Slump of the Mexican peso: Good for some in Merced, not so much for exports

Joyeria La Perla, a jewelry and leather goods shop in Merced, has seen an increase in foot traffic in the past few days, but not necessarily because of its merchandise. Rather, the small business is drawing customers who stop by to inquire about its money transfer service to Mexico.

“The dollar is at 18.36,” shop owner Ismael Plascencia told Maria Torre, a customer who stopped by recently to ask about the dollar-to-peso exchange rate.

“Wow,” Torre responded.

For people, like Torre, who send money to their families in Mexico on a regular basis, the depreciation of Mexican currency is good news. “I wish I had more money to send to my father,” said Torre, a native of the Mexican state of Jalisco.

The peso hit a new low earlier this month – the result of falling oil prices, among other factors, experts say. One peso is now worth about a nickel. Just two years ago, the peso was trading at about 12.24 per dollar.

While the slump of the Mexican peso increases the value of the American dollar and its purchasing power, this also means it is harder for Mexico to afford foreign products, which can be bad news for U.S. firms that export to Mexico.

On a busy day, Plascencia will see about 50 money transfers to Mexico, he said. When the peso dropped to 18.80 per dollar two weeks ago, he made about 80 transfers in one day.

“People are taking advantage; they know this is not going to last forever,” he said.

His regular customers are also sending money in larger values. Someone who usually sends $200 is now choosing to send $500 or more. Those with more flexible incomes and with properties in Mexico that need upkeeping, Plascencia shared, are sending closer to $1,000.

“Now is the time to do it,” he said.

Greg Wright, an economics professor at UC Merced, said this trend makes perfect sense, especially in areas with a large population of Mexican migrant workers, such as the San Joaquin Valley. “Remittance is a big deal,” Wright said. “It’s a large part of the Mexican economy.”

According to a 2013 report by the Pew Research Center, Mexico alone receives more than half of all U.S. remittances to Latin American countries. In 2012, funds sent to Mexico totaled $23 billion.

The falling value of the peso is not all bad news for Mexico’s economy, Wright explained. Cheaper currency can also increase the demand of Mexican products and make the country’s exports stronger. Some Mexican businesses thrive during this time, Wright said.

But U.S. businesses that heavily depend on exports to Mexico, can take a hit by the peso’s depreciation.

Since 1995, Mexico has been the second-largest export market for the U.S. For the state of California, Mexico is the No. 1 export market, purchasing an estimated 14.6 percent of the state’s total exports, according to the California Chamber of Commerce’s website.

Computers and electronic products are California’s largest exports. Agriculture and processed foods are also among the top. And it is these processed foods and agriculture sectors that would theoretically feel the greatest impact by the decline of the value of the peso, economists say.

Jock O’Connell, an international trade economist with Beacon Economics, explained that these exports are usually at high risk because they are products directly consumed by Mexico’s domestic companies. Other goods, such as transportation equipment, are sent to Mexico for parts and assembly, but then returned to the U.S. for consumption.

California’s agriculture exports are made in large part of products coming out of the Central Valley. Almonds, for example, are Merced County’s largest export to Mexico. O’Connell explained that in the first 11 months of 2015, the value of California’s agricultural exports to Mexico came in at an estimated $586.1 million. That was down about 2.7 percent from the same period in 2014, O’Connell explained. “All things considered, it is not a big hit,” he said.

However, while the peso is declining in value against the dollar, the price per pound of almonds in the world market has also fallen. This means that, at this time, the impacts may not be as evident.

“The decline of the peso matches the decline of the price of almonds,” O’Connell said. “The question now is: How long will this persist?”

“If one or the other changes,” O’Connell added, “Mexican importers will have to reach deeper into their pockets for more pesos to buy a dollar worth of almonds.”

This story was originally published January 28, 2016 at 10:17 PM with the headline "Slump of the Mexican peso: Good for some in Merced, not so much for exports."