Current Edition

current edition

International

“The stronger American dollar hurts exports,” says UW Extension Economist John Ritten. 

Ritten looks at the various ways the strength of the dollar impacts agriculture, noting that global recovery is important to ensuring the future growth of the industry.

Valuing the dollar

The U.S. dollar is valued relative to other countries’ currencies. 

CME Group noted in a Jan. 29 release that the Intercontinental Exchange’s (ICE) Dollar Index tracks the value of the dollar against six other world currencies – the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.

For the week of Feb. 9, the index showed a value of 94.44. 

“That futures contract traded above 95 for the first time since 2002 in January,” said CME Group. “Virtually every Dollar Index rally from 2008 through 2013 was associated with financial crises somewhere in the world – primarily the European Union – and the resulting ‘flight to safety’ in the U.S. dollar.”

Beef markets

The rally of the dollar recently has big impacts for agriculture across the board.

“A strong dollar makes our goods more expensive overseas, which can hurt livestock prices in the long-run,” Ritten said. “If people can afford to buy less of our product, it makes it harder for us to compete.”

Exports provide a large portion of the profits that producers are able to capture from beef. 

“We are an exporter of high-quality beef,” Ritten says. “It is expensive to begin with, so there is limited demand.”

“As U.S. beef gets more expensive, people will start to choose cheaper substitutes,” he continues.

Ritten also notes that some people believe the U.S. should begin to target the current market by selling ground beef and other products. 

“A lot of folks think maybe we don’t need to have a high-dollar product,” he explains. “In the long run, we want to have a high-quality product. Anyone can produce cheap beef. Not everyone can produce high-quality beef.”

“I’d rather that we continue producing the Rolls Royce of beef than trying to compete with Kia and Hyundai,” he says. 

Sheep industry impacts

Larry Prager of Center of the Nation Wool notes that fiscal policy and the dollar dramatically impact the sheep industry, as well. 

“I’m a little less optimistic today than I was in November about the sheep industry because of the currency impact of the U.S. dollar compared to the Australian dollar,” Prager says. “I don’t know where the bottom is when we are looking at the exchange rates.”

U.S. fiscal policy dramatically impacts what currencies are doing around the world, he continues. 

“Up to this point, adjustments in the interest rates with economic stimulus plans have caused the strength in the U.S. dollar, and that is a key factor today,” Prager adds. 

The Australian wool market is selling large volumes of wool at 90 percent of what U.S. wool is selling for, plus a clearance. 

“Wool is in no real surplus anywhere in the world,” Prager continues. “The biggest factor for the U.S. is the strength of the dollar relative to a year ago – or even to a few months ago.” 

Perceived benefits

While U.S. exports are more expensive around the world, a stronger dollar makes oil cheaper, meaning the agriculture industry will see reduced input costs.

Speaking about the correlation between the dollar and oil prices, CME Group mentioned, “The United States’ position as the largest importer of oil in the world has, historically, contributed to a strong negative correlation between the price of oil and the value of the U.S. dollar, as dollars flowed outward to pay for all of that oil.”

“The recent drop in oil prices and the very real prospect of the U.S. becoming a net exporter of oil has changed that dynamic and, we think, set the stage for a stronger dollar,” the organization continued. “But for how long?”

They note that the rally is likely to stay around longer than others since 2008, but predicting the duration of a strong dollar is difficult. 

“From a production ag system, we have cheaper energy inputs, so cost of production should go down,” Ritten adds. “It depends on what wins in the long run.”

Global recovery

Regardless of the immediate impacts, Ritten notes that global recovery is the overall goal. 

“We are hoping for global recovery,” he says. “Everyone wants the dollar to be strong, but in our market, a cheaper dollar helps global sales.”

In looking at global recovery, the impact of Greece’s decisions regarding the European Union and Russia’s action toward Ukraine are of the utmost importance. 

Over the last year, Greece’s economic standing has been in limbo, and more recently, there has been talk that Greece would leave the European Union (EU), an action called, “Grexit,” by many. 

“If Greece exits the EU, it would have widespread repercussions across the globe,” Ritten says. “The other major factor is the issue between Russia and the Ukraine.”

“Russia would like to import some agriculture products, but given our sanctions, they haven’t,” he continues. “Also, if Russia invades Ukraine, and Europe takes action, they will have a lot of money tied up that they won’t be spending on our agriculture exports.”

