Surprisingly, South Africa’s agricultural machinery industry reported solid sales in June 2023. For example, tractor sales were up by 13% year-on-year, with 930 units sold, and combine harvester sales were at 64 units, up 28% year-on-year.
One has to ask what underpins these sales in a year when agriculturalists, myself included, have been vocal about the pressures of rising input costs and interest rates on farmers.
What I think we are seeing here are the deliveries of the machinery orders that were made in the past few months when farmers were still enjoying the gains of the past few seasons’ ample harvests combined with higher prices, thus improving farm profitability. South Africa is an importer of some of the major tractors and combine harvesters, and these deliveries could take time, especially with frequent problems at the ports. Hence, I suspect we are seeing orders for the past months, reported in June.
If we accept this logic, we should not necessarily view these robust sales as an indicator of farmers’ improved financial conditions. Importantly, even the better financial position in the past few seasons were specific to grains and oilseeds farmers, not across the sector.
For example, farmers in livestock and poultry have been under financial strain for some time. The rising input costs — yellow maize and soybeans have been one of their major problems.
One may ask why we discuss high feed costs when South Africa had ample grains and oilseed harvests in the past three seasons.
The major reasons for this were higher global maize and soybean prices caused by drought in South America, rising demand in China, Covid-19 related supply chain disruptions and Russia’s war in Ukraine.
South Africa is interlinked with the global grains and oilseeds market, and domestic prices tend to follow the global price movements, and this is what we observed. For this reason, the local livestock and poultry sector couldn’t benefit fully from the large domestic grains and oilseed supplies.
The farmers who enjoyed some benefits of higher prices and ample harvest were grains and oilseed farmers, and they spent some of their financial gains on improving farm equipment in the past few years.
But the environment has changed. Although we have a large grain harvest on the horizon, with the 2022-23 maize harvest estimated at 16.4 million tonnes, the second largest on record, and soybeans at a record 2.8 million tonnes, the prices of these commodities have declined by roughly 15% year-on-year.
Moreover, agricultural machinery sales have been robust in the past few years. For example, South Africa’s tractor sales in 2022 amounted to 9 184 units, up 17% from the previous year and the highest annual sales for the past 40 years. The combine harvester sales amounted to 373 units in the same period, up 38% from 2021 and the highest yearly sales figure since 1985. The ample crop harvest of the 2021-22 production season (and the 2020-21 and 2019-20 seasons), combined with generally higher commodity prices, specifically grains and oilseeds, helped boost farmers’ incomes and their ability to procure new machinery.
Farmers will probably slow the purchases because the need for replacements of older machinery may not be as high as in previous years. Moreover, unlike the past few years, when interest rates were more accommodative, the rising interest rates will continue to put pressure on farmers’ finances. Also worth noting is that the relatively weaker rand/dollar exchange rates will negatively influence the farmers’ machinery buying decisions.
Notably, as we approach the 2023-24 summer crop production season, farmers’ focus will be the input costs. Although other input costs prices, such as fertiliser and agrochemicals, have softened in recent months, the current price levels are still well above long-term levels. These are all the factors I believe will slow agricultural machinery sales in the coming months.
Written for and first appeared in the Mail and Guardian.
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