Photo by Adam Nir on unsplash.com

As the value of the dollar nears parity with the euro, good news for travelers is spelling trouble for exporters — including farmers.

The Federal Reserve’s response to rampant inflation has strengthened the dollar internationally. For investors, higher interest rates mean bigger returns on safe havens such as U.S. Treasury bills, said Antonio Avalos, chair of the economics department at Fresno State’s Craig School of Business. Because T-Bills must be purchased with U.S. currency, that means more investors buying dollars, pushing demand upward and increasing its value.

For travelers, that means more favorable exchange rates. For consumers, it means cheaper imports. But for exporters, that means competing in markets against other suppliers who don’t have to sell higher to cover more expensive input costs.

Nuts!

In Europe, pistachios are going for 15% more than they did the year prior, said Jim Zion, managing partner with Meridian Growers in Madera. Zion is still getting around the same price as last year, but they’re just more expensive to purchase, he said. Stronger currency values are driving that increase in prices.

“They’re not happier about having to pay 15% more, but unfortunately that’s the way it is,” Zion said.

Pistachio growers are lucky this year, said Zion. Normally, consumers would turn to less expensive products like those from Turkey or Iran. But a short crop in Iran has kept American product competitive.

“If that persists and next year is a big crop and Iran has a big crop, that could really be an issue we’re going to have to address,” Zion said. He added that higher currency values rank No. 3 or No. 4 on the list of factors negatively affecting the industry.

Growers are hoping the domestic market can absorb some of the carryover should American products find less demand. Newer markets such as India are also beginning to open, so that may help.

Of California’s crops, nuts have been among the most affected by shifting currencies, said Michael Swanson, agricultural economist and consultant with Wells Fargo. But each nut must be looked at individually. When it comes to pistachios, consumers have several options. The same goes for walnuts. Chinese and South American walnuts have been growing in terms of market share. And with less expensive water and labor, they are growing in terms of competition as well.

Almonds, however, are in a field by themselves. California almonds dominate global trade, so currency values don’t play as big a part in their demand.

Regional shifts

The biggest trade partners with the U.S. are Canada, China, Mexico and the E.U., said Swanson. Those four together account for 65% to 75% of all ag exports. Much like with the E.U., the Canadian dollar has weakened against American currency. But consumers in those markets typically have the wealth to purchase, so it’s a matter of if they want to put their money toward those goods.

In the case of Mexico, the peso has held strength against the dollar. While not the biggest consumer of American ag products, they do import a lot of raw products such as milk powders, some meats, as well as corn and soy. Declining currencies in the E.U. may make European milk powders more attractive, but dairy farmers there have been having their own problems.

For the California grower, the rising value of the peso has meant that fruits and veggies don’t have as much of an edge as they could on supermarket shelves.

“It’s actually pretty good for the California producer because if the peso had weakened more, it would have made that Mexican product even more attractive than it is right now,” Swanson said.

In the past, the Federal Reserve has reacted to counter higher currency values, but in current economic conditions, it simply is not a priority now, Avalos said.

Bigger fish to fry

Monetary policy is focusing on getting inflation under control, and September’s inflation numbers were not encouraging. The Federal Reserve announced interest rates would have to continue to rise until a balance could be struck.

There is one situation that Avalos said might help. Inflation is not unique to the U.S. Other countries and cooperatives — such as the E.U. — are also raising interest rates to combat runaway spending, making investments in those currencies more attractive. It is easier to do business with one’s own country, so demand for U.S. dollars may wain as those for the euro may increase, taking some investors out of the market.

“I think this is going to help stabilize the strengthening of the U.S. dollar because the demand for the dollar is going to slow down,” said Avalos.

But interest rates aren’t just affecting export prices. The price to borrow money has almost doubled, according to Scott Iverson, market executive for Agribusiness West, the agricultural arm of Wells Fargo. Payback periods are getting longer, causing difficulty in maintaining available capital.

Zion echoed that sentiment, saying carryover costs are getting more expensive as his pistachios await buyers.

Those costs continue to eat away at margins.

“That’s why you’re seeing a lot of consolidation in the market,” Iverson said. “Smaller farmers being bought by larger operations.”

Help on way?

Labor is increasingly more expensive and harder to find. And even though breakthroughs are being made in the world of robotics, those are capital-intensive investments with high borrowing costs.

The job of figuring out the appropriate return-on-investment figures will land on the salespeople, said Iverson.

The U.S. Farm Bill is up for renewal in 2023, but Swanson isn’t holding out hope for much help. He predicts relief will be slimmer with government spending constrained. He is also waiting to see how much environmental spending will be in the Farm Bill.

The issue of higher interest rates will continue to plague growers until the Federal Reserve can rein in inflation.

“The one thing we have to remember is it’s never about us,” Swanson said. “A strong dollar is not about agriculture. We’re just kind of having to deal with it.”