Perhaps an amusement park should name a roller coaster after the U.S. dollar after the wild ride it’s been on in 2020. One of the impacts to agriculture from COVID-19 somewhat overlooked is the roller coaster ride the value of the dollar has been on since the beginning of the year (Figure 1).

The health of the Nebraska agricultural economy relies in part on exports. A key determinant in determining the competitiveness of Nebraska agricultural products in world markets is the value of the dollar against world currencies. Many factors affect the dollar’s value against other currencies. Supply and demand for products, international trade and investment, inflation and interest rates, and market sentiment all influence the value of the dollar. When the value of the dollar is high relative to world currencies, U.S. agriculture products are more expensive. When it is low, U.S. products are more competitive.

Figure 1. Value of the U.S. Dollar

Value of the US Dollar

Source: www.tradingeconomics.com

Like many commodities, the value of the dollar has been volatile in recent months due to the COVID-19 pandemic and subsequent economic impacts. Based on the Tradingeconomics dollar index shown in Figure 1, between Jan. 1-Feb. 20, the value of the dollar was up 3 percent; between Feb. 20-March 9, down 5 percent; between March 9-March 20, up 8.3 percent; and between March 20-June 4, down 5.8 percent. At the close of last week, it was trading at levels like those seen entering the year. Imagine the difficulty pricing products in international markets under these kinds of fluctuations.
The value of the dollar affects the price of commodities traded in international markets. The Agricultural Market Information Service (AMIS) June Market Monitor notes, “Research has shown that a 10 percent appreciation of the dollar against major currencies is associated with a 5 percent decline in prices of internationally trade commodities.” Figure 2, created by Dan Hueber and shown in the theheuberreport, echoes the sentiments reported by the AMIS. Figure 2 contrasts the value of the dollar against the CRB Index (Commodity Research Bureau) between 2003-2020. The CRB Index includes a basket of 19 commodities with 41 percent allocated to agriculture commodities and the remaining allocated to energy, industrial metals, and precious metals. Figure 2 illustrates the inverse relationship between commodity prices and the value of the dollar—when the value of the dollar increases, commodity prices decrease.

The Tradingeconomics website suggests the value of the dollar will dip further before rising later in the year and into 2021. Other prognosticators have suggested the value of the dollar will dip and then stabilize. Any decline and reduced volatility would help U.S. agricultural exports.

Figure 2. CRB Index & U.S. Dollar Index

CRB Index and US Dollar Index

Source: thehueberreport, Dan Hueber, June 2, 2020.