Exchange rate affects ag industry, export outlook

Justin Flaten relies on foreign customers to buy most of his company's products. But his wares are increasingly expensive for overseas buyers, and that's hurting sales.

Justin Flaten relies on foreign customers to buy most of his company's products. But his wares are increasingly expensive for overseas buyers, and that's hurting sales.

"It's a concern," Flaten says of the worsening exchange rate. His company, JM Grain, which has locations in Great Falls, Mont., and Garrison, N.D., buys and sells chick peas, lentils, feed peas, green peas, yellow peas and seed, with exports accounting for nearly three-quarters of sales.

JM Grain isn't alone; concern is growing throughout U.S. agriculture.

The greenback has soared 15 percent versus foreign currencies in recent months, making exported American grains that much more expensive to overseas buyers. That reduces demand -- and ultimately cuts into the price U.S. farmers receive for their crops.

The value of the dollar always is a factor in U.S. grain prices, "always in the background," says Frayne Olson, crops economist and marketing specialist with the North Dakota State University Extension Service.


In the past few years, the dollar was relatively stable and low against foreign currencies, minimizing the impact of exchange rates of grain exports, he says.

Recently, however, the dollar has surged because of economic problems in some of America's major trading partners.

"The dollar is rising not because the U.S. economy is taking off," he says. "We're doing OK; it's improving. But it (the strengthening dollar) reflects that other economies are slumping."

That shows up in the U.S. Dollar Index, a bundle of currencies of America's major trading partners. The index is weighted to reflect how much the U.S. trades with those countries, so currencies such as the Japanese yen and Mexican peso play a significant role in setting it, he says.

Now, the U.S. Dollar Index has risen to its highest level since 2003, and grain markets are following it much more closely, especially since exports are an increasingly important part of total U.S. grain usage, Olson says.

"By the time they (foreign buyers) convert it (U.S. grain) into their currencies, it becomes pretty darn expensive," he says. "It's affecting people's expectations, their psychology. It's a lot harder to sell our grain overseas. It doesn't mean we can't be competitive. We just have to work harder at it."

Economic problems elsewhere in the world, which show up in the U.S. Dollar Index, mean consumers in those countries have less disposable income to spend on U.S. grain, adding to the challenge, Olson says.

He also notes that bad weather in other major grain-producing areas of the world would cut production, potentially pushing exchange-rate concerns into the background and boosting grain prices.


Wheat affected

The stronger U.S. greenback is having its biggest impact on crops tied closely to exports. Wheat is the most notable; nearly half of the U.S. wheat crop is exported.

The highly competitive world wheat market has many buyers and sellers, so exchange rate fluctuations can have a big impact, Olson says.

U.S. Wheat Associates, which promotes U.S. wheat exports, says the surging dollar is part of a "perfect storm of bearish factors for U.S. wheat exports." Greater-than-expected global wheat supplies and an "abundant supply of corn and soybeans" also are hurting wheat exports, says the organization, which notes that the U.S. remains the world's largest single supplier of wheat.

Other crops also are affected -- though usually to a lesser degree than wheat -- by the stronger U.S. dollar.

Corn prices, while sensitive to changes in the exchange rate, are shielded somewhat by America's relatively strong role in the world corn market, Olson says.

Soybeans are even less sensitive than corn because the currency of China, by far the major buyer of U.S. beans, is tied closely to the U.S. currency. That reduces the impact of changes in the greenback on Chinese buyers, he says.

Big impact on pulses


But pulse crops, which include lentils and dry peas, often are purchased by foreign customers with limited incomes. That generally makes pulses highly sensitive to exchange rate fluctuations, Olson says.

Flaten says green pea sales to India, an important market for his company, are hurt by the stronger U.S. dollar.

"It's not that they (Indian consumers) can't afford green peas," Flaten says. "It's that the Canadian currency is so much lower, they can buy Canadian green peas at a much lower price."

Pulse crops, a staple on the Canadian prairie, are becoming more common in Montana and northwest North Dakota, where JM Grain buys its product.

Flaten is optimistic that JM Grain will overcome exchange rate problems by focusing on the high quality of its product and selling more domestically, he says.

He's also optimistic that exchange rates eventually will return to more normal levels.

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