Ordinarily, we use agricultural machinery sales to gauge farmers’ intentions for the season ahead.
When the sales are robust, we are typically positive that farmers are eager for the new season.
Equally, we worry about the poor machinery sales.
But we are in no ordinary period. The recent months’ sales cannot be a guide for the season ahead for various reasons.
Firstly, the agricultural sector has had a few seasons of higher machinery sales, supported by improved farmers’ incomes due to ample harvest and higher commodity prices.
For example, SA’s tractor sales for 2022 amounted to 9,181 units, up 17% year-on-year.
This was the highest annual sales figure in the past 40 years.
The combine harvesters also had an excellent performance of 373 units in 2022, up 38% year-on-year.
This was the highest yearly sales figure since 1985.
In 2023, the tractor sales were down marginally from the previous year, while the combine harvester sales held the prior year’s momentum.
Thus, there was bound to be some correction period after these years of robust sales.
This is what explains the moderation in sales we are now witnessing.
Since the start of 2024, we have been in this “market correction” period for both tractor and combine harvester sales.
After a few years of higher sales, the replacement rate of the old machines is justifiably down.
Secondly, struggling with an intense midsummer drought did not help.
Farmers are under financial pressure because of the crop losses.
For example, the 2023-24 midsummer drought has led to a projected 23% decline in SA’s summer grains and oilseed production to 15,45 million tonnes.
Lastly, the higher interest rates for much of 2024 also added to the financial pressures in the sector, where farmer debt is hovering above R200bn.
Thus, the latest SA Agricultural Machinery Association data is not necessarily an ideal guide for the season ahead.
As expected, the data shows that in September 2023, tractors and combine harvester sales were down by 8% year-on-year and 6% year-on-year to 660 units and 17 units, respectively.
This continues the declining trend we have observed since the start of 2024.
We believe the agricultural season ahead may be favourable and offer a recovery path from a devastating 2023-24 El Niño induced midsummer drought.
There are signs that the weather is shifting towards the La Niña weather phenomenon, which typically brings above-normal rainfall in the country.
Moreover, the fact that the input costs for farmers ahead of the 2024-25 season are relatively affordable this time, adds optimism about the season ahead.
For example, in rand terms, most fertiliser product prices were down by roughly 10% year-on-year in September 2024, compared with the previous year.
Since fertiliser accounts for about a third of the grain farmers’ input costs in SA, such a price decline significantly improves their finances.
Also worth noting is that in rand terms, herbicide prices were down by about 20% in August 2024, compared with the same period last year.
The prices of insecticides were down by roughly 15% year-on-year in August 2024.
Since herbicides and insecticides comprise about 10% of grain farmers’ input costs, declining prices help with operational costs.
The stronger domestic currency, combined with the decline of these prices in the international market, is a significant factor behind the decrease in domestic prices.
While we highlight the proportion of these products in the grain farmers’ costs, they also make up a considerable share of the production costs in the horticulture subsector.
The recent easing in fuel prices at a time of high usage during planting is another positive factor regarding the operating conditions in the farming sector.
While the agricultural machinery sales data typically indicates the prospects for the season ahead, and the poor sales would be a concern, this time is different.
There are distinct factors underpinning poor agricultural machinery sales.
However, these are by no means an indication of the season ahead.
We remain optimistic that SA could recover if favourable rains materialise and support production in the 2024-25 summer crop season.
The recovery will likely not be just for SA but the entire Southern Africa region.
- Wandile Sihlobo is the chief economist at the Agricultural Business Chamber of SA and a senior fellow in Stellenbosch University’s department of agricultural economics. His latest book is “A Country of Two Agricultures”.
SA’s weak agricultural machinery sales not best gauge for upcoming season
Columnist
Image: www.pexels.com
Ordinarily, we use agricultural machinery sales to gauge farmers’ intentions for the season ahead.
When the sales are robust, we are typically positive that farmers are eager for the new season.
Equally, we worry about the poor machinery sales.
But we are in no ordinary period. The recent months’ sales cannot be a guide for the season ahead for various reasons.
Firstly, the agricultural sector has had a few seasons of higher machinery sales, supported by improved farmers’ incomes due to ample harvest and higher commodity prices.
For example, SA’s tractor sales for 2022 amounted to 9,181 units, up 17% year-on-year.
This was the highest annual sales figure in the past 40 years.
The combine harvesters also had an excellent performance of 373 units in 2022, up 38% year-on-year.
This was the highest yearly sales figure since 1985.
In 2023, the tractor sales were down marginally from the previous year, while the combine harvester sales held the prior year’s momentum.
Thus, there was bound to be some correction period after these years of robust sales.
This is what explains the moderation in sales we are now witnessing.
Since the start of 2024, we have been in this “market correction” period for both tractor and combine harvester sales.
After a few years of higher sales, the replacement rate of the old machines is justifiably down.
Secondly, struggling with an intense midsummer drought did not help.
Farmers are under financial pressure because of the crop losses.
For example, the 2023-24 midsummer drought has led to a projected 23% decline in SA’s summer grains and oilseed production to 15,45 million tonnes.
Lastly, the higher interest rates for much of 2024 also added to the financial pressures in the sector, where farmer debt is hovering above R200bn.
Thus, the latest SA Agricultural Machinery Association data is not necessarily an ideal guide for the season ahead.
As expected, the data shows that in September 2023, tractors and combine harvester sales were down by 8% year-on-year and 6% year-on-year to 660 units and 17 units, respectively.
This continues the declining trend we have observed since the start of 2024.
We believe the agricultural season ahead may be favourable and offer a recovery path from a devastating 2023-24 El Niño induced midsummer drought.
There are signs that the weather is shifting towards the La Niña weather phenomenon, which typically brings above-normal rainfall in the country.
Moreover, the fact that the input costs for farmers ahead of the 2024-25 season are relatively affordable this time, adds optimism about the season ahead.
For example, in rand terms, most fertiliser product prices were down by roughly 10% year-on-year in September 2024, compared with the previous year.
Since fertiliser accounts for about a third of the grain farmers’ input costs in SA, such a price decline significantly improves their finances.
Also worth noting is that in rand terms, herbicide prices were down by about 20% in August 2024, compared with the same period last year.
The prices of insecticides were down by roughly 15% year-on-year in August 2024.
Since herbicides and insecticides comprise about 10% of grain farmers’ input costs, declining prices help with operational costs.
The stronger domestic currency, combined with the decline of these prices in the international market, is a significant factor behind the decrease in domestic prices.
While we highlight the proportion of these products in the grain farmers’ costs, they also make up a considerable share of the production costs in the horticulture subsector.
The recent easing in fuel prices at a time of high usage during planting is another positive factor regarding the operating conditions in the farming sector.
While the agricultural machinery sales data typically indicates the prospects for the season ahead, and the poor sales would be a concern, this time is different.
There are distinct factors underpinning poor agricultural machinery sales.
However, these are by no means an indication of the season ahead.
We remain optimistic that SA could recover if favourable rains materialise and support production in the 2024-25 summer crop season.
The recovery will likely not be just for SA but the entire Southern Africa region.
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