El Niño is expected to cause a loss of rainfall
I use this column to cover critical events and data releases of the past week that are meaningful for the agricultural sector and related industries. But such valuable data releases are not always available and these relatively quiet weeks offer an opportunity for reflection on the prevailing conditions in the sector.
While it is tempting to debunk the news in some papers over the weekend which was economical with the truth about South Africa’s export legislation regarding the EU and UK market, I will leave that for another time. This is because the minister of agriculture, land reform and rural development Thoko Didiza clarified the issue — but not before it caused panic in the sector. According to the minister, the status quo remains regarding agricultural exports to the EU.
Looking at other topical issues, one aspect that is top of mind is the planting progress across South Africa as we are in the summer season and farmers are tilling the land for maize, soybeans, sunflowers, sorghum and dry beans, among other crops.
To this end, the conditions are favourable, with good rains thus far across most regions of the country, and planting progress is encouraging.
There is also much optimism about the 2023/24 summer crop season, supported by indications that South African farmers intend to increase the crop area by 2% year on year. These intentions to plant more summer grains and oilseeds could lead one to think that tractor sales and the broader agricultural machinery industry could see another year of robust performance.
However, I am sticking to my guns on the view I communicated recently that South Africa’s tractor sales could moderate going forward. In fact, despite the expected robust area planted, tractor sales in October 2023 were down by 19% year on year with 1 031 units sold.
I should emphasise that the decline in sales is not due to farmers’ pessimism about the 2023/24 summer crop season, or fears of the looming El Niño, but a normalisation in the tractor market after a couple of years of high sales.
This moderation would probably have been reflected earlier in the year in the sales data but this year’s data was skewed by delays in the delivery of tractors bought last year, which were only delivered and reported in the first half of the year.
In essence, the solid sales of the first half of 2023 were primarily a tail-end benefit of the past season, when large harvests and higher commodity prices boosted grain and oilseed farmers’ finances, and the deliveries occurred later in that order period.
Over the medium term, sales will probably remain subdued, despite the 2022/23 production season’s large grain and oilseed harvest, but somewhat above long-term average levels.
For example, the 2022/23 maize harvest was estimated at 16,4 million tonnes, the second largest on record, and soybeans at 2,8 million tonnes.
Furthermore, the prices of these commodities have declined notably in recent months. Also worth highlighting is that agricultural machinery sales have been robust in the past few years, therefore, the replacement rate will be relatively low.
Overall, conditions in the sector are favourable for summer crops and the entire agricultural sector. El Niño remains a risk worth monitoring, although its effects will probably be mild, as I recently stated on these pages.
Wandile Sihlobo is chief economist at the Agricultural Business Chamber of SA and author of A Country of Two Agricultures.