Economists: Weak currencies could boost ag export markets

15-10-2010 | | |

Exporting nations like the United States are finding that weaker currency spells stronger trade opportunities. That is, if their monetary moves don’t first lead to a trade war, said two Purdue University agricultural economists.

At least three major exporting countries — the United States, China and Japan — have made direct or indirect moves to depreciate their currencies, which might make their exported goods less expensive in foreign markets. Brazil could soon follow suit.

The United States likely will see record agricultural exports in the year ahead, said Philip Abbott and Chris Hurt. For the year to date, the United States is running a $600 billion trade deficit.

Some nations view weak exchange rates as a way to stimulate export activity and, thus, their general economies, the economists said. It could backfire, however, if more countries jump on the currency devaluation bandwagon, they added.

The devalued US dollar will be good for the agricultural sector, Hurt said.

“A weak dollar has a tendency to increase agricultural exports and, thus, increase farm commodity prices,” Hurt said. “It means a favorable time for large exporting sectors like agriculture. There are good margins for the cropping sector right now. Producers should consider pricing the 2010 crop now and perhaps look at starting to price some of the 2011 crop, as well.

“They also should keep in mind that the last time we had a major escalation in crop prices was 2007-08, when we also saw a major escalation in prices of inputs. Fertilizer, in particular, is one input that most producers might like to get prices locked in for 2011 and 2012, as a weak dollar also tends to increase fertilizer and fuel prices.”

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