience

Since the 2015/16 El Niño event, advances in drought-tolerant genetics, regenerative and conservation agriculture, water management and precision farming have strengthened farmers’ ability to manage climate risk. Satellite imagery, vegetation monitoring, and soil moisture information are also helping to inform planting and other production decisions.

These advances can improve resilience, but there is no intervention that can guarantee protection against drought. Farmers should monitor official forecasts, local conditions, soil moisture, and water availability, adjusting decisions as the season develops.

Adaptation investments must also make commercial sense. Irrigation infrastructure, water storage and shade netting can require substantial capital, so farmers need to assess potential returns, operating costs, water availability, and financing implications. An El Niño forecast alone is not sufficient reason to commit significant capital.

The same applies to diversification. A different crop or enterprise may appear to offer an opportunity, but it can introduce additional risk if the farmer lacks the necessary skills, suitable land, water resources, or market access. The objective should be to spread risk without compromising the parts of the business that already work.

Talk to your financier early

Sound financial planning also gives farmers more time to act when conditions become difficult. If cash flow projections suggest that a repayment could become difficult in 6 months, for example, it’s better to approach the bank immediately than to wait until a payment is missed.

Nedbank recognises the potential impact of a strong El Niño event on farming businesses and is ready to work with its agricultural clients to help them prepare for these risks. Engaging with your relationship manager early allows time to review the business’s financial position, debt structure and working-capital requirements, and to explore appropriate options before financial pressure becomes acute.

Financing should also match the purpose and useful life of an asset. Using short-term production finance to buy a tractor or another long-term asset may seem affordable after a good season, but repayments can become difficult if future yields are lower than expected.

Ultimately, managing climate risk is about more than preparing for one potentially difficult season. It’s about building a financially resilient business that can absorb setbacks, adapt when conditions change, and remain positioned to recover and grow.