Dominant Dollar

The value of the U.S. dollar continues to remain strong particularly against the currencies of major agricultural trading partners. Figure 3 plots an index of the value of the dollar relative to the currencies of major U.S. agricultural trading partners. After a relatively stable period, the value of the dollar surged beginning in 2021. Through December of last year, it was up 14 percent. A higher-valued dollar makes U.S. goods more expensive for importing countries, weighing on U.S. exports and commodity prices. A lower-valued dollar has the opposite effect.

Figure 3. U.S. Dollar Agricultural Trade-Weighted Exchange Rate Index

 Source: USDA Economic Research Service

Figure 4 shows the changes in the dollar’s value since January 2021 relative to currencies of Nebraska’s largest agricultural customers. As shown, the dollar has appreciated against the currencies of major trading partners except Mexico’s peso where it has depreciated 6 percent. For other trading partners, the gains ranged from 6 percent against the Canadian dollar to 45 percent against the Japanese yen. The changes result in U.S. corn and pork being more competitive in Mexico. In contrast, sales of beef into Japan are less competitive.

Figure 4. Change in Dollar vs. Trading Partners’ Currencies (Jan. 2021-Dec. 2022)

Source: USDA Economic Research Service

The strength of the U.S. economy compared to the rest of the world and the Federal Reserve’s hiking of interest rates underlie the appreciation of the dollar. And while the value of the dollar has softened recently, many observers do not foresee a significant depreciation this year. If anything, the dollar’s value could move higher as the Federal Reserve is likely to further boost interest rates and the war in Ukraine and other geopolitical tensions foster global uncertainty. Expect the value of the dollar to continue to be a headwind for growth in Nebraska agricultural exports in the foreseeable future.