The impact of exchange rates on beef and cattle trade in North America

Abstract

A long-standing area of debate in agriculture revolves around the impact of exchange rates on prices and trade. The ability to compete worldwide in an import-export market for agricultural products is of critical importance to agriculture as an industry. Producers everywhere are concerned with keeping their product competitive, and want as much information as possible about the roles of different variables in their industry. The exchange rate and its role in agriculture have been a source of much debate. Many U.S. producers and others have blamed the increase of beef and cattle imports from Canada on a stronger U.S. dollar versus the Canadian dollar. Producers, policy makers, and consumers are wondering just what role the exchange rate has and what to do about it. They are concerned that a booming U.S. economy and strong U.S. dollar are damaging agriculture's ability to compete in a global market. The purpose of this study was to determine the role that exchange rates have on cattle trade in North America. There have been several studies to date on the exchange rate issue, but with varying results. These studies were based on feed grains and row crops, not with cattle and beef as the primary commodities. Using exchange rates expressed in terms of foreign currency per U.S. dollar, the exchange rates' impact on beef exports to Canada, beef exports to Mexico, beef imports from Canada, cattle imports from Canada, and cattle imports from Mexico was tested. Beef production and cattle slaughter were used as a proxy for the cyclical nature of the industry, and price was used as well. Using impulse response functions, the effects of a one standard deviation shock in exchange rate on price, production, imports, and exports could be examined. These impulse response functions provide the initial reaction of the variable to the shock, as well as how it behaves for thirty-six months after the shock. This study found that exchange rates do in fact have a short-term influence on the level of beef imports and exports and cattle imports. The magnitude of this impact still needs to be examined, and the model expanded to include other variables.