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South Africa's agricultural machinery sales fell notably in February 2024. The tractor sales were down 34% y/y, with 516 units sold, and the combine harvester sales were down 54%, with 18 units sold. This significant sales decline broadly reflects the normalization of sales after a few years of robust activity.

• South Africa's agricultural machinery sales fell notably in February 2024. The tractor sales were down 34% y/y, with 516 units sold, and the combine harvester sales were down 54%, with 18 units sold. This significant sales decline broadly reflects the normalization of sales after a few years of robust activity.

• For example, South Africa's tractor sales for 2022 amounted to 9,181 units, up 17% y/y and the highest annual sales for the past 40 years. The combine harvesters also had an excellent performance of 373 units in 2022, up 38% y/y and the highest yearly sales figure since 1985. The sales for the year before were also exceptional. These generally strong agricultural machinery sales these past few years were primarily on the back of large grain and oilseed harvests. In 2023, the tractor sales were down marginally from the previous year, while the combine harvester sales held the last year's momentum.

• Thus, we think the agricultural machinery sales will begin a correction period this year. Thus, while in the past, agricultural machinery sales would be read as one of the early indicators of the health of the farming sector, this time around, the sales should be read differently for the reasons we stated above. The farmers planted a decent area of 4,4 million hectares in the 2023/24 summer crop season, up 1% y/y, which means that the lower sales do not necessarily indicate a decline in the area planted.

• Still, the improvement in the area planting does not signal a better outlook in terms of output. South African agricultural sector is not in good shape because of the persistent heatwave and dryness associated with the El Niño cycle. The Crop Estimates Committee at the end of February already showed a double-digit decline in various major grains and oilseed harvests. For example, total maize harvest was estimated at 14,3 million tonnes (down 13% y/y) and soybeans at 2,1 million tonnes, down 23% y/y.

• The more reliable production figures for the 2023/24 summer grain will be released by the Crop Estimates Committee at the end of March, and that will provide us with a better guide into the 2024 outlook for the sector. The crop conditions have deteriorated notably in various regions of the country since the release of the first production estimates at the end of February. The possible poor crop harvest this year and the various factors highlighted above suggest that agricultural machinery sales will likely remain weak in the coming months and 2025.

• Moreover, the relatively higher interest rates have added pressure to farmers' finances. Also worth noting is that while other input cost prices, such as fertilizer and agrochemicals, have softened in 2023, the price levels were still well above long-term levels, thus adding pressure on farmers' finances during the planting period of the 2023/24 summer grain season.