Article
SA agricultural machinery sales down in August 2023
Published: 08/09/2023
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.
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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.
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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).
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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, 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 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.
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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.