How Will Foreign Exchange Rates Impact the Animal Protein Sector?
The value of the U.S. dollar has weakened substantially in the past year and CoBank Knowledge Exchange analysts say they expect it to experience modest deflation in 2021. This may be good news or not-so-good news depending on the commodity.
“A weaker dollar generally makes U.S. agricultural products more competitive on the global export market. However, not all commodities are affected equally given the diversity in global export competition and foreign exchange rates,” CoBank’s Knowledge Exchange said in a recent report.
Tariffs and weather conditions in key agricultural producing regions often direct market dynamics despite currency headwinds or tailwinds and should not be discounted, the report said.
“U.S. agricultural exports are largely expected to continue a faster pace in 2021 with help from weakness in the U.S. dollar,” said Tanner Ehmke, manager of CoBank’s Knowledge Exchange. “But our research indicates that some agricultural commodities like grains, oilseeds and cotton will face a currency headwind.”
What Does this Mean for Animal Protein?
U.S. animal protein exports are expected to benefit this year from a modest tailwind fueled by a weaker U.S. dollar in 2021.
The animal protein trade weighted index is expected to weaken by 2% this year, CoBank reports. The animal protein index strengthened by close to 9% in 2020 with the index peaking in April and May when the currencies of Brazil, Australia and Argentina lost significant value against the dollar.
After a challenging currency environment in 2020, analysts say the outlook for a stronger Australian dollar and euro should make U.S. beef and pork exports the largest beneficiaries this year.
In addition to currency, other drivers indicating promise for U.S. protein exports include less disruption to U.S. meat processing capacity, a rebound in global foodservice demand, and an upward trend in China’s meat and poultry imports.
Read the report, Dollar Divergence: U.S. Dollar Index Does Not Reflect True Dollar Impact on U.S. Ag Exports.
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