Exchange Rates and Commodity Markets

ExchangeRatesandCommodityMarkets:GlobalExportsofCorn,Cotton,Poultry,andSoybeansAbdulAlmarwaniCurtisJollyHenryThompsonAuburnUniversityTheeffectsofexchangeratesandriskonmajorcommodityexportersareexaminedinmarketsconstructedfromthetopfiveimportersandtopthreeexportersfrom1961to2000.Depreciationtypicallystimulatesexportsbuttheimpactsvaryconsiderably.Exchangeriskhasvirtuallynonegativeimpacts.Importerincomesraiseexportsforabouthalftheexporters,andmajorcompetitormarketsharesaffectabouthalftheexporters.ExchangerateshavebeennotedtoaffectUSagriculturalexportrevenue.TheUSDAEconomicResearchService(2001)estimatesexchangeratesaccountforaquarterofthechangeinUSagriculturalexportrevenuewitheffectsvaryingbycommodityandcountry.Importerincome,foreignproductivity,andweatheralsoplayroles.Thepresentpapertakesalookatfourseparateglobalcommoditymarkets,examiningmajorexportersinfourmarketsfrom1961to2000.Thepresentanalysisestimatescommodityexportsfromeachofthethreetopexportersusingweightedexchangerates,relevantrelativeprices,andimporterincomesforthetopfiveimporters.Theeffectsofexchangeratesandrisk,aswellasrelativepricesandimporterincomes,varyconsiderablyacrosstheseglobalcommoditymarkets.ABriefLookattheCommoditiesCorn,cotton,poultry,andsoybeansaccountforalmostonethirdofUSagriculturalexportrevenue.UScornexportsareaboutaboutonetenthoftheworldtotal(ERS,2002)andChambers(2002)projectsincreasedworlddemand.CornshipmentsforindustrialprocessingarelargelylimitedtoJapan,SouthKorea,andCanadawithfoodshipmentstoSub-SaharanAfricaandLatinAmerica.Definingthemarketasthefivelargestimportersin2001,Argentina(globalexportmarketshare9%)andEurope(4%)arecompetitorswiththeUS(70%).Incottonproduction,theUSrankssecondafterChinaandUScottonmarketshareshavedeclinedrecentlyasdescribedbyHudsonandEthridge(2000).Still,theUSaccountsforaboutonefifthofworldexportsasdescribedbyJolly,Jefferson-Moore,andTraxler(2005).DepressedcottonpricesaretheresultofthecontinuedstrongworldproductiondescribedbyMeyer(2002).Duetodatalimitations,Australia(11%)andArgentinaat(1%)arechosenasthemajorcompetitorsoftheUS(38%)inthepresentmodel.SoybeantradehasexpandedrapidlywiththeUSprojectedtoremaintheleadingsoybeanexporterthroughthe2010s.TheUS,Brazil,andArgentinaaccountalmostallworldexportsasdocumentedbyLarson(2000).Inthepresentmodel,Brazil(31%)andArgentina(14%)aremajorcompetitorswiththeUS(47%).TheUSisthelargestproducerofpoultryproductswithalmostonethirdofexpandingworldoutput.MajorimportersareCanada,HongKong,Japan,Mexico,andRussia,andcompetitorsareBrazil,Thailand,China,France,andtheNetherlands.Only7%ofglobalproductionistradedduetolocalconsumptionandtradebarriersaccordingtoColyer(2000).Brazil(21%)andEurope(3%)arethemajorcompetitorsfortheUS(44%).ABriefReviewofExchangeRatesandTradeChambersandJust(1987)contendexchangemarketinterventiontostimulateexportsiscommon.KlitgaardandOrr(1998)evaluatetheroleofthedollaronpricecompetitivenessofUSexports.JabaraandSchwartz(1987)attributeUStradedeficitstodollarovervaluationandRoe(2000)seesthestrongdollarduringthe1990sasareasonforhighUScommoditypricesonworldmarkets.Orden(2002)agreesthatexchangeratemovementsareinfluentialinagriculture.AvarietyofcommoditymarketeffectsareuncoveredbyCushman(1983),GrigsbyandArnade(1986),ChambersandJust(1986),AndersonandGarcia(1989),Penson,Capps,andRosson(1995),andHudsonandEthridge(2000).GoldbergandKnetter(1999)finddifferentmarketreactionstoexchangeratesinamodelofexcesssupplyofGermanbeerexportstotheUSandUSlinerboardexportstoGermany.HooperandKohlhagen(1978)analyzemultilateraltradeflowsbetweentheUSandWestGermanyfrom1965to1975andfindexchangerateeffectsbutnoriskeffects.Cushman(1983)extendstheirstudyto1977anduncoversalaggedriskeffect.Krugman(1987)findsGermanexporterstotheUSpricetomarketabsorbingaportionofexchangerateeffects.ThompsonandUpadhyaya(1998)findexportdepreciationelasticitiesofexchangeratesonchemicalsandprimarymetalscloseto3%inAlabama.Estimatedriskeffectsintheliteraturevarywidely,forinstanceinCushman(1986,1988),KenenandRodrik(1986),andChowdhury(1993).AsseeryandPeel(1986)findpositiveriskeffectsformosttradeflowsbetweenfiveindustrialcountries.Gotur(1985)findsriskhasanimpactontheUS/GermantradebalancewithlargereffectsonGermanexports.Fang,Li,andThompson(2005)showexportsfromfiveAsiancountriesreactdifferentlytoexchangeratesandrisk,concludingthathigherriskstimulatesefforttoavoiditsimpact.CommodityMarketModelandDataBalassa(1965,1977)definesrevealedcomparativeadvantageasSnk=((Xnk/Xnw)/Xk/Xw))(1)whereXnk≡exportrevenueofcommoditynincountrykXnw≡exportrevenueofcommoditynintheworldXn≡exportrevenueofcountrynXw≡worldexportrevenue.AbetternameforSnkisstandardizedexportmarketsharesincecomparativeadvantagereferstoarelativeefficiencyadvantagewhilefactorendowmentsanddemandcontributetodeterminingexports.IfSnk1countrykisarelativeexportercommodityn.ThepresentmodeltreatsmajorcompetitormarketsharesXScasexogenousforeachexporter.Abbott,Bredahl,andReed(1994)andGoldbergandKnetter(1999)developthetheoreticalbackgroundofmarketshares.TotalexportsXSTisthesumofthemajorexporterXS,t