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South Africa machinery sales wane - alongside hopes for drought relief

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Combine harvester sales in South Africa tumbled 60% last month, amid mounting concerns over debts at drought-hit farms, where reduced La Nina expectations is cutting hopes for rain relief.

South African farmers bought just six combine harvesters in August, the lowest figure in nearly a year, and down from 15 a year before, according to the South African Agricultural Machinery Association.

Tractor sales dropped 22% year on year to 460 units, representing an acceleration on the average pace of 15.3% seen so far in 2016.

The tumble reflected in part reduced sowings of summer crops, which fell 22% year on year to 3.2m hectares, South African farm industry group Agbiz said.

However, the data come too amid mounting concerns over finances at South African farms, which suffered a 27% drop in corn production after a drought billed as the worst in more than a century, with 2015 rainfall levels the lowest since records began in 1904.

'Escalating farm debt'

"Escalating farm debt", up 8bn rand this year to 125bn rand, "remains a key risk which could potentially reduce farmers' ability to further invest in machinery and equipment," said Wandile Sihlobo, agricultural economist at Agbiz.

Indeed, on Thursday, Des van Rooyen, chairman of an inter-ministerial team task team on drought, warned that "about 370 large commercial farmers around the country… were at risk of going under due to them not being able to service their debts as a result of the drought".

Concerns have been heightened by the reduced expectations of a La Nina weather pattern - which typically, brings rain to South Africa – following hard on the heels of the latest El Nino, blamed for the recent drought.

Mr Sihlobo said that "some have revised down their estimated La Niña occurrence to levels around 50%, from earlier estimates of 75%".

'Little relief anticipated'

In fact, Mr van Rooyen reported that "little [rain] relief is anticipated in the coming months", saying that long-range forecasts showed below-normal precipitation in prospect.

The South African Weather Service last week cautioned over uncertain rain prospects, adding that "the recovery… from drought conditions may take some time".

At the South African Agricultural Machinery Association, Wynn Dedwith, while terming market sentiment "positive", said that "farmers in the summer cropping regions are now cautiously awaiting the onset of the summer rainfall season.

"The legacy of the poor rainfall conditions in recent years will not be quickly resolved and the market is still going to face difficult times in the short term."

Corn price recovery

The rainfall concerns have been reflected in some rebound in corn futures, which for white maize – a food staple - rose 2.4% to 4,224 rand a tonne in Johannesburg on Friday

That represented a recovery of 7.8% from a low set a month ago, although the contract remains nearly 20% below a high set in January.

December futures in yellow maize, used mainly in feed, rose 1.6% to 3,295 rand a tonne, up 8.0% from their early-August low, although again well below highs reached earlier in the year.

Prices also found support in data showing that maize deliveries from South African farmers fell by 78% week on week last week, to 47,777 tonnes.

"It was clear in the information that the deliveries of maize starting to take place at a much slower pace as the bulk of the maize [from the latest harvest] is already delivered," industry group GrainSA said.

By Mike Verdin

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