SA agricultural machinery sales

SA agricultural machinery sales

We are emerging from years of exceptionally higher agricultural machinery sales in South Africa. For example, South Africa’s tractor sales for 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 in the same period, up 38% from 2021 and the highest yearly sales figure since 1985.

This year will likely be a pause from this robust sales period for several reasons. Chief amongst them is that the possible replacement rate of older machinery will likely be lower this year as the past three years saw increased new machinery sales.

Moreover, the rising interest rates will continue to pressure farmers’ finances. While other input cost prices, such as fertilizer and agrochemicals, have softened in recent months, the current price levels are still well above long-term levels, thus adding pressure on farmers’ finances.

The data for the first two months of 2023 already signal this moderation, with January tractor sales down by 16% y/y and February sales down by 2% y/y, with 781 units sold.

That said,  the combine harvester sales have remained positive for this year’s first two months. There were 16 units sold in January 2023, from four in the same month a year ago. In February, there were 39 units sold, from 19 units in the same period in 2022.

This could partly be explained by the fact that there are expectations of large summer grains and oilseeds in the 2022/23 season, which farmers are likely preparing for. The Crop Estimates Committee forecasts South Africa’s 2022/23 summer crop production at 19,3 million tonnes, up 3% from the previous season.

Still, the factors I highlighted as risks to tractor sales apply in the combine harvester market and could weigh on sales in the coming months.

Admittedly, one shouldn’t conclude on two months’ data points. Still, given the broad factors we note above, which will underpin the market conditions this year, we continue to see softening in the momentum of tractor sales in 2023. With time, the combine harvester sales will likely follow the same path.

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Very encouraging tractor sales in South Africa

Very encouraging tractor sales in South Africa

I have been closely following South Africa’s monthly tractors sales data, and the results continue to surprise me. Since April 2020, the monthly sales have remained positive, registering an average of 26% y/y growth over the past 31 months.

When this year started, I thought the farmers would reduce spending as fertilizer, agrochemicals, and fuel prices increased aggressively along with a rise in the interest rates, all of which added financial pressure on farmers.

I also assumed that the two years of solid sales – 2020 and 2021 – would mean farmers would see a limited need to replace the tractors. But the data has proven me wrong, with tractor sales seeing an average of 20% y/y growth over the past ten months of this year.

The major surprise came with October 2022 tractor sales data released this week. The sales were up 48% y/y from October 2021, amounting to 1 268 units, the highest in 40 years.

Several factors explain this solid activity. But at the core, it’s the reasonably healthy financial condition of some farmers, specifically the grains and oilseeds. This is the main subsector of agriculture that has experienced better conditions over the past three years.

Grain prices were higher even before the Russia-Ukraine war. The drought in South America and rising demand for grains and oilseeds in China were the key factors underpinning the surge in grains and oilseeds prices pre-war.

Had it not been for higher global agricultural prices, the local grain and oilseed prices would have softened due to large harvests. Consequently, we had a couple of seasons of large grains and oilseeds, coinciding with higher prices, which boosted the farmers’ incomes.

However, the folks in horticulture have experienced various challenges ranging from trade restrictions in critical markets (think, the EU and its protectionist tendencies on citrus) to logistical challenges and supply chain disruptions, all of which have negatively impacted their profitability.

The livestock industry has also had its fair share of challenges, including temporary blockage in essential markets such as China (in the case of wool), widespread animal disease (foot-and-mouth), and generally higher feed costs (maize and soybeans).

Importantly, these robust tractor sales also signal an environment where farmers are optimistic about the future and investing in movable assets.

Even indicators such as the Crop Estimates Committee’s farmer intentions-to-plant data show that South African farmers plan to increase the area plantings for summer grains and oilseeds by 0,2% y/y to 4,35 million hectares in the 2022/23 season. With favorable rains across the country, this area will likely materialize.

So, we face many challenges in South Africa’s agriculture. But positive indicators like this give one hope for farmers’ confidence in the sector.

