U.S. Dairy Will Benefit from Weaker U.S. Dollar in 2021
U.S. dairy exports, among other commodities, could see more opportunities in 2021 as the value of the U.S. dollar continues to be low compared to competitors’ currencies, according to a new report from CoBank’s Knowledge Exchange.
The value of the U.S. dollar has substantially weakened since March 2020 and is expected to experience modest deflation in 2021, CoBank says, noting that a weaker dollar generally makes U.S. agricultural products more competitive on the global export market.
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, the report notes. 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.
Meanwhile, U.S. dairy products look to enjoy a more favorable foreign exchange outlook from currency strength in New Zealand and the European Union (EU), and U.S. tree nut exports are expected to see tailwinds from stronger currencies in Australia and Iran.
In its outlook on the dairy sector, the report notes that with the EU and New Zealand being such dominant players in the global dairy trade, the euro, and New Zealand dollar factor heavily in the trade-weighted currency index for dairy. Combined, the EU and New Zealand comprise 58% of world cheese exports, 51% of nonfat dry milk (NDM) exports, and 77% of butter exports. By comparison, the United States claims 17% of the world cheese trade, 31% of NDM exports, and only 4% of butter exports.
Both the euro and New Zealand dollar are projected to be stronger against the U.S. dollar in 2021, giving U.S. dairy a tailwind into the global export market, especially into key markets like South Korea, Japan, and Australia for cheese; Southeast Asia for NDM; and South Korea for butter. As the United States is a net importer of butter — particularly from Ireland — a stronger euro will raise the cost to bring butter into the United States and potentially support domestic demand for U.S. butter, the report adds.
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Source: Cheese Market News