Dollar Divergence: US Dollar Index Does Not Reflect True Dollar Impact on US Ag Exports

By Tanner Ehmke and Kenneth Scott Zuckerberg

February 2021

Key Points

  • The U.S. Dollar Index (DXY) saw rapid deflation in 2020 and has coincided with a rally in commodity prices. However, the DXY is a broad measure of the dollar that is heavily weighted against the euro and does not capture the impact of currency movements on specific agricultural commodity markets.
  • CoBank’s trade-weighted indices for selected agricultural sectors reflect a currency environment that is expected to be positive for some agricultural exports in the year ahead, but is negative for others.
  • While U.S. agricultural exports grew in 2020, commodities like grain, animal protein, and cotton experienced a modest currency headwind from ag exporting regions like South America and Eastern Europe, which is expected to continue in 2021.
  • U.S. dairy products look to enjoy a more favorable foreign exchange outlook from currency strength in New Zealand and the EU, with U.S. tree nut exports expected to see tailwinds from stronger currencies in Australia and Iran.
  • While foreign exchange rates may create headwinds or tailwinds for individual commodity markets, factors like weather, trade policy, and supply and demand fundamentals will continue to also be major markers.

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