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

By Tanner Ehmke

February 25, 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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Disclaimer: The information provided in this report is not intended to be investment, tax, or legal advice and should not be relied upon by recipients for such purposes. The information contained in this report has been compiled from what CoBank regards as reliable sources. However, CoBank does not make any representation or warranty regarding the content, and disclaims any responsibility for the information, materials, third-party opinions, and data included in this report. In no event will CoBank be liable for any decision made or actions taken by any person or persons relying on the information contained in this report.


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