South African tractor sales expanded by 19% y/y in December 2017, with 417 units sold. However, this was down by 26% when compared to the previous month, which mirrors a slowdown in field activity as summer crop planting was almost complete in most areas.

Disappointingly, the combine harvester sales fell by 43% y/y and 64% m/m with only 4 units sold. This is somewhat unsurprising following poor yields in the winter crop producing areas of the country, particularly the Western Cape province. The overall agricultural machinery sales are likely to soften in the near term due to reduced activity in the fields.

While there are planting delays in the western parts of the country due to the lack of rain in the past few weeks, South African farmers had planned to increase the total area plantings for summer crops by 1% from the 2016/17 production season to 4.03 million hectares. Therefore, the increase in tractor sales is somewhat reflective of farmers’ intentions at the time.

This uptick also suggests that some farmers were in a relatively better financial position after the 2016/17 large grain and oilseed harvest. Admittedly, agricultural commodity prices remain depressed, but the higher yields per hectare have, to some extent, compensated for the losses.

The decline in combine harvester sales can be explained by both lower winter crop output in the Western Cape and Free State provinces, as well as the fact that a large share of the crop was harvested in November 2017. To demonstrate, South Africa’s winter wheat production is estimated at 1.48 million tonnes, down by 23% from the previous season owing to disappointing yields in the aforementioned provinces.

Looking ahead – We expect tractor and combine harvester sales to soften in the near term due to reduced activity in both summer and winter crop producing areas. An important factor to monitor in the long term is the cost of servicing the farm debt as that would have direct implications on the agricultural machinery sales.

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South African tractor sales grew by 19% year on year in December 2017

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• The uptick in last month’s tractor sales can partially be attributed to competitive pricing as new players continue to enter the South African agricultural machinery market. Drawing from the historical data, July 2018 tractor sales are likely to remain solid and could potentially reach 578 units.
• The combine harvester sales also increased, coinciding with the summer grain and oilseed harvest period. July 2018 sales are likely to remain strong given the expected large summer crop production. Last month, most summer crop production forecasts were revised up from May 2018 levels, with the exception of sunflower seed, sorghum and dry beans which were left unchanged. Most notable, maize production estimate was lifted by 2% from May 2018 to 13.2 million tonnes, with soybean production estimated at an all-time high of 1.6 million tonnes. Maize harvest process has recently started, while soybean is towards completion. This means that there is still room for a potential uptick in harvester sales for this month.
• Overall, we are fairly optimistic about tractor sales in the near term, but the exchange rate and agricultural commodity prices are important factors to monitor which could potentially influence farmer’s purchasing decisions. The harvester sales will likely remain solid due to expected large summer grain and oilseed harvest.

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At this time of the year, the tractor sales are typically supported by large purchases by grain farmers, but this time around there were also buyers from the horticulture industry, as well as a couple of government tenders. Moreover, the current competitive pricing in the market, as new players continue to enter the South African agricultural machinery industry, also boosted the tractor sales. Drawing from the historical data, August 2018 tractor sales could potentially increase to roughly 560 units as the new summer crop season approaches.

The combine harvester sales slowed, as the majority of grains such as soybeans and sunflower seed have already been harvested, with only maize crop still being harvested in a number of provinces. Furthermore, this season’s commercial maize crop of 13.2 million tonnes is well below the 2016/17 season harvest of 16.8 million tonnes, which partially explains the annual decline in harvester sales in July 2018.

Looking ahead, we are fairly optimistic about tractor sales in the near term, but the exchange rate and agricultural commodity prices are important factors to monitor which could potentially influence farmers’ purchasing decisions. The harvester sales will most likely remain at lower levels in the near term but potentially recover towards the end of the year when the winter crop harvest process begins.

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• While last month’s decline in tractor sales exceeded our expectations, it is worth noting that this was not out of the ordinary. In August 2016, the tractor sales dropped to 460 units and peaked in the month thereafter when the planting process started to gain momentum. Given that the 2017/18 summer grain harvest was partially delayed, a scenario similar to 2016 remains plausible. The soil preparation processes for the 2018/19 summer grain and oilseed production season, which could stimulate tractor sales, are set to commence around mid-October in most parts of the country.

• The combine harvester sales slowed, as the majority of grains such as soybeans and sunflower seed have already been harvested in August, with only the maize crop still being harvested in a number of provinces.  Furthermore, this season’s commercial maize crop of 13.2 million tonnes is well below the 2016/17 season harvest of 16.8 million tonnes, which partially explains the annual decline in harvester sales in July 2018.

• Overall, while we remain fairly optimistic about tractor sales in the near term, the key factors to monitor that could potentially change the optimistic path is the weather conditions given the talks of a possible El Niño and farmers’ intentions to plant, which will be released on 25 October 2018

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• October 2018 tractor sales of 817 units (+16% y/y) far exceeded our expectations of 721 units, which would have been a 2% y/y increase (figure 1). Aside from the fact that October is at the start of the summer crop planting period with generally higher demand from farmers as they prepare for the new season, the fairly large machinery stock in the market might have also contributed to the increase in sales. Moreover, the tractor sales data support the recent farmer’s planting intentions’ figures, which showed that South African farmers intend to increase the area planting for summer grain and oilseed by 5% from 2017/18 season to 4.03 million hectares.
• The combine harvester sales more than doubled the previous month’s volume and 45% higher than October 2017, with about 29 units sold. This was driven by the winter crop harvest process which is currently underway in barley, wheat and canola producing regions of the Western Cape. The combine harvester sales will most likely remain solid in the coming month as the winter crop harvest process is yet to start in other provinces.
• Overall, we are generally optimistic about the South African agricultural machinery sales performance in the near-to-medium term. But tractor sales could slow in the coming months as a large share of the purchases have already been made and planting activity will be completed by end of the year in most regions.

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Sourced: Agbiz, Agribusiness Research

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Sourced: Agbiz, Agribusiness Research 

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