On August fourth, China allowed its currency
to weaken to its lowest level in 11 years. This move has significant implications for
the global economy, interest rates around the world, and whether the trade war has now
become a currency war. But for U.S. agriculture, concerned about
exports to China, it’s the relative movement of currencies among our competitors and the
Chinese yuan that really matters. In other words, how has the euro, the Brazilian real,
the Argentine peso, and the Australian dollar moved against the Chinese yuan since the trade
dispute heated up last summer? And how does that compare with the movement of the U.S.
dollar – Chinese yuan exchange rate? That will tell us whether U.S. products have become
more or less competitive on pricing as it relates to currency.
What we find is that the U.S. dollar has strengthened against the yuan since August 2018, while
many of our competitors’ currencies have weakened or stayed the same versus the yuan.
The dollar has strengthened for a number of reasons – most of which have nothing to
do with agriculture. But we know from a 2016 USDA study that export
demand for U.S. bulk agricultural products is heavily influenced by the strength of the
dollar. The study indicates that for every 1%
increase in the U.S. dollar, the real value of U.S. ag exports declines by 3%.
So over the past year, the dollar’s rise has eroded value from U.S. ag exports by roughly
10%. At the same time, the currencies of our competitors have moved the other direction
and made their ag exports more affordable to Chinese buyers.
All of this is purely impacted by currency movements, and compounds the issues related
to tariffs imposed between the U.S. and China. And as China’s economy continues to weaken,
and U.S. assets remain a safe haven during uncertain times, the U.S. dollar is unlikely
to move substantially lower in the coming months.