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Trac­tor and Ma­chin­ery As­so­ci­a­tion supremo Richard Lewis writes Aus­tralia’s plung­ing dol­lar may be bril­liant news for ex­porters and not so bad for any­one im­port­ing and/or buy­ing farm ma­chin­ery in the next 12 months

Australian Farmers & Dealers Journal - - News -

WHAT does a fall­ing cur­rency do to ma­chin­ery pric­ing? It is the big ques­tion on the lips of ev­ery ma­chin­ery im­porter and ev­ery farmer any­where in Aus­tralian think­ing about up­grad­ing their plant. Af­ter the Re­serve Bank’s Fe­bru­ary de­ci­sion to lower rates, some pun­dits are tip­ping an Aussie dol­lar in the vicin­ity of 72 US cents in the near fu­ture. As it stands, our cur­rency has de­val­ued 20 per cent against the US dol­lar dur­ing the past few months, and against most other ma­jor cur­ren­cies by 10 per cent or more. With more than 90 per cent of Aus­tralian farm ma­chin­ery im­ported from coun­tries around the world, the ob­vi­ous ques­tion is not whether prices for ma­chin­ery will rise, but by how much. The im­pact of a fall­ing cur­rency also im­pacts the price of parts for this im­ported equip­ment, and many im­porters and OEMs have al­ready in­creased parts pric­ing by 5 per cent – or more. How­ever, to keep some per­spec­tive, parts pric­ing for most com­pa­nies has not moved for four years or more and one large US man­u­fac­turer is claim­ing parts pric­ing today in real dol­lar terms is sim­i­lar to that of 2001. So what about ma­chin­ery prices? There is a bit of a back story to pric­ing in Aus­tralia at the mo­ment, with the US and some parts of Europe ex­pe­ri­enc­ing dra­matic slumps in farm ma­chin­ery sales, with fac­to­ries lay­ing off staff and de­creas­ing pro­duc­tion lev­els due to lower de­mand lev­els. This has meant there is sur­plus in­ven­tory around the world at the mo­ment and com­pa­nies will be look­ing for mar­kets where there is some de­mand for the gear. As you will read in Agriv­iew’s col­umn, Aus­tralian trac­tor sales held up well last cal­en­dar year and all re­ports are that there has been a bright start to this year’s sales. So Aus­tralia would have to be con­sid­ered one of those mar­kets where the fac­to­ries may look to place some of this sur­plus pro­duc­tion – in short there is still a healthy de­mand for ma­chin­ery in Aus­tralia, but a sharp rise in pric­ing will quickly kill off this de­mand. Pric­ing will have to in­crease but with fac­to­ries ea­ger to move in­ven­tory, I sus­pect that when it gets to the pointy end of the deal, buy­ers will not see much change in the price. In other words, the sticker price will go up, but the mar­ket price will re­main rel­a­tively con­stant as buy­ers look to do a deal with their deal­ers. A sus­tained de­val­ued cur­rency will even­tu­ally have an ef­fect on longer-term pric­ing of ma­chin­ery, but thank­fully those Aus­tralian man­u­fac­tur­ers will be cheer­ing from the rooftops as their prod­ucts be­come more com­pet­i­tive against their im­ported com­pe­ti­tion. A re­duced in­ter­est rate will also re­duce the cost of the debt against the farm ma­chin­ery, which will help to off­set any in­creases in price. The up­side hope­fully will be the in­creased farm gate in­come re­ceived from a fall­ing dol­lar – so all in all noth­ing to panic about as the up­side far out­weighs the down­side of a fall­ing Aussie dol­lar. My ad­vice would be to get in early to grab the best pric­ing avail­able be­fore any longer term ef­fects of a de­val­ued cur­rency sets into ma­chin­ery pric­ing. Con­tact: Richard Lewis Trac­tor and Ma­chin­ery As­so­ci­a­tion P: 03 9867 4289 E: richard@tracfin.com.au

TMA di­rec­tor Richard Lewis

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