Will a Softer Dollar Boost Ag Exports?

12:00PM Mar 24, 2016
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A sliding U.S. dollar could boost corn and soybean exports, but wheat remains under pressure from foreign competitors with weaker currencies, according to analysts.

Last week, the U.S. Federal Reserve Bank said it would leave interest rates unchanged, and that it would seek an interest rate hike of only 2% in 2016.  The move weakened the dollar, raising hopes that it could hike agricultural exports.

“It has been a plus for price action in corn and beans. We’ve seen some good numbers; wheat lagged behind,” said Ted Seifried of Zaner Ag Hedge in Chicago.

“Anything should help wheat,” he added. “The biggest impact, because it is so globally competitive,” is wheat.  Brazil’s stronger real also could yield stronger demand for U.S. soybeans, he observed.

Other analysts are less optimistic about a bounce in exports from the weakened dollar.

“We’ve become uncompetitive in wheat. When we put out a tender in wheat, we’re not competitive. Currencies with weak dollars are doing well. The Canadian farmer is absolutely crushing it,” said Tommy Grisafi, of Advance Trading in Bloomington, Ill.

Even though the U.S. dollar has weakened, it still leads against the Canadian dollar and other producers’ currencies, tamping down demand for U.S. exports, according to Grisafi.

“Other farmers sell grain in their own currency. Grain is way more affordable from other people,” Grisafi said.

Nonetheless, a lower dollar should help against foreign competitors, Seifried said.

Factors to watch very closely are not just what the U.S. Federal Reserve does, but also other countries’ central banks, Seifried said.

Although the dollar weakened because the Federal Reserve said it would raise interest rates two times in 2016 after it had previously said it would raise them four times, other countries followed suit. Last week, Japan and the European Central Bank also lowered their currencies to stimulate their economies, Seifried noted.

Seifried’s advice to farmers is to use their old crop to take advantage of the bounce and sell into the cash market. “This time of year, they could still have corn and soybeans from last year,” he said.

But many producers could benefit from a more sophisticated approach to the markets and risk management. “Most (U.S. farmers) can’t do much to control the dollar,” Grisafi said. Meanwhile, Canadian farmers are hedging currencies as a way to protect their production, he said.