It really is a staggering and possibly even slightly concerning truth that more than 90% from the agricultural equipment employed 'down under' is manufactured overseas. However, the objective of this brief report just isn't to talk concerning the status of our manufacturing industries but rather much more to handle the occasional misconceptions about how Dollar exchange rates have an effect on the cost of new agricultural machinery.

Robust currency-reducing prices/ Weak currency-rising rates

For a long time, the assumption was rather basic. If our Dollar was low, then the price of agricultural machinery went up. Conversely, if it was reasonably strong, then costs fell. That sounds intuitively appropriate and to some extent there is certainly some mathematical basis for it but factors just are not as uncomplicated as that.

Listed here are a handful of factors to think about as to why you can not generally draw a direct line

amongst currency prices and the value of the agricultural machinery:

1. Currencies can fluctuate a great deal over reasonably short periods of time. If there were a direct responsive link, the costs at retail outlets would be continuously going up and down like a yo-yo.

2. Currency fluctuations are a nightmare for major organizations like these associated with the manufacture and provide of agricultural equipment. Their accounting and profit forecast calculations start off to come to be of horrific complexity, so they take measures to reduce their vulnerability to transform in response to currency variances via points like forward 'fixed rate' currency exchange contracts.

3. The things you see for sale within the warehouses and outlets now had been in truth bought based upon industrial agreements created a long time ago when currency prices might have been pretty distinct. That's needed since it can take a number of months for manufactured gear to get by way of a production line overseas and be shipped to us.

What does this imply for purchasers?

The bottom line genuinely is the fact that there is absolutely no want to hit the panic button and rush out to start buying your agricultural machinery and related gear the moment you see a deterioration within the strength of our Dollar versus a bucket of other worldwide currencies.

By and significant, these variations in pricing have already been smoothed out by a few of the several techniques touched on above.

Exceptions

Now there's a single exception to this and that arises from the prospect of a long-term systematic change within the strength of one particular currency versus a further. In those situations, the ongoing effects start off to push economics notably in one offered direction and that will possess a pretty important effect on prices, one particular way or an additional, more than the medium to long-term. So, for instance, if we saw a long-lasting and steady decline inside the value of our Dollar then you definitely might count on that to feed through into larger prices for our agricultural equipment - plus almost everything else we import of course. It's worth bearing in thoughts although that the reverse could also be correct. Some cynics and critics on the capitalist technique point out that it does not matter which way currencies move against each other, the outcome is generally larger costs and larger profit margins for the organizations concerned! Irrespective of whether you think that must needless to say be a matter of personal decision but for the majority of ordinary farmers, short-term currency fluctuations in the marketplace really should not have a substantial impact around the pricing of agricultural machinery.