Soybean exports and the exchange rate puzzle

Soybeans have been the bright spot in U.S. crop exports, increasing by 76 percent over the last 12 years after remaining variable but with a flat trend over the prior 18 years. U.S. soybean exports peaked in 1981 at 929 million bushels and did not reach that level again until 1999. The increase in U.S. soybean exports coincides with the point at which China began to become a major factor in world soybean imports.

When looking at bulk agricultural commodity exports the conventional wisdom has held that as the U.S. exchange rate has declined, U.S. exports of these commodities has increased. Two weeks ago we examined corn and saw that relationship between corn exports and the trade weighted exchange rate for U.S. corn importers was significant between 1970 and 1991 ( From 1992-2009 there is no significant relationship between the two.

U.S. wheat showed a similar pattern of a significant relationship between U.S. exports and the trade weighted exchange rate for U.S. wheat importers in the 1970-1989 period ( This pattern did not hold for the 1990-2009 period.

Looking at U.S. soybean exports and the trade weighted exchange rate for U.S. soybean importers, we see the expected mirror image in the 1970-1979 period, and statistical tests show that the relationship is significant

Over the next 20 years (1980-1999), the mirror image is hard to discern in Figure 1 and statistical tests confirm the lack of significance in the relationship between U.S. soybean exports and the trade weighted exchange rate for U.S. soybean customers.

Unlike what we saw with corn and wheat, the mirror image shows back up in the 2000-2009 period and the relationship is statistically significant. During this period China’s share of U.S. soybean exports rose from 19 percent to 56 percent as China allowed the renminbi (Chinese currency) to strengthen somewhat compared to the U.S. dollar.

Of course, other factors are always at work as well—perhaps more so in present-day China than most other places and other times. Of particular importance are China’s impressive economic growth and the attendant societal movement toward more protein-rich diets. But there were also decisions by the Chinese government to remain self-sufficient in traditional staple crops and newly accelerating meat demands.

Soybeans did not make the self-sufficiency list. While more processed soybeans are needed to supply the protein portions of livestock feed rations, China chose to use international markets to procure their ever increasing soybean needs. U.S. soybean producers have benefited, as have South American soybean producers.

In the next few years, we expect the U.S. government to continue to pressure the Chinese to allow the renminbi to gain additional strength in relationship to the U.S. dollar as a means of correcting some of the trade imbalance between the two countries.

If asked to name one country that could dramatically affect U.S. agricultural exports via future changes in currency exchange rates and public policy, China would likely be the country that most would name. It will be interesting to see what time reveals.

EDITOR'S NOTE: Daryll E. Ray holds the Blasingame Chair of Excellence in Agricultural Policy, Institute of Agriculture, University of Tennessee, and is the Director of UT’s Agricultural Policy Analysis Center (APAC). (865) 974-7407; Fax: (865) 974-7298; [email protected]; Daryll Ray’s column is written with the research and assistance of Harwood D. Schaffer, Research Associate with APAC.

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