The “fruits” of South Africa’s good harvest in 2020 and the prospects of another good season in 2021 continue to benefit the allied industries. One such industry which has continued to record good sales as farmer finances improved is the agricultural machinery industry – tractors and harvesters. The figures released by the South African Agricultural Machinery Association last week show that tractor and harvester sales were up by 30% y/y and 4% y/y in March 2021, with 601 and 27 units sold, respectively.

I’ve previously written in this blog about the gains in 2020 for all agricultural subsectors – field crops, livestock, and horticulture. In 2021, the preliminary data suggests that this will be yet another year of sizeable farm output, which should boost farm incomes.

To recap on the year’s agricultural prospects, the South African Crop Estimates Committee forecasts 2020/21 summer grain and oilseeds production at 18,7 million tonnes, up 6% y/y. The upward adjustments were on maize, soybeans, sorghum and groundnuts, whereas sunflower seed and dry bean production are forecast lower than in the 2019/20 campaign. Viewed from these data, South Africa is looking at its second-largest harvest on record. If weather conditions remain reasonably dry in the summer crop production areas over the next few months, the crop quality could also be good, which bodes well for farm incomes.

Aside from grains, South African wine grape production is also expected to be larger than in 2020. There is also general optimism about the 2021 harvests in the horticulture subsector and other field crops like sugarcane, which supports our view of a possible slight improvement in farmer finances.

Nevertheless, I worry that the purple patch might slow down for the agricultural machinery sales, not because of a drastic change in farmer finances (we expect a good crop, as I just noted). But the source of my pessimism is the cyclical nature of machinery sales. Typically, a relatively good agricultural machinery sales year, such as 2020, is followed by a somewhat lower sales period, with commodity price trends being one of the influencing factors. In addition, the replacement rate of machinery usually slows down following years of brisk sales. In 2020, South Africa’s tractors sales accumulated to 5 738 units, up by 9% from 2019, with harvester sales up by 23% from the same year, amounting to 184 units.

Moreover, there will likely be pressure from weak exogenous macroeconomic fundamentals, should they change in a negative direction, such as a potential weakening of the domestic currency, which will likely lead to higher prices for imported agricultural machinery, and discourage sales.  These factors could see the agricultural machinery sales enter a low ebb following the flurry we have seen since last year. I will keep a close eye on developments and possibly post a follow-up blog as more data becomes available.


Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za

 

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