Many variables impact exports of agricultural commodities, and the relative value of currencies is one of them.
We cannot say definitively that a strong dollar has hurt corn exports significantly, but we can say that the strong dollar certainly has not helped.
Japan is the largest buyer of corn from the United States. In the 2009-10 marketing year, Japan accounted for 30 percent of all U.S. corn exports.
By the 2013-14 marketing year, Japan’s share of U.S. exports dropped to 24 percent. Further, through the end of March of the current 2014-15 marketing year, exports to Japan were down another 14 percent.
Given the recent strength in the dollar, an important question to ask is whether or not a strong dollar is to blame for the more than 20 percent drop in corn exports to Japan since 2010.
The accompanying chart gives an interesting to have a feel for historical values. In 2008, when weekly corn futures peaked at $7.32, the price of corn in Japanese yen was ¥792. By 2010 when the price of corn futures in U.S. dollars dropped to $3.40, the price in yen was ¥305. In percentage terms, that’s a comparable drop of roughly 55 to 60 percent in either currency.
But then the world started to change in 2012. When weekly futures peaked at $8.03, a 136 percent increase from 2010, the price in yen was ¥629 per bushel, an increase of “only” 102 percent. Corn did not go up as much when priced in yen because the yen was strengthening against the dollar during that time period.
Today, with corn at $3.65, the price of corn in yen is ¥436. So the price of corn has dropped by nearly 55 percent in dollars since 2012, but only by 31 percent when priced in the Japanese yen.
Weak Japanese economy
The heart of the issue isn’t that the Federal Reserve policy of the United States has caused the value of the dollar to go up, but more importantly, the weak economy in Japan has caused the value of their currency to collapse. Japan has been in a depression for many years. They have been attempting to stimulate their economy by printing excessive amounts of money, hoping to inflate their way out. It has not worked, and thus in 2012, the policy of devaluing their currency was, in their opinion, a possible means of stimulating their economy. That has not worked either.
The result has been a weakening of their currency and, therefore, of their buying power, which has hurt us as well.
Over the past several weeks, we have seen a very sharp decline in the value of the U.S. dollar, but the decline has been relative to other currencies and not the Japanese yen. The Japanese yen has been flat since December, but from a technical perspective, is in a base-building mode. The good news is that both currencies are headed in the right direction to help stimulate U.S. corn exports.
As written at the beginning, no one can definitively say that the strength of the U.S. dollar has hurt corn exports to Japan, but we can definitively say the strength of the dollar and the weakness of the yen have certainly not helped exports. With the trend in the right direction, this is the type of stimulus that will be needed to increase corn exports over the next few years. This is not a short-term fix, but it is what is needed to start the base building in corn prices to get back to more profitable levels.