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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Farmers in the eastern parts of the country have already started preparing the soil for the 2017/18 summer grain and oilseed production season. For maize, the planting window in the eastern parts of the country closes around mid-November. Meanwhile, the western areas only begin planting in mid-November, with the optimal planting window closing at the end of December. Apart from machinery sales, the South African Weather service suggests that the upcoming season could bring above normal rainfall between November 2017 and February 2018. This will benefit the crop and possibly lead to higher yields.

The combine harvester sales fell by 67% month-on-month and 71% year-on-year, with only 4 units sold in September 2017 (Chart 1). Although the decline was expected as it is a downtime with farmers preparing for the new summer crop season, the scale of it is surprising. This could be linked to the fact that the winter production areas are still far away from harvesting and the winter crop is not in good shape due to persistent dryness in the Western Cape province.

Looking ahead – We expect the tractor sales to remain soft in the near term as summer grain and oilseed production season progresses. The combine harvesters’ sales could remain weak over the near term and possibly gain slight momentum towards the end of the year when the winter crop harvest period commences.

As we set out in our note on 07 September 2017, 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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UPDATE: SA agricultural machinery sales soften in September – 09 October 2017

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The planting activity for the 2017/18 production season is underway in the summer rainfall areas of the country. South African farmers intend to increase the total area plantings by 1% from the 2016/17 production season to 4.03 million hectares. The optimal planting window for maize in the eastern parts of the country closes in mid-November. The western areas only begin planting maize in mid-November, with the optimal planting window closing at the end of December. For oilseeds, the optimal planting window closes in early January.

As we set out in our previous reports, there is optimism regarding the 2017/18 production season. The South African Weather Service suggests that the summer crop growing areas of the country could receive above normal rainfall between November 2017 and February 2018, which will benefit the crops.

The combine harvester sales were up five folds from the previous month and 11% y/y, with 20 units sold in October 2017 (Chart 1). This is in line with an increase in activity in winter crop growing areas as harvest process commences, particularly wheat growing areas of the Western Cape province.

Looking ahead – We expect the tractor sales to soften in the near term as summer grain and oilseed planting process approaches the completion stages. The combine harvesters’ sales could remain solid over the near term as winter crop harvest process continues. 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.

Note: In 2016, South Africa’s total farm debt was at R144.9 billion, which is a record level in a database starting from 1980.

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UPDATE SA tractor sales at a highest level in 20 months

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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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 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 12% y/y decline in February 2018 tractor sales is unsurprising as it seems that most purchases which typically occurs that month was made in January. Moreover, the 5% y/y decline in the 2017/18 summer grain and oilseed area planted to 3.8 million hectares partially explains the decline in sales last month . Also worth noting is that February 2018 sales were the lowest for the corresponding month in the past four years.

After a disappointing performance in December and January, combine harvester sales recovered last month, with 21 units sold. This was partly supported by both the fairly stronger domestic currency, as well as expectations of a good summer grain and oilseed harvest of 14.6 million tonnes (this is down by 25% from the previous season, but better than market expectations at the start of the year).

Going forward, we maintain that tractor sales could see a slight downward trend over the next few months, as summer crops planting activity has been completed. Meanwhile, the combine harvester sales could increase ahead of the harvest period. 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.

Full report by Wandile Sihlobo available in the link below.

South African tractor sales for February 2018 down by 12% 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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• 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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Sourced: Agbiz, Agribusiness Research 

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