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SA agriculture equipment sales likely to moderate in 2022

SA agriculture equipment sales likely to moderate in 2022

Written for and first appeared on The Herald

When farmers have a good year, allied industries benefit by spending the financial gains or from the produce of the farming businesses. Agricultural machinery is one such industry that benefited from farmers’ spending in 2020 and 2021. The farmers, specifically grain and oilseed producers, expanded their area planted in these past two years.

Weather conditions were favourable, resulting in a large harvest for two consecutive seasons. This was also when commodity prices remained elevated, supported by global events such as dryness in South America, and rising demand for grains and oilseeds in China.

Had it not been for higher global agricultural prices, the local grain and oilseed prices would have softened due to large harvests. The financial gains of these years went to improvement in agricultural equipment, among other activities in the farms.

For example, SA’s tractor sales for 2021 amounted to 7,680 units, up by 26% from the previous year. Combine harvester sales amounted to 268 units in the same period, up by 46% from 2020.

Notably, 2020 was also an excellent year in SA’s agricultural machinery sales, so surpassing it means 2021 was indeed an exceptional year. In 2020, tractor sales were up by 9% from 2019. Combine harvester sales increased by 29% from 2019.

In some people’s minds, the question is whether this “party” could go on in 2022? The data recently released by the SA Agricultural Machinery Association presents a promise. It showed that, in January 2022, tractors sales were up by 20% year-on-year, with 559 units sold.

But I think this is likely the tail end of the robust sales period and the coming months could show moderation. Combine harvester sales have already moderated, having declined by 20% year-on-year, with four units sold in January 2022. I know one should always avoid reading too much into one month’s data point, but the 2021/2022 production season for agriculture did not start as positively as other seasons.

Excessive rains in much of the country have compromised yields in some areas to an extent. Farmers planted 4,21-million hectares of summer grains and oilseeds, which is up by 0,4% from the 2020/2021 season; however, production could be somewhat lower. This summer crop production comprises maize, sunflower seed, soybeans, sorghum, groundnuts and dry beans.

If it materialises, a decline in volumes, even if agricultural commodity prices remain at these currently elevated levels, means farmers’ profitability will be under pressure.

Notably, this is also a season where the input costs surged at the start of the season and have remained elevated for even the areas that required replanting following flood damage. For example, KAN/LAN (28), urea (46), and potassium chloride prices were up by 127% year-on-year (y/y), 182% y/y, and 114% y/y in January 2022, selling at about R13,933, R19,876 and R13,816 a tonne respectively.

Herbicides, which are also critical in an environment with spreading locusts in parts of the Eastern and Northern Cape, show a similar price trend. For example, glyphosate, acetochlor and atrazine prices were up by 211% y/y, 139% y/y and 143% y/y in December 2021 respectively.

Regarding insecticides, imidacloprid, lambda-cyhalothrin and acetamiprid prices were, respectively, up by 124% y/y, 45% y/y and 121% y/y in December 2021.

There are many factors behind these sharp input cost increases, such as the supply constraints in critical fertiliser-producing countries, mainly China, India, the US, Russia and Canada. Rising shipping costs, and oil and gas prices, are also contributing factors to the price increases, along with firmer global demand from the growing global agriculture.

All these factors mean farmers will likely not have as much financial muscle as in 2020 and 2021 to boost their equipment sales.

We don’t yet know what the actual 2021/2022 summer grain and oilseed harvests will be, and we look to the first production estimate due at the end of February by the Crop Estimates Committee for guidance.

Still, the consensus from various farmer surveys is that it will be less than the previous season where the maize harvest was the second-largest on record, at 16,3 million tonnes, and the soybean harvest was at a record 1,9 million tonnes.

When thinking about agricultural machinery sales, we also have to consider that the replacement rate of old equipment would ordinarily be lower after two years of solid sales.

These are dynamics that stakeholders in the agricultural machinery industry need to face this year, as their clients, farmers, face a myriad of rising costs, specifically inputs and potentially lower harvests.

Hence, I believe the strong tractors sales performance in January 2022 is primarily the tail end of the 2020 and 2021 “party” phase, and could soon moderate as the year progresses.

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SA agricultural machinery sales

Thinking about SA agriculture equipment industry

I have written a bit about how excellent the year 2021 was for South Africa’s agriculture, especially the grains and oilseeds industry. Notably, the large grains and oilseeds harvest coincided with generally higher commodity prices, which improved farmers’ finances.

