Why Agricultural Investors Watch Currency Fluctuations



Currency fluctuations

Fluctuations in foreign currency exchange rates can have a positive or negative impact on a company’s performance. It holds true for sectors that have global operations. Most of their sales depend on international markets—for example, Monsanto (MON).

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International markets

In 2016, about 40% of Monsanto’s sales came from outside of the US. Europe-Africa, Brazil, and Argentina were the top three geographic regions by net sales for the company in 2016. Even Monsanto’s US sales aren’t all from the US. It includes export sales to other countries from the US. To learn more, read An In-Depth Review of Monsanto Company’s 2016.

Foreign currency fluctuations also impact other players within the agricultural sector (XLB) including fertilizer companies PotashCorp (POT), Mosaic (MOS), and Agrium (AGU). These three companies export to countries through their jointly owned entity Canpotex. Key markets include China, India, and Latin America.

Currency impacts these companies

The stronger US dollar compared to the respective country’s currency impacts the buyer’s purchasing decisions in that country. It weakens the buyer’s purchasing power. US dollar–denominated liabilities also take a hit—the weaker local currency makes these loans more expensive.

The above companies are fully aware of these issues. They actively hedge their currency exposures.

Next, we’ll discuss how the currency of some of the key agricultural nations moved against the US dollar.


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