The weak US dollar benefits some agricultural products, but not all
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DENVER, February 25, 2021 (GLOBE NEWSWIRE) – The value of the US dollar has weakened significantly since March 2020 and is expected to experience modest deflation in 2021. A weaker dollar generally makes US agricultural products more competitive in the US market. worldwide export. However, not all products are equally affected given the diversity of global export competition and exchange rates.
Fundamental factors such as tariffs and weather conditions in major agricultural production regions often dominate market dynamics despite headwinds or adverse currencies and should not be discounted, according to one. CoBank’s new knowledge exchange report.
“US agricultural exports are largely expected to continue at a faster pace in 2021 with the help of the weak US dollar,” said Tanner Ehmke, CoBank Knowledge Exchange Manager. “But our research indicates that some agricultural products like grains, oilseeds and cotton will face a headwind.”
CoBank’s estimates of commodity-specific weighted trade balances reveal a nuanced view of the monetary implications for U.S. agricultural exports in 2021.
After a difficult monetary environment in 2020, US animal protein exports are expected to benefit from a modest tailwind fueled by a weaker US dollar in 2021. Prospects for a stronger Australian dollar and euro should drive exports American beef and pork the main beneficiaries of the coming year.
Beyond currency, other factors signaling a good year for U.S. protein exports in 2021 include less disruption to U.S. meat processing capacity, a rebound in global foodservice demand and the trend to rising Chinese imports of meat and poultry.
Cereals and oilseeds
The US trade-weighted grains and oilseeds index stands out against other agricultural commodities. The index strengthened by 14% in 2020 and is expected to gain another 4-5% in 2021. The further strengthening of the grains and oilseeds index is due to the strength of the US dollar against major currencies. exporters like Brazil, Argentina and Ukraine.
“A casual observer might argue that corn and soybean exports will face headwinds in 2021, as the strength of the index implies that US exports become less price competitive,” said Kenneth Scott Zuckerberg, chief grain and agricultural supply economist at CoBank. “But that wasn’t the case in 2020 and it shouldn’t be in 2021 due to Chinese demand.”
China is aggressively buying US grain for animal feed as it rebuilds its pig herd, leveraging its strong currency against the US dollar despite the strength of the dollar against other currencies.
The EU and New Zealand are dominant players in global dairy trade, so their currencies play an important role in the trade-weighted currency index for dairy products. The Euro and New Zealand dollar are expected to be stronger against the US dollar in 2021, providing a tailwind for US dairy exports. This creates increased opportunities for cheese exports to key markets like South Korea, Japan and Australia, skim milk powder exports to Southeast Asia and butter exports to Korea. from South. The stronger euro will increase the cost of importing butter and cheese into the United States, which could support domestic demand for American dairy products.
The United States is the world’s largest exporter of nuts, leaving importers around the world with limited options for alternative sources. The United States accounts for 87% of world almond exports, 65% of pistachio exports and 51% of nut exports. Favorable currency winds could provide even greater export opportunities for U.S. tree nuts in 2021.
Australia, the world’s second-largest exporter of almonds with 9% of global exports, is expected to see its currency strengthen against the US dollar, creating opportunities for the US, especially in the Southeast Asian market. East. American walnuts are also expected to enjoy advantages over major competitors. The weak currency in Iran, however, will create headwinds for US pistachio exports.
US cotton is heavily dependent on exports, with over 80% of US cotton going to the export market. The United States also ranks first in world exports with more than a third of the world market share. However, number two Brazil, which claims 20% of global exports, is expected to experience continued weakness in the real in 2021, which will be a barrier for US cotton exports to markets like China, Vietnam and the United States. Pakistan.
The commodity indices created by CoBank’s Knowledge Exchange are intended to capture the impact of changes in exchange rates between the United States and its major competitors in agricultural trade on the price competitiveness of US agricultural exports.
CoBank is a $ 159 billion cooperative bank serving vital industries across rural America. The bank provides loans, leases, export finance and other financial services to agribusinesses and rural electricity, water and communications providers in all 50 states. The bank also provides wholesale loans and other financial services to affiliated farm credit associations serving more than 75,000 farmers, ranchers and other rural borrowers in 23 states nationwide.
CoBank is a member of the Farm Credit System, a national network of retail banks and credit associations licensed to serve the borrowing needs of agriculture, rural infrastructure, and rural communities in the United States. Based outside of Denver, Colorado, CoBank serves clients in regional banking centers across the United States and also maintains an international representative office in Singapore.
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