Perhaps not emphasized enough in this blog is how the improved farmers’ finances in 2021 due to the ample crop harvest also benefited the interlinked industries. Think of the agricultural equipment industry, where farmers bought new tractors and combine harvesters. This industry benefited. Last week, the South African Agricultural Machinery Association, an association of agricultural machinery manufacturers and traders, released December sales data, which enabled us to have a full-year view of the sales.

South Africa’s tractor sales for 2021 amounted to 7 680 units, up by 26% from the previous year. The combine harvester sales amounted to 268 units in the same period, up by 46% from 2020. Notably, 2020 was also an excellent year in South Africa’s agricultural machinery sales, so surpassing it means 2021 was indeed an exceptional year. In 2020, the tractor sales amounted to 5 738 units, up by 9% from 2019. The combine harvester sales increased 29% from 2019, with 184 units sold in 2020.

The ample crop harvest of the 2020/21 production season (and the 2019/20 season), combined with generally higher commodity prices, specifically grains and oilseeds, helped boost farmers’ incomes and, after that, their ability to procure the new and much needed agricultural machinery. But the story didn’t end there; the optimism at the start of the 2021/22 production season, supported by favourable weather conditions, also encouraged farmers to buy new agricultural machinery. Farmers planned to increase the area plantings at the start of the 2021/22 production season by 3% from the 2020/21 production season to 4,3 million tonnes.

However, as I noted in the previous blog post, the excessive rains across the country since October 2021 have delayed plantings in some regions. Some areas that planted on time have experienced crop losses because of the flooding. The true impact of the rain on planting and yields will be clear on 27 January 2022 in terms of plantings data and at the end of February in the case of production estimates. Still, all available indications point to a possibly poorer season than 2020/21, which was the backbone of the robust tractor and combine harvester sales.

So, looking ahead, the good period of higher agricultural equipment sales is most likely over, at least for the near term. In addition to the possible lower harvest, one should also appreciate that the possible machinery replacement rate was, in any case, likely to be lower in 2022 as the past two years saw increased sales of the new machinery.

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Very encouraging tractor sales in South Africa

Will the positive trend of South Africa’s agricultural machinery sales persist?

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.

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Very encouraging tractor sales in South Africa

A potential turning point for SA poor tractor sales might be close

This has not been a good year for South Africa’s farming sector and related industries. The effects of poor summer crop harvest which in turn influence farmers’ financial position have spilt over to the agricultural machinery market which has been subdued all year.

The figures for August 2019 presents no joy, although having increased from the previous month. Tractors’ sales were down by 10% compared to August 2018, with about 437 units sold, as shown in Figure 1 below.

Figure 1: South Africa’s tractor sales
Source: SAAMA, Agbiz Research


Of course, we can’t blame the poor tractors’ sales performance solely on the bad weather. This is a year that follows 2018 where sales were relatively robust, which implies that the rate of replacement will likely be down in 2019. To illustrate this point; South Africa’s total tractor sales for 2018 amounted to 6 680 units, up by 4% from the previous year.

Being in South Africa where agricultural policy has dominated the headlines in the past few months, questions have rightly been asked by some people about farmers’ attitudes on investments. To this end, I continue to monitor, through the Agbiz/IDC Agribusiness Confidence Index, the influence of policy discussions on agricultural investment. Admittedly, sentiment in the farming sector has generally been subdued since the second quarter of 2018. But what I found rather comforting is that fixed investments in the sector did not decline notably in 2018.

However, the subdued confidence levels in the second quarter of 2019 suggest some urgency in moving the policy levers to ensure that, at least matters that are in the South African policymakers’ reach are well addressed for the interest of sustainable growth of the agricultural and agribusiness sector.

Overall, while South Africa’s tractors’ sales have been generally subdued throughout the year – see Figure 1 – there could potentially be a turning point around October 2019 when the 2019/20 summer grains and oilseed production season starts. The weather outlook is generally positive which signals a potential recovery in production and activity on the fields. I’ve expanded on this point in my Business Day column on 04 September 2019 (you can read it here).

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