There is pain in farm country this year. The weather was awful. China quit buying soybeans. And, now corn exports are down substantially. The strong dollar is to blame in the latter case. Why are agricultural investments hurt by the strong dollar?
Why Are Agriculture Investments Hurt by the Strong Dollar?
The other day President Trump chose to restore tariffs on steel from Brazil and Argentina according to the BBC. He did this to punish the two countries for having weakening currencies. The weaker currencies make their agricultural exports more competitive. And, that has reduced U.S. agricultural exports.
US President Donald Trump has said he will place tariffs on steel and aluminium imports from Brazil and Argentina.He justified the move saying those countries’ weak currencies had made it harder for US food exports to compete.“Brazil and Argentina have been presiding over a massive devaluation of their currencies, which is not good for our farmers,” Mr Trump said.
Brazil’s President Jair Bolsonaro said he would seek talks with Mr Trump.
“Their economy is not comparable with ours, it’s many times bigger. I don’t see this as retaliation,” Mr Bolsonaro said in a radio interview with Brazil’s Radio Itatiaia.“I’m going to call him so that he doesn’t penalise us. Our economy basically comes from commodities, it’s what we’ve got,” he said.
The culprit does not seem to be intentional devaluation by either Brazil or Argentina but rather the U.S. economy and strong U.S. dollar.
Bloomberg looks at the same issue in their article about the real foe for U.S. farmers.
President Donald Trump may have bewildered authorities in Argentina and Brazil by announcing on Twitter new steel tariffs as punishment for cheapening their currencies. But the measure does shine a light on how much the hardy dollar is hurting U.S. farmers.
There’s little evidence those countries have intentionally brought down the value of their currencies; in fact, they’ve both been grappling to stop the rout, which is fueled largely by the relative strength of the U.S. economy.
As they note, corn exports by U.S. agriculture are 60% lower this year because buyers can purchase the same quality corn for less from countries with weaker currencies. Orange juice is another commodity that is suffering as well.
Meanwhile, countries like Ukraine, Brazil, and Argentina are producing more and, due to weaker currencies, able to export for less.
U.S. Agriculture Needs Foreign Markets
We wrote some time back about how the trade war is hurting U.S. agriculture. In that case, we focused on how North Dakota farmers and the agriculture infrastructure had geared up to ship soybeans to China. But, soybeans are only part of the picture with U.S. agriculture. According to the USDA, agricultural exports in 2018 were about $140 billion. The leading exports are “grains/feeds, soybeans, livestock products, and horticultural products.”
Again, according to the USDA, in most years 50% of US soybeans are exported, 46% of wheat, 21% of corn, 55% of rice, and 76% of cotton. Overall, 20% of US agricultural production is exported. As a whole, U.S. agriculture is the largest US exporter.
In a nation that has to worry about its balance of payments, a healthy farm economy is a big deal. And, right now the strong US dollar is causing a lot of pain.