The increasing value of the U.S. dollar means American agriculture products have a hard time competing in the export market, but could translate into lower input costs and higher prices for farmers, experts say.
According to Bloomberg.com, one U.S. dollar is currently worth 120 Japanese yen, up from roughly 103 yen in 2013. A U.S. dollar is worth 0.81 euros, up from 0.73 euros a year ago.
The stronger dollar generally makes it more difficult for agricultural products that are exported, including wheat, dairy and soybeans, said Paul Meyers, vice president of commodity analysis for Foresight Commodity Services in Stephenson, Va.
“The stronger the dollar, the less competitive U.S. commodities are in export markets,” Meyers said.
One of the biggest factors Meyers examines is how the strength of the U.S. economy impacts interest rates. The Federal Reserve is likely to raise interest rates in July 2015. Europe isn’t likely to raise interest rates any time soon, Meyers said.
“More money will flow here, which strengthens the dollar,” he said.
A stronger dollar means foreign investors have to pay more for crude oil futures, Meyers said. As the dollar strengthens to a four-year high, crude oil prices are at a four-year low, he said.
Input costs like crude oil, fertilizer and diesel have all come down 30 percent since May, Bob Bresnahan, president of Trilateral, Inc., based in Berwyn, Ill., said. Farmers tend to lock in prices ahead of time, so they couldn’t take advantage right away, Bresnahan said, but for the upcoming crop, input costs should be “significantly” lower.
“He should be locking in his diesel now through 2015, he should be locking in his seed cost if he hasn’t already done that, and he should be looking very closely at his fertilizer costs.” Bresnahan said. “All of those should be competitively lower than they were last year.”
The stronger dollar doesn’t necessarily mean commodity prices will fall, Meyers said. As the dollar strengthens, prices for wheat, corn and soybeans have increased.
“In general, the stronger dollar tends to have a dampening effect on prices,” he said. “You can argue that the strengths we’ve seen in prices in the last month may have been even greater were it not for the stronger dollar.”
Bresnahan believes the initial rally for the dollar is close to ending, and expects to see its value go back down again. As a result, commodity prices should stabilize or go even higher, he said.
“(Farmers) should definitely use that to sell current crop they’ve not sold and start putting hedges in for new crop,” he said.
Meyers believes the U.S. economy’s economic growth rate will be stronger compared to Europe and other countries over the next 12 months. “It doesn’t appear to me that this dollar strength is going to end any time soon,” Meyers said. “It’s going to keep putting some pressure on commodities.”