Stable Dollar Sought by Agriculture

August 14, 2001

Agricultural interests are seeking a more stable dollar on the world's exchange markets in order to facilitate more trade in farm and food products. John Skorburg, American Farm Bureau Federation senior economist, says based on exchange rate movements over the past year, the largest "warnings" for problems from the high U.S. dollar are for Turkey (dollar up 121%), Brazil (dollar up 40%) and Chile (dollar up 24%). "Look for US exports to slow to these countries and for US imports to expand – as well as imports to other major countries around the world," Skorburg says.

An exchange rate measures the number of units of one currency that can be traded for one unit of another currency. For example, Skorburg notes, within the North American Free Trade Agreement, three currencies are used – the U.S. dollar, the Canadian dollar and the Mexico peso. Currencies must be traded to pay traders in their own currency. "But, large changes in exchange rates can significantly impact the amount of exports and imports that are traded. That's why it's important to have as stable a currency as possible, to help facilitate international trade," he says.

The 1999 unveiling of the Euro "is a prime example of a country group trying to stabilize currencies for the sake of better trade. Our own 50 states (and later Puerto Rico) learned this same economic lesson shortly after Independence. But what happens when the U.S. dollar is at the mercy of other currencies? In 1995, the devaluation of the peso caused U.S. agricultural exports to Mexico to decline. In 1997, the meltdown of several Southeast Asian currencies allowed the same fate to happen to our exports," according to Skorburg.

When the U.S. dollar strengthens U.S. products become more expensive for foreign buyers and U.S. exports slow; foreign products become less expensive for U.S. buyers and U.S. imports increase. When the U.S. dollar weakens U.S. products become less expensive for foreign buyers and U.S. exports increase. Foreign products become more expensive for U.S. buyers and U.S. imports slow, he explains.

Over the past 12 months, the US dollar has weakened by 2% relative to the Mexico peso. "Look for US exports of Ag goods to Mexico to continue to rise based on this fact," says Skorburg. Also since July 2000 the U.S. dollar has strengthened by more than 9% relative to the major currencies of the world. "The USDA estimate of $53.5 billion in U.S. agricultural exports to the world this year would, in fact, be even higher if the U.S. dollar were not so strong," he adds.

Recently AFBF and the National Association of Manufacturers sent a coalition letter to President Bush asking that the "economic hemorrhaging" from the exchange rate be stopped. That could be accomplishing "by acting to ensure that the value of the dollar will be consistent with economic reality and market conditions, and by initiating steps with G-8 countries and their monetary authorities to address the disparities in exchange rate markets".

In Asia, the dollar is up almost 15% verses the yen, but "rock solid" compared to the Chinese yuan. "Look for U.S. agricultural exports to continue to climb in China," Skorburg predicts. "There also appears to be some exchange rate risk in Indonesia, the Philippines and South Korea – but not to the extent of 1997. No major meltdown appears in the cards in Southeast Asia and that's good news."