The Net Effect of Exchange Rates on Agricultural Inputs and Outputs

Myriah Johnson, David Anderson, Henry L. Bryant and Andy Herring

No 103802, 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania from Agricultural and Applied Economics Association

Abstract: For more than thirty years, studies about the effect of the exchange rate on exports have been conducted. However, few have considered the combined effect of the exchange rate on imported inputs into the agricultural system and the exports of final agricultural products those inputs produce. A current concern is for the net effect as the total value and quantity of inputs imported has increased. This research examines the effect of exchange rate changes on imported inputs into the corn, wheat, and beef cattle production systems. Effects on cost of production budgets are calculated, examining affects on profitability. Vector Autoregression (VAR) and Bayesian Averaging of Classical Estimates (BACE) models were estimated to evaluate those effects. Daily and weekly price data were used for corn, wheat, feeder steers, ethanol, diesel, ammonia, urea, di-ammonium phosphate, and the exchange rate. A VAR model was estimated to model the relationship between the variables. After having incongruous test results in determining the lag length structure it was decided that a BACE model would be approximated. After estimating the BACE model the price responses of the commodities to the exchange rates was estimated. The price responses were used in demonstrating the effect of the exchange rate on a producer’s profitability. It was determined that, generally, a strengthening exchange rate has a negative impact on prices. It was also found that the exchange rate has a greater impact on prices now than it did 14 years ago, implying that the exchange rate now has a greater affect on profitability. A one percent increase in the value of the dollar led to a decline in profitability ranging from $0.02/bu in wheat to $0.56/cwt in feeder steers. However, agricultural producers should not be overly concerned about a lower valued dollar from the perspective of their agricultural business.

Keywords: Agricultural and Food Policy; Crop Production/Industries; International Relations/Trade; Livestock Production/Industries (search for similar items in EconPapers)
Pages: 2
Date: 2011
New Economics Papers: this item is included in nep-agr
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea11:103802

DOI: 10.22004/ag.econ.103802

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