by Wandile Sihlobo | Oct 9, 2023 | Agricultural Machinery
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 and oilseed farmers’ finances.
The delivery delays of the orders raised the sales figures for the first half of the year. Over the medium term, the sales will likely remain subdued despite the current 2022/23 large grain and oilseed harvest, but somewhat above long-term average levels.
The recent months’ sales point to this path. For example, South Africa’s September 2023 tractor sales were down (-8% y/y), with 715 units sold.
Surprisingly, the combine harvester sales remained slightly firm, with 18 units sold, up 6% from September 2022. Still, this comes after a notable decline in the previous months, which again speaks to the moderation in machinery sales.
Although we have a large grain and oilseed harvest, 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, we don’t expect a boost in machinery purchases.
Furthermore, the prices of these commodities have declined by roughly 15% y/y, specifically maize. Also worth highlighting is that the agricultural machinery sales have been robust in the past few years; therefore, the replacement rate will be reasonably low.
With the 2023/24 summer crop production season starting this month, the farmers’ focus is on input costs. Although various 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 in an environment where commodity prices have declined somewhat.
Moreover, the higher interest rates continue to pressure framers’ finances, thus adding to our downbeat view of South Africa’s agricultural machinery sales, although not as low as levels seen in 2017/18.
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by Wandile Sihlobo | Sep 11, 2023 | Agricultural Machinery
We are now convinced that 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.
The delivery delays of the orders raised the sales figures for the first half of the year. Over the medium term, the sales will 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% 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).
While making a call in a few months’ data is not always advisable, our baseline view is that South African farmers have probably slowed agricultural machinery purchases.
Although we have a large grain and oilseed harvest, the prices of these commodities have 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.
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 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 in an environment where commodity prices have declined somewhat.
Moreover, the higher interest rates continue to pressure framers’ finances, thus adding to our downbeat view of South Africa’s agricultural machinery sales.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Aug 11, 2023 | Agricultural Machinery
South Africa’s relatively more robust agricultural machinery sales of the first half of this year are a tail-end benefit of the past season when large harvests and higher commodity prices boosted grain farmers’ finances.
Thus, we suspect that the delivery delays of the orders boosted the sales report for recent months.
July 2023 tractor sales were the sharpest annual decline this year, down 15,4% y/y, with 660 units. The combine harvester sales were down by 11% y/y, with 32 units sold.
Still, one will have to watch the sales of the next few months to understand whether we are now on a downturn in machinery sales or there will still be a continuation of the past few months delayed orders.
Our baseline view is that South African farmers have probably slowed agricultural machinery purchases for several reasons.
First, while 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 13% y/y. This softening of commodity prices has reduced farmers’ profits somewhat.
Second, agricultural machinery sales have been robust in the past few years, so the replacement rate will be reasonably low for the next season.
Third, as we approach the 2023/24 summer crop production season, which starts in October, the farmers’ focus will be the input costs. Although various 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 in an environment where commodity prices have declined slightly.
Lastly, the higher interest rates also continue to pressure farmers’ finances, thus adding to our downbeat view that agricultural machinery sales will likely continue to decline in the coming months.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Jul 11, 2023 | Agricultural Machinery
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.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Jun 19, 2023 | Agricultural Machinery
We continue to see a mixed picture in South Africa’s agricultural machinery sales. For example, tractor sales were down by 13% y/y in May 2023, with 655 units sold . Meanwhile, combine harvester sales were 65 units, up 23% y/y. The robust combine harvester sales reflect the expected large summer crop harvest.
South Africa’s 2022/23 maize harvest is estimated at 16,1 million, 5% higher than the 2021/22 season’s harvest and the third-largest harvest on record. Soybeans harvest could reach a record 2,8 million tonnes.
That said, we still believe South Africa’s agricultural machinery sales will likely cool off this year, following a few years of excellent activity. As we stated a few times, South Africa’s tractor sales for 2022 amounted to 9 184 units, up 17% y/y and the highest annual sales for the past 40 years. The combine harvester sales amounted to 373 in the same period, up 38% y/y and the highest yearly sales figure since 1985.
We think this year will likely be a pause, especially in the second half of the year, 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. The relatively weaker rand exchange rates will also negatively influence the farmers’ machinery buying decisions. Also worth noting is that 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.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Jun 14, 2023 | Agricultural Machinery
We continue to see a mixed picture in South Africa’s agricultural machinery sales. For example, tractor sales were down by 13% y/y in May 2023, with 655 units sold – see the chart. Meanwhile, combine harvester sales were at 65 units, 23% y/y.
The robust combine harvester sales reflect the expected large summer crop harvest. For example, South Africa’s 2022/23 maize harvest is estimated at 16,1 million, 5% higher than the 2021/22 season’s harvest and the third-largest harvest on record. Soybeans harvest could reach a record 2,8 million tonnes.
That said, we still believe South Africa’s agricultural machinery sales will likely cool off this year, following a few years of excellent activity. For example, South Africa’s tractor sales for 2022 amounted to 9 184 units, up 17% y/y and the highest annual sales for the past 40 years. The combine harvester sales amounted to 373 in the same period, up 38% y/y 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.
This will possibly be a reality in the second half of the year. Moreover, the rising interest rates will continue to pressure farmers’ finances. The relatively weaker rand exchange rates will also negatively influence the farmers’ machinery buying decisions.
Also worth noting is that 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.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Mar 21, 2023 | Agricultural Machinery
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.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Nov 8, 2022 | Agricultural Machinery
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.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
