(Wall Street Journal) – The strong dollar is stifling U.S. agricultural exports, worsening the strain on farmers already dealing with a collapse in prices and weaker demand.
Federal forecasters project that shipments of U.S. wheat will sink to a 44-year low this season, as buyers from Egypt to Indonesia seek less-costly alternatives. The Agriculture Department predicts corn exports will drop to the lowest in three years, while shipments of beef and pork are down around 10% to 15% by value this year.
The problem for U.S. producers is that consumers in most parts of the world don’t get the full benefit of falling prices if they buy American.
The heady dollar means major wheat buyers, such as Japan, must pay more for U.S. grain than for wheat from rival producers, many of which can offer a lower dollar-denominated price because their home currencies are weaker. Earlier this month, a ton of U.S. wheat used for baking flour cost about $205, while comparable French wheat sold for roughly $193 and wheat from the Black Sea region—originating in countries like Ukraine or Russia and shipped from Black Sea ports—sold for about $194, according to grain analysts.
“It is not just a breeze blowing against U.S. agriculture,” said Chris Hurt, an agricultural economist at Purdue University. “It’s a gale-force wind.”
The slide in exports follows a multiyear boom in American agriculture fueled by the burgeoning ethanol industry and rising food demand from China and other rapidly growing developing countries.
The USDA projects that net U.S. farm income will tumble 38% to $55.9 billion in 2015, the lowest in more than a decade, shrinking the buying power of farmers. Farmland values are cooling and credit conditions at some agricultural banks are softening amid slowing loan-repayment rates by farmers and rising demand for financing, according to Federal Reserve reports.
The U.S. dollar, meanwhile, has been on a tear, soaring in the past week to a 13-year high against a basket of currencies. That has caused pain in the U.S., where wheat is the fourth-most-valuable crop, at $12 billion last year.
The cash price for wheat in western Kansas recently dipped under $4 a bushel, below many farmers’ cost of production. “Four dollars a bushel is too cheap for me to survive, but it’s more than the rest of the world is willing to pay,” said Mr. Suppes, 66 years old.
Producers in countries such as Russia and Brazil face similar pressures. But the ruble and real have depreciated against the dollar, motivating farmers to sell their grain on the export market in dollars and then convert earnings back into local currencies and maximize revenues.
Egypt, the world’s largest wheat importer, in a late-November tender bought 120,000 metric tons of wheat from France and 60,000 tons each from Russia and Romania, according to traders. Weeks earlier, the country’s state grain buyer purchased 120,000 tons of wheat from Russia and France. The U.S. didn’t offer wheat in either tender.
Big agribusinesses say the stronger dollar is damping earnings. Archer Daniels Midland Co., one of the world’s largest grain traders and processors, said its third-quarter profit was hurt by decreased demand for shipments from the U.S., where it has its largest network of grain facilities.
Exports typically absorb about 40% of U.S. wheat output, but the USDA says shipments in the season ending in May will be the lowest since 1971-72. If its forecast comes to pass, America’s market share for wheat would fall to just 14%, down from 23% a decade ago.
A glut has made it a buyer’s market. World wheat inventories are expected to swell to a record 227 million metric tons in the 2015-16 season, up 7% from a year earlier, according to federal estimates. World corn reserves likely will reach almost 212 million tons, also a record.
Barring a sustained downturn for the dollar, demand for U.S. crops isn’t likely to improve unless global grain supplies contract, analysts said.
If the Federal Reserve raises short-term interest rates, which could push the dollar’s value even higher, diminished exports could dog U.S. farmers for years, they said.
“Unless there’s an abnormal production problem introduced by Mother Nature, world grain stocks will keep building for the foreseeable future,” said Dan Basse, president of Chicago-based commodities firm AgResource Co.
