The good performance in the domestic currency in June and early part of July, coupled with expected large domestic grain and oilseed harvest boosted the tractor sales in July 2017. The sales were recorded at 502 units – up by 5% from June 2017 and 11% higher than the corresponding period last year. Although grain prices are under pressure, the higher yields per hectare have, to some extent, boosted farmers’ incomes.

 As noted in our previous reports, South Africa has had a good run this year in terms of production. The 2017 summer grain and oilseed harvest is estimated at 18.44 million tonnes, which is a 96% annual increase. The favourable summer rainfall, higher yields and an increase in area plantings are the key drivers of this rebound.

Contrary to tractors, the combine harvester sales declined by 7% m/m and 35% y/y, with only 13 units sold in July 2017. This is the lowest sales figure since December 2016. Furthermore, this decline came after five consecutive months of solid performance in harvester sales, owing to a good harvest.  With that said, the decline in July 2017 figures is not surprising as the summer harvest process is virtually over across the country.

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Looking ahead – We expect the tractor sales to remain stable in the near term, ahead of the new planting season which starts in October 2017.  The combine harvesters’ sales could remain weak in the near term and possibly gain momentum towards the end of the year when the winter crop harvest period commences. In the short-to-medium term, the key risk to the aforementioned is the weaker exchange rate. An important factor to monitor in the long term is the cost of servicing the farm debt, as it would have implications on the agricultural machinery sales performance.

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The sustained good performance in the domestic currency over the past few months, coupled with a large domestic grain and oilseed harvest boosted tractor sales in August 2017.

Although grain and oilseed prices remain depressed, the higher yields per hectare have, to some extent, improved farmers’ incomes. The tractor sales were recorded at 583 units – up by 16% from July 2017 and 27% higher than the corresponding period last year. More importantly, this ahead of the new production season which commences next month, thus signalling farmers’ readiness for the upcoming season.   

Soil preparations for the 2017/18 summer grain and oilseed production season typically starts in October in the eastern parts of the country. Meanwhile, the western areas only begin in November. Apart from the sales, the upcoming season could be normal with average rainfall, which bodes well for summer crops.

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Contrary to tractor sales, the combine harvester sales fell by 8% m/m, with only 12 units sold in July 2017. This is a lowest sales figure in eight months, not surprising as it a downtime with the farmers preparing for the new summer crop season. The winter production areas are still far away from harvesting.

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 As expected, the combine harvester sales fell by 50% y/y with only 8 units sold, due to reduced activity and poor yields in the winter crop growing areas. Overall, the agricultural machinery sales are likely to soften in the near term due to reduced activity in both the summer and winter fields.

The uptick in January 2018 tractor sales came as a surprise because, given that the National Crop Estimates Committee placed its preliminary area planting estimates for South Africa’s 2017/18 summer crops at 3.70 million hectares, down by 7% y/y. White maize, sunflower seed, groundnuts and sorghum plantings are the key reason for this overall downswing owing to dry and warm weather conditions experienced in the western parts of South Africa in the end of 2017 and the start of 2018.

However, the recent rainfall in the western parts of the country has changed the sentiment to a slightly more positive one, which is supportive of tractor sales. Evidently, some farmers in the western parts of the Free State and North West provinces went back to the fields for additional sunflower seed planting after recent showers improved soil moisture.

The decline in combine harvester sales can be explained by both lower winter crop output, particularly in the Western Cape and Free State provinces, as well as the fact that harvesting is totally over across South Africa.

Above all, 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 for January 2018 up 10% year on year

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• The 25% y/y increase in March 2018 tractor sales came as a surprise as this is a fairly quiet period in the fields across the country. According to the South African Agricultural Machinery Association, the uptick in sales was boosted by government tenders. Therefore, we believe there will be some correction in April and sales will probably decline to levels around 441 units. Also worth noting is that March 2018 sales were the record highest for the corresponding month, in a dataset starting from 2014.
• The combine harvester sales continued on a positive footing, with 25 units sold in March 2018, which is the highest figure in 15-months. This was partly supported by both the fairly stronger domestic currency, as well as expectations of a good summer grain and oilseed harvest of 14.8 million tonnes  (this is down by 23% from the previous season, but better than market expectations at the start of the year).
• Looking ahead, we maintain that tractor sales could see a slight downward trend over the next few months due to limited activity in the fields, as well as a bit of a correction after the government tenders. Meanwhile, the combine harvester sales could increase ahead of the summer grain harvest period.

Full report by Wandile Sihlobo available in the attachment below:

South African tractor sales for March 2018 up by 41% year on year

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