Tradeology, the ITA Blog

Padraic Sweeney is a Team Leader for the International Trade Administration’s Office of Industry & Analysis 

 Despite a negative overall outlook for 2017-2018, opportunities exist for U.S. agricultural equipment exporters willing to pursue them. The Black Sea Region has emerged as a major exporter of wheat, fueling Russian and Ukrainian imports of U.S. machinery. Low interest rates and funding from Brussels enable farmers in several European Union countries to invest in equipment. Western Hemisphere markets including Mexico, Chile and Peru present opportunities for exporters of certain types of equipment.

Nevertheless, U.S. exports of agricultural equipment will continue to decline in 2017-18. Market conditions responsible for the decline—which is a worldwide phenomenon—are unlikely to change in the near to medium term. Low prices for widely-traded agricultural commodities are expected to continue through 2018 and beyond. Large inventories of late-model used equipment will continue to be a drag on the market, especially in North America. Weak local currencies, a problem that intensified in late 2016 and early 2017, will impede recovery in many markets.

The 2017 ITA Agricultural Equipment Top Markets Report  ranks countries to identify opportunity markets in a difficult global business climate, by relating export volumes, market growth in recent years, political and economic risk and future potential. The eight markets ranked in 2017 represent 60 percent of U.S. exports in 2015—the last year for which complete, globally comparable data were available as the report was written.

U.S. agricultural equipment exports will continue to decline in 2017-18 in the absence of major increases in global agricultural commodity prices. Such increases are unlikely. High interest rates in markets such as Brazil and South Africa will further constrain the recovery of U.S. exports. Low interest rates in others, especially the Eurozone, may mitigate somewhat the effects of low agricultural commodity prices. Weak local currencies relative to the U.S. dollar will also remain a barrier to exports of U.S. agricultural equipment. Low petroleum prices, if they continue, will hold down farmers’ production costs, while restraining economic growth and demand for imported foodstuffs in petroleum-producing countries.

Opportunities

In a generally bleak international marketplace, some bright spots could be found in 2016. The Russian and Ukrainian markets have shown significant growth, especially for equipment to produce grain, oilseeds and other commodity crops. U.S. exports to Russia were up an impressive 35 percent overall in the first six months of the year. Exports to Ukraine grew even more dramatically, by more than 204 percent. Improved economic conditions have led to the emergence of the Black Sea Region (Russia, Ukraine and Kazakhstan) as one of the world’s major wheat exporting areas. While impressive, this recovery is from very low levels and quite fragile, given the region’s high level of political risk.

In the European Union (EU), Germany in particular has shown surprising growth as a market for equipment for grains, oilseeds and other commodity crops. Extremely low interest rates in the Eurozone and the allocation of EU rural development funds for the Baltic, Central and Southeastern European countries provide immediate stimulus for agricultural equipment purchases in some markets. Especially for the EU’s former Soviet-bloc members, modernization of agricultural economies after decades of under-investment will continue to drive sales of agricultural equipment.

A number of Western Hemisphere FTA markets continue to present opportunities for U.S. exporters. Mexico is the United States’ largest market for tractor parts, engines and engine parts, and exports of these products to Mexico have expanded in both absolute and relative terms in recent years. Mexico is also a leading market for equipment for the cultivation of fresh produce and high-value crops, raising livestock, and for mowers and other power equipment. Chile and Peru have shown strong growth in recent years, although export performance in 2016 has been disappointing.

For companies with the right products that are willing to market and price competitively, Australia also presents opportunities. Australia exports meat to its Asian trading partners, in particular FTA partners China, Japan and Korea, and U.S. exports of equipment for raising livestock—as well as mowers and other power equipment—have done well in 2016.