Farm406

into next year, producers who switched away to corn and soybeans in the 2000s and 2010s may choose to return at least some of those acres into wheat production. While I don't think there is a large chance that this happened this year, protracted uncertainty about international oilseed and coarse grain trade may change incentives. 4. Interest rate increase are likely to maintain the dollar's strength and could reduce demand for U.S. agricultural products. Why I think this is correct: If you've been following recent news, you've probably at least heard mentions of the U.S. Federal Reserve implementing policy to raise key interest rates, and that this policy is likely to continue over the next year. These policies are highly-researched and are never implemented haphazardly, and their intent is to balance the U.S. economy's ability to maintain growth without overheating too much (which would lead to high rates of inflation). However, one well-known indirect outcome of higher interest rates is the strengthening of the U.S. dollar relative to other currencies. The intuition is that higher interest rates encourage foreign investments into the United States, which increases the demand for U.S. dollars and raises their relative value. The figure below shows that the U.S. dollar has increased over the past year relative to numerous other major currencies, and higher interest rates may aid in future growth. In general, this is okay (and quite good for U.S. consumers, who now have higher purchasing power). However, as I wrote in an earlier post, a higher U.S. dollar value is not particularly good news for the U.S. agricultural sector. When the U.S. dollar becomes more expensive to buy, trade partners may turn to other countries (with relatively cheaper currencies) for procuring grains and other products. Why I think I might be wrong: While the Federal Reserve can always change its mind in light of new information and findings, even if it does continue course and increase interest rates, the impacts on a specialized agricultural sector (i.e., higher-quality wheat) may be limited. This is especially the case if production of higher- protein wheat is limited in 2019/20, making the buyers of such wheat relatively insensitive to price changes. That is, these buyers may be willing to take on the additional costs of a higher-valued dollar in order to acquire the differentiated product. Trade-Weighted U.S. Dollar Index 47 farm406

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