Farm share of food dollar in 2016
The U.S. Dollar is under attack.

Dollar strength defining trade dynamics

U.S. dollar, the global default currency, is under attack.

The U.S. Dollar is the world’s default currency. In a world filled with global currencies, the U. S. Dollar stands supreme and has no equal — not from the European Union’s Euro Dollar, not from the Chinese Renminbi, or any other foreign currency.

Consider the current multi-month bullish trend in the U.S. Dollar: First, U.S. exporters have cause to worry as their products become more expensive to most importers; second, U.S. growth faces increasing headwinds with a strengthening dollar from likely declining global exports; third, a strengthening dollar indicates slowing or problematic global growth, while a declining dollar, all things equal, signifies global growth.

Presently, the U.S. Dollar is likely in a one- to two-month period of consolidation and/or correcting its upside move before returning to its multi-month move to the upside, which has the potential of pushing well into next year. Consequently, the President and Congress have cause for concern if the bullish dollar trend has legs.      

The U.S. Dollar is simply the world’s default currency. Why? A simple lack of fiscal, monetary, trade, and regulatory policy maturity by the world’s global economies.

President Trump faces a currency challenge. Globally, countries are struggling to maintain economic momentum, in large part because of excessive spending, burdensome debt levels, unwillingness to compromise on domestic entitlement programs, etc. Therefore, to maintain or improve their economic and global trade position, most countries simply allow their currency to devalue against the dollar or other currencies. China is a great example of offsetting, in part, some tariff liabilities with currency depreciation.

The U.S. Dollar is under attack. Given today’s U.S. and global economic setting, where growth remains stimulus driven through policy actions, lack of currency fairness for the U.S. economy is staggering and potentially unsustainable for the U.S. economy soon.

Is currency fairness possible?

Probably not given today’s global economic and political setting and global currency structure and marketplace activity, which is why governments intervene to maintain some level of fairness through tariffs among an array of intervention policy activities. Note China’s almost exponential growth over the past two decades compared to the United Sates.

The immediate issue for President Trump and Congress is how to limit or even stop the erosion of global currencies against the U.S. Dollar.    

Now what? First, President Trump and Congress are facing time and money constraints and are no longer able to easily push the problem into the future, which is why they are activity engaged in addressing the issue. Second, the antiquated global trade agreements have limitations in a world where country after country are increasingly embracing protectionism. And third, the President and Congress are in search of fiscal, monetary, trade and regulatory policies that provide a higher level of fairness for all concerned parties.  

What is the outcome? Buckle-up: heavy turbulence dead ahead. The global economic, political, social, and military turbulence will become more pronounced over the coming months and, unfortunately, so will market volatility, which is exactly why we watch, study, and analyze global economic outlook.

 Select currency impacts.

These examples are at the extreme but worthy of consideration: One dollar buys: 38 Argentine pesos, 19 Mexican pesos, 6.7 Turkish liras, 15 South African rands, 71 Indian rupees, 3,072 Columbian pesos.

This past week Iran's President Hassan Rouhani, Russia's President Vladimir Putin, Turkey's President Recep Tayyip Erdogan reportedly discussed the possibility of some non-dollar trade between their countries. China has a currency agenda; BRICS countries (Brazil, Russia, India, China, and South Africa) have a collective plan, but, near-term, countries globally are content to devalue against the U.S. Dollar. 

 Weekly market outlook - beginning September 10, 2018

 Commodity Index, $CRB

  • Commodity bulls need to see the $CRB Index close the week of September 10, 2018 above 192 (September 7, 2018 – 190.4).  Charts (B1-B5)
  • Commodity bears need to see this index lose support at 185. This would likely imply major across the board commodity weakness, due to commodity fundamentals and global economic uncertainties with the index potentially falling to the June 19, 2017 low of 166.5. Near term, the commodity bears have the upper hand unless oil sustains or exceeds current price levels.

Oil, $WTIC. This market has defined a sideways trading range between $65 and $70 per barrel. Holding above $67.50 per barrel the week of September 10, 2018 would be bullish. (September 7, 2018 - $67.75). Charts (B6-B9)

Big Picture: An interesting array of factors from fundamentals, to global policy drivers, to social, economic, political, and military uncertainties keep this market at elevated levels, and they do not appear to be losing their influence anytime soon, which limits the downside.

Soybeans. Soybeans (September 7, 2018 - $8.44 per bushel) now appear to have price weakness into the $8.00 per bushel area. Fundamentals and global political, trade, and economic uncertainties are formidable headwinds, but tightening aggregate global grain stocks are raising global food security concerns and possibly price supportive. Charts (B10-B13)

Corn. This market needs to end the week of September 10, 2018 above $3.75 to suggest additional upward price momentum is sustainable. Otherwise, a retest of the previous low at $3.39 per bushel with further potential downside to $3.23 per bushel is a possibility (September 7, 2018 - $3.67 per bushel). Charts (B14-B17)

Wheat. Wheat appears to be a casualty of policy friction. Wheat ended the week of September 3, 2018 at $5.11 per bushel sustaining a series of higher lows and higher highs. That said, wheat is losing economic momentum. (B14-B17)

Long Grain Rice. Fundamentals are weighing heavily on this market. Rice prices appear intent on spending the next 1 to 2 plus weeks sideways to up before committing to a price direction. Closing the week of September 10, 2018 below $10.50 per cwt. implies additional price weakness ahead. (Chart B18-B20)

Cotton. Key consideration: If cotton can remain above December 77.9 cents per pound, this market has potential to regain a bullish posture, given today’s global economic setting. Finishing the week of September 10, 2018 below 77.9 cents per pound would likely indicate some serious price weakness lies ahead (September 7, 2018 – 82-cents per pound). Charts (B21-B24)

U.S. Dollar. The U.S. Dollar mostly sideways with a slight downside bias and more strength than weakness in other key currencies the week of September 10, 2018. The dollar moving back above 95.5 and holding would signal rising concerns for U.S. exports and global policy friction.

U.S. 10-Year Treasury. The U.S. 10-Year Treasury Yield trades mostly sideways in a range of 2.78 to 2.94, but closing the week of September 10, 2018 above 2.97 could signal a more bearish market pattern or rising yields.

 

Must Read Westhoff Article: Trade problems and big crops weigh on farm income, Pat Westhoff is director of the Food and Agricultural Policy Research Institute at the University of Missouri and a professor of agricultural and applied economics. Columbia Daily Tribune

 FAPRI_MU - 2018 August Baseline Update for U.S. Agricultural Markets

FAPRI-MU Report #03-18 provides an update of the 2018 FAPRI-MU long-term baseline to reflect information available in mid-August 2018. Microsoft Excel tables are included for your convenience.

 

Rice Outlook Videos: August 30, 2018 USDA Economic Research Service’s Dr. Nathan Childs discussed U.S. and Global Rice Situation and Outlook and USDA NASS Regional Director Eugene Young discussed their latest Rice Stocks Report.

Title: Rice Situation and Outlook & NASS August 1 Rice Stocks Report Analyzed: Viewing Link: Website http://www.uaex.edu/ag-webinars

 Brazil, NAFTA, China Video: Agricultural Trade: China, NAFTA and Brazilian Agriculture in Focus with Dr. Luis A. Ribera, Professor and Extension Economist, Texas A&M, August 23, 2018

 Bobby Coats is a professor in the Department of Agricultural Economics and Agribusiness, University of Arkansas System, Division of Agriculture, Cooperative Extension Service. E-mail: [email protected]

 

Download Slide Show for charts and expanded details, Click Download Link

 

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