In a typical summer season, where there are favourable weather conditions, South African farmers plough roughly four million hectares for summer grains and oilseeds. This comprises maize, sunflower seed, soybeans, groundnuts, sorghum and dry beans. While there remains some uncertainty about the weather conditions for the upcoming summer crop production season, which begins in October, it is fair to say farmers are optimistic and are gearing up for it. The early indicator we have thus far is tractors sales which have remained robust since mid-2020.

Just last week, the data from the South African Agricultural Machinery Association showed that the tractors sales were up by 43% y/y in June, with 633 units sold. If we consider the total tractors sales for the first half of this year, we are already 27% ahead of the corresponding period in 2020, with 3 385 units. However, it is worth noting that sales in the first half of last year were negatively affected by lockdown restrictions, so the base is slightly distorted. Still, 2020 was also a good year in South Africa’s tractors sales, and so surpassing it means that we are witnessing some good momentum this year. In 2020, the tractor sales amounted to 5 738 units, up by 9% from 2019.

The large summer grains and oilseeds harvest in 2019/20, and yet another good agricultural season in 2020/21, both of which coincided with higher commodities prices boosted farmers finances, and subsequently, the tractors sales. The relatively stronger exchange rate has also been a positive buffer for the imported agricultural machinery, particularly this year.

Earlier in the year, I was somewhat pessimistic that the 2020 tractors sales’ momentum would extend into 2021. I viewed the large grains and oilseeds harvest of the 2020/21 season as insufficient to support the sales. The train of thought was that, typically, a relatively good sales year, such as 2020, would likely be followed by a somewhat lower sales period. This was in anticipation that the replacement rate of machinery with new ones would usually be down from the previous years.

Another factor to keep a close eye on was the exchange rate. Although the current firmer levels supported the sales, I felt that any changes into a weaker domestic currency would likely lead to higher prices for imported agricultural machinery and discourage sales. Still, while there is always uncertainty about the exchange rate due to numerous domestic and global factors influencing it, farmers improved finance seem to be continuously supporting the exuberance in tractors sales. I am now inclined to revise my view and take a more optimistic one that the tractors sales could maintain a generally positive path this year compared to last year’s levels.

You can read the full article by clicking here (paywall). The article was written for and first published on News24/Fin24.

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