The strength of the U.S. dollar is contributing to ag export woes

Inflation has Americans saying a dollar just doesn’t stretch as far as it used to. Similarly, when looking at the exchange rate and price of U.S. commodities, China is saying the yuan just doesn’t stretch as far as it used to. 

Relative to other currencies, the U.S. dollar has been strong the past couple of years, and experts say it is one factor hampering commodity exports. 

Tanner Ehmke, CoBank’s lead economist for grains and oilseeds, explains higher interest rates, which the U.S. Federal Reserve has implemented in an attempt to fight inflation, has encouraged investment in the U.S. dollar and helped drive up its value, making exchange rates challenging for other countries. 

“That’s a problem for our exports because our foreign buyers have to buy dollars first before they buy our products,” he says. “They have to buy strong dollars, and so therefore they can’t buy as much. It’s just like when we go to the grocery store with inflation. Pre-inflation, $100 would buy a full grocery cart. Now $100 only buys half of a grocery cart. It’s the same thing overseas. Because our dollar is so strong…they can’t buy as many cargoes from us of soybeans, or train cars of wheat, or containers of almonds.” 

Chad Hart, Iowa State University Extension economist, says interest rates aren’t the only reason investors are flocking to the dollar. 

“When we see things like the war between Israel and Hamas, or between Ukraine and Russia, the dollar tends to get stronger because people invest in the dollar as a safe-haven investment,” says Hart. “People believe in it, trade in it, and rely upon it when things go bad.” 

The strengthening of commodity prices alongside the dollar in recent years has been remarkable, he says. 

“If the dollar gets stronger, usually our prices get weaker,” he says. “If we look at the events from 2020 to 2022, what we saw was the dollar was getting stronger [and] so were crop prices.” He notes the typical pattern now has returned. 

One of many factors

Steve Nicholson, global strategist on grains and oilseeds for Rabo AgriFinance, points out the dollar is just one factor weakening U.S. exports. 

“First of all, [there’s been] record corn and soybean production out of Brazil, and so they’ve been extremely competitive in the marketplace,” he says. “Also, Russia’s record wheat production and record wheat exports have been tough on anyone else trying to compete in that marketplace going forward. I think those two things have had as much of an impact, if not more, than what the dollar has done.” 

Hart says there were times in 2023 when Brazilian soybeans were priced so low U.S. soybeans couldn’t compete regardless of how strong or weak the dollar might have been.

Logistical chess

Beyond price, there is also the matter of getting the product to the end destination. Ehmke says the United States has historically had an advantage in this area but it is currently compromised. 

“The advantage that we have always had over the Brazilians in transportation is going away for two reasons,” he says. “One, the Mississippi River is so low. That was our ace in the hole every year. Although our cost of production is so high in this country compared to Brazil, we always knew that we could make it out to the Gulf of Mexico very easily. That’s an efficient trade. And you didn’t have to worry about any transportation issues with the United States. 

“Now that value proposition of exporting out of the United States is weakened because of the Mississippi. And over the past several years, the Brazilians have been improving their transportation systems…. You had all these roads that were just full of potholes and mud holes literally the size of trucks. A lot of those issues have gone away now because of heavy investment, particularly from the Chinese,” Ehmke continues. 

However, as of this writing, Nicholson notes Brazil is still struggling with transportation inland and at the ports and it is making U.S. commodities look more attractive to buyers.

The pragmatism of hunger

It may be a new year, but old challenges will persist, Ehmke says. 

War wages on in the Middle East and Ukraine, and interest rates remain elevated for now. However, the Federal Reserve has indicated that may change this year.  

“For the foreseeable future, we’re going to have a strong dollar,” Ehmke says. “And for the foreseeable future, the Mississippi River levels are going to be low. It’s going to be hard to compete.”

However, Ehmke points out planting delays in Brazil last fall will shorten the growing season for the safrinha corn crop and aid U.S. competitiveness in 2024. 

Nicholson also says the realities of supply will ultimately outweigh price, noting that tight supplies in recent years mean nations will pay what they must to get what they need to feed their people until commodity supplies widen. 

“My point is that the price has become less material,” he says. “It doesn’t mean it’s not material and you may adjust your buying accordingly, but the fact is people have to have it to feed folks now, and it’s about supply and food security more so than price.”