While many worldwide are worried about the impact of the terrorist group ISIS, Ritten says, “ISIS will have a far lesser impact on domestic producers.”

“The big immediate issue is making sure the European Union doesn’t fall apart. Greece disrupting the Euro-zone would have major negative repercussion for our market,” he says, “and a NATO-Russia conflict would have major impacts, as well.”

At this point, he notes that the long-term impacts to agriculture aren’t clear.

“If the U.S. dollar stays strong for an extended period, we will feel it in the bottom line and at the sale barn as a result of depressed prices,” says Ritten.

Saige Albert is managing editor of the Wyoming Livestock Roundup and can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

Fort Collins, Colo. – “We were making our long-term highs in the cattle market through the fall of 2014 and early 2015. It’s no surprise that the market has rolled over, and it’s trending lower,” noted CattleFax CEO Randy Blach on Jan. 9 at the International Livestock Forum at Colorado State University in Fort Collins, Colo.

“The only surprise has been the magnitude of the change – how fast the market is changing,” he said.

As one of the top protein producers in the world, the United States is the fifth largest pork producer, first or second largest poultry producer and the country that produces the most beef. Of the meat and poultry produced in the U.S., the domestic market consumes 83 percent.

“To simplify this, 20 percent of U.S. protein has to be consumed by consumers somewhere else, outside of our border. If we don’t have those consumers, we lose market share,” Blach explained.

Increased production

In 2014, there wasn’t enough pork, poultry or beef to satisfy the market, and all of those products experienced record high prices. In 2015, pork production increased by eight percent, poultry by five percent and beef production remained flat.

“We have never produced more protein in the history of the United States as we did in 2015. 2016 will be bigger again,” Blach remarked.

As production increased, exports decreased. Seventeen percent of production was exported in 2014, but only 14.5 percent was exported a year later. The combination of increased production and decreased exports resulted in a net supply increase of 4.5 billion pounds of meat and poultry from 2014 to 2015.

“In 35 years, I have never seen a bigger shock in the history of our industry. Four and a half billion pounds of protein had to be absorbed by our domestic marketplace,” he stated.

Slowing economies

One factor affecting exports is the slowdown in China’s economy. Although the U.S. does not have direct access to China’s beef market, the U.S. does export pork and poultry to the country. Forty-two other countries also export protein products into China.

“When the Chinese economy slows down, countries that export into China, which also buy products from the U.S., begin to see their economies slow down, and then everybody’s markets slow down. They can’t reach and buy as much,” Blach explained. “This is all connected.”

Countries with petroleum economies are another factor in the equation. When oil prices suddenly dropped to $35 a barrel, oil-producing countries lost a huge amount of spending power.

“When we move into a global marketplace, as we have over the last 30 years – and really over the last decade and a half, these are things that we all will have to spend a higher percentage of our time understanding, researching and following on a regular basis to be successful in these markets,” he said.

Currency

Blach also emphasized the importance of the protein markets and the global economy, explaining that it is where commerce is and where money moves.

“We also hear about the strength of the dollar, but what does that really mean?” he asked.

“When we compare the value of the Japanese yen to the dollar, their purchasing power is down 16 percent,” he continued.

Manipulating currency, Blach argued, is one of the only ways to stimulate exports and business when economies slow down.

“The currency battle is going to be the biggest thing we deal with over the next 12 to 18 months,” he predicted.

Over the last 12 to 36 months, all U.S. commodities have seen devaluation in the marketplace. Most of them are down 40 to 60 percent, including feeder cattle – down 40 percent from an all-time high in October 2014, and soybean meal – down 50 percent from an all-time high in August of 2012. Crude oil is down 71 percent from the market high in April 2011.

Changing markets

“These markets are reacting very fast. They change to these dynamics in a hurry,” Blach commented.

He continued, “When there is this kind of global chaos, the market doesn’t know what’s going to happen. That’s part of the reason we are seeing so much volatility. There is lot of uncertainty.”

Historically, the United States has exported 16 billion pounds of meat and poultry out of the domestic market and into the global economy each year. Blach emphasized again that the role of world markets continues to have an important impact on domestic production.

Natasha Wheeler is editor of the Wyoming Livestock Roundup and can be contacted at natasha@wylr.net.