Stronger dollar affects U.S. commodities differently, Rabobank finds

WASHINGTON, Sept. 2, 2015 - The strengthening U.S. dollar is having a wide-ranging impact on U.S. agriculture, but the effects vary by commodity, according to a new report from the Rabobank Food and Agribusiness Research and Advisory.

The report – “Making (Ex)Change: Impacts and Implications on Agriculture of an Appreciating U.S. Dollar” – points out that the U.S. Dollar Index appreciated 42 percent from a low in March 2008 to reach its recent highs, with most of the gain coming in just 10 short months. And while the dollar has gotten stronger, the currencies of the major U.S. agricultural rivals – including Brazil, Argentina, Ukraine and China – have softened.

Faced with these facts, “U.S. producers immediately turn to the concern that the country’s agricultural exports will decline, since U.S. origin commodities will be priced out of the market,” the report says. “However, this is an oversimplification of the issues.”

Take corn, for example. The appreciating dollar will have “minimal impact” on the market for the biggest U.S. crop, according to the report. With domestic demand – buoyed by government ethanol mandates -- consuming 85 to 90 percent of production, corn farmers are less dependent than other growers on exports to support prices, the report’s authors, Stephen Nicholson and Stefan Vogel, point out.

U.S. wheat exports will suffer, not just from the stronger dollar, but also from large global supplies and the availability of cheaper Black Sea grain. While the Dollar Index gets stronger, the U.S. share of world wheat exports continues to trend lower, currently at just 8 percent. Historically, the figure has been greater than 25 percent.

The dynamics of the soybean market are much different than either that of corn or wheat, according to the report. The major difference is that there is only one dominant global buyer for soybeans, and that buyer, China, imports about two-thirds of the world soybean trade. In addition, there are only two major suppliers, the U.S. and Brazil.

“As long as Chinese appetites for soybeans continue to grow, the changes in currency values will have a small impact on the U.S. and Brazilian market shares,” the report says, adding that “if Chinese imports were to decrease, Brazil would have the upper hand.”

That’s because Brazil’s production would continue to increase because of the declining real, driving prices lower, making Brazil’s soybeans more attractive to Chinese buyers. “In other words, the U.S. would lose market share to Brazil as a result of declining global (Chinese) demand,” the authors write.

The report concludes:

“Many factors determine winners and losers in agriculture, and currently currency is one of the major factors. What is important is to understand the wide-ranging impact that currency has on agriculture… and then to make informed decisions from that knowledge, and manage risk accordingly.”

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