Agricultural organisations expect that over the medium term, agricultural machinery sales, such as tractors, would remain subdued due to the El Niño phenomenon, load-shedding and the need for alternative power supplies and fuel and commodity prices.
The relatively more robust agricultural machinery sales of the first half of this year were primarily a tail-end benefit of the past season when large harvests and higher commodity prices boosted grain farmers’ finances, according to Agricultural Business Chamber(Agbiz).
South African Agricultural Machinery Association (Saama) said last week that August tractor sales of 697 units were approximately 12% less than the 791 units sold in August last year.
On a year-to-date basis, tractor sales were now 5% down on last year. Twenty-four combine harvesters were sold in August, the same as in August last year. On a year-to-date basis combine harvester sales were now 40% more than last year.
Tallie Giessing, the chairperson at Saama, said sentiment in the market was still positive but many farmers were now showing caution in regard to forthcoming summer crop prospects.
“This is in connection with the El Niño phenomenon, load-shedding and the need for alternative power supplies and fuel and commodity prices. It is likely, therefore, that lower agricultural machinery sales will prevail until the course of the forthcoming summer rainfall season is known,” Giessing said.
Nevertheless, Saama said, forecasts for tractor sales for the 2023 calendar year were still expected to be between 10% and 15% down on last year. Combine harvester sales were still buoyant and it was likely that sales for the 2023 calendar year would be between 10 and 20% up on last year, it said.
Agbiz chief economist Wandile Sihlobo said last week that the delivery delays of the orders raised the sales figures for the first half of the year. Over the medium term, the sales would likely remain subdued despite the current 2022/23 solid grain harvest.
“The recent sales already paint this possible path. For example, South Africa’s August 2023 tractor sales were down -12% year on year (y/y), with 694 units sold. This follows the sharpest annual decline for the year in July (-15.4% y/y). At the same time, the combine harvester sales were flat from August 2022, with 24 units sold. This also comes after a notable decline in July 2023 sales (-11% y/y)," Sihlobo said.
The chief economist said that while making a call on a few months’ data was not always advisable, their baseline view was that South African farmers had probably slowed agricultural machinery purchases.
Although South Africa had a large grain and oilseed harvest, with the 2022/23 maize harvest estimated at 16.4 million tons, the second largest on record, and soyabeans at a record 2.8 million tons, the prices of these commodities had declined by roughly 17% y/y, specifically maize.
“Moreover, agricultural machinery sales have been robust in the past few years; therefore, the replacement rate will be reasonably low.”
This as higher interest rates continued to pressure farmers’ finances, thus adding to to Agbiz’s downbeat view of South Africa’s agricultural machinery sales.
“As we stated in recent comments, with the 2023/24 summer crop production season approaching, the farmers’ focus is on input costs.
“Although various input cost prices, such as fertiliser and agrochemicals, have softened in recent months, the current price levels are still well above long-term levels, thus adding pressure on farmers’ finances in an environment where commodity prices have declined somewhat,” Sihlobo said.