Sales to China, Australia rise, Russian imports drop 76 percent

By MATEUSZ PERKOWSKI

Capital Press

Exports of U.S. farm machinery have generally plunged due to worldwide economic tumult, but the drop-off isn't spread equally across the globe.

At $4.7 billion, overall exports of U.S. farm machinery so far in 2009 are 20 percent lower compared to last year, according to the most recent data from the Association of Equipment Manufacturers.

"A lot of countries with an interest in oil have seen a negative impact," said Charlie O'Brien, vice president of agricultural services for the association.

That effect is particularly visible in Russia, which purchased large volumes of machinery when oil prices soared through much of 2008.

The country cut back sharply due to the drop in oil prices associated with the global credit crisis.

Exports to Russia fell 76 percent year-to-year, from $456 million to $111 million.

It's now the ninth largest destination for U.S. machinery, down from second place last year.

Even without the volatility in the oil market, Russian demand for exports would likely have slumped, O'Brien said.

The country's government imposed tariffs on foreign machinery to prop up domestic manufacturers, he said.

"That was in the works prior to the economic collapse," he said.

Global financial insecurity has not worked entirely against U.S. machinery exports, though.

China has bought $120 million worth of U.S. agricultural equipment in 2009, up 41 percent from last year.

The nation is now the eighth largest destination for U.S. machinery, whereas it didn't even make AEM's top 10 list in 2008.

"They've certainly poured in a lot of money to stimulate their economy," said O'Brien, noting that agriculture is likely a high priority for China's government.

"Think about the number of people China has to feed," he said. "They're developing a middle class with a greater demand for protein, which means they need to increase the efficiency of their food production."

Australia, the second largest destination for U.S. machinery behind Canada, also bought more equipment in 2009.

At $344 million, exports to that country have grown 13 percent.

The increase can be partly attributed to the spike in demand for machinery during last year's run-up in commodity prices.

That created a shortage that wasn't resolved until 2009, O'Brien said.

"A lot of the people put in orders that were just being filled" this year, he said.

Fluctuations in the value of the dollar have also been a factor in the global demand for U.S. farm machinery, said Eli Lustgarten, analyst at Longbow Research.

For example, the value of the U.S. dollar against the euro reached a low point in 2008 when the euro was worth about $1.60, he said.

The dollar strengthened after the financial crisis, to about $1.25 per euro, but has since slid back to about $1.40 per euro, Lustgarten said.

A weak dollar can make U.S. products seem cheaper overseas, but the effect is relative to the overall economic recession, he said.

"It doesn't matter what the price of a good is if the customer doesn't have any money," Lustgarten said.

For U.S. machinery companies like AGCO, which produces and markets equipment around the world, the shifting value of the U.S. dollar is always a double-edged sword.

"There is some natural hedging when you look at our business in total," said Greg Peterson, the firm's director of investor relations.

For instance, the stronger dollar has made tractors produced by AGCO's foreign subsidiaries more cost-competitive within the U.S., he said.

On the other hand, a stronger dollar hurts AGCO from the perspective of overseas sales, Peterson said.

When the company is paid in euros, which are converted into U.S. dollars, the company gets fewer dollars per euro when the dollar is strong, he said.

If the U.S. currency had remained constant, AGCO's sales would be down 7 percent so far in 2009, Peterson said.

Instead, the weaker dollar caused sales to drop 19 percent, from $4.2 billion to $3.4 billion.

Even so, AGCO remains confident about the future, in light of the global need for farm products, he said.

"We're definitely seeing weakening in demand, but longer-term we're very optimistic," Peterson said.

Staff writer Mateusz Perkowski is based in Salem, Ore. E-mail: mperkowski@capitalpress.com.

       

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