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February 15, 2002

The exchange-rate index of the dollar has risen slightly in 2002, indicating further strengthening of the dollar. This also effectively raises U.S. export prices. However, foreign economic growth shows signs of improving in 2002, which should encourage demand for U.S. exports. The net effect on sales of U.S. farm products in foreign markets depends on which macroeconomic factor proves to be more dominant.

From 1996 to 2001, the U.S. dollar's inflation-adjusted value strengthened by 16 percent against the currencies of our major agricultural markets. The dollar was pushed up initially by exceptional U.S. economic growth, averaging 3.9 percent between 1996 and 2000.

Relatively high U.S. long-term interest rates and weaker foreign economies have continued to attract capital flows into the United States in recent years, boosting the dollar further. While the dollar's increased purchasing power encouraged Americans to demand more imports, higher prices of U.S. exports in foreign currency terms discouraged foreign import demand. This contributed to the decline in value of U.S. agricultural exports from 1997 through 1999.

U. S. agricultural exports reached a peak of close to $60 billion in fiscal year 1996 before falling to $57 billion in 1997, $54 billion in 1998, and $49 billion in 1999. Depreciated foreign currencies, weak economies in Europe, and recessions or slow growth in Japan, Asia, and Latin America from 1997 to 1999 resulted in declining import demand. Additionally, world food prices continued to decline as global supplies of farm commodities remained abundant.

These factors—the strong dollar, weak foreign demand, and bloated world supply—subdued export prospects for U.S. agricultural products. Source: U.S. Agricultural Trade Update, Dec. 27, 2001

Many concerns drop beef exports
U. S. beef exports for 2001 are now expected to be down 12-13 percent from last year and exports in 2002 are likely to decline another 2-3 percent.

If realized, exports in 2002 would be down 14 percent from the record 2.5 million pounds achieved in 2000. During the same period, domestic consumption is expected to decline only 2-3 percent.

Exports are down generally as a result of high U.S. prices, slowing economies worldwide, and BSE concerns in Asia.

In the year 2001, U.S. beef production amounted to 26 million pounds, while per capita consumption, stated in retail pounds, amounted to 68.4. U.S. beef and veal exports amounted to 2.2 million pounds, while imports were 3.2 million pounds.
Source: Livestock, Dairy and Poultry Situation and Outlook, Dec. 27, 2001

Brazil a rising wheat market
Brazil is projected to be the world's leading importer of wheat, starting in 2000/01 at 7.2 million tons and extending throughout USDA's baseline projection to 2010.

Brazil's wheat production has dropped since production subsidies and some import barriers were removed in the early 1990s.

In contrast to soybeans, corn, and more recently cotton, Brazil's predominantly tropical setting has prevented the expansion of most small grain production beyond the southernmost States.

Continued population and gross domestic product (GDP) growth are expected to bolster demand for wheat products well into the future.
Source: ERS/USDA Agriculture in Brazil and Argentina, Nov. 2001

Program payments add to farmland value
Government commodity program payments are estimated to have added nearly $62 billion to U.S. farmland values, as farmland value depends largely on expected future earnings, including program payments.

From the perspective of many farm operators who own land, farmland value increases are favorable. Farmland value underlies the financial stability of many farm businesses, and farmland is often the principal source of collateral for farm loans.

But for operators who pay more to buy land, appreciated values add to the fixed cost of production, largely related to higher financing costs and/or real estate taxes. Additionally, operators who lease farmland may pay higher rents that reflect their receipt of some of the government payments.

The added farmland value is particularly high in the Heartland region, where farm commodity payments have added $40 billion to the market value of cropland, nearly two-thirds of the effect nationwide. Much of the added value nationally, over 60 percent, accrues to non-operator landlords who lease out their land.
Source: Agricultural Outlook, USDA, November 2001