U.S. Dollar and Commodity Prices

Oct 2022

The U.S. Fed Reserve meets this week and is expected to raise interest rates by at least another 0.75%.  Higher rates, plus the significant strengthening of the dollar is placing a great deal of pressure on many economies around the world, especially emerging markets. A strengthening dollar increases the costs of imported foods, fuel, and debt servicing for weaker or weakening currencies. A strong dollar also makes imports cheaper for the U.S. and encourages greater foreign investment seeking higher returns.

Last week the World Bank predicted the global economy will go into recession and “a string of financial crises in emerging markets and developing economies that would do them lasting harm.” China, Japan and other major   importers are also facing stagnant economies, increased domestic borrowing rates, lower exports and falling     consumer confidence. Argentina recently raised their interest rate to 75% and Ghana is now at 22%.

The strengthening dollar paired with relatively high U.S. meat and poultry prices are likely to constrain future    export demand. In Canada and Mexico, the major markets for U.S. beef and pork exports, currencies have not  fallen against the dollar and these importers look to maintain good demand.  While Brazil’s currency fell –40% against the dollar from 2018-2020, it has remained relatively stable since. That will keep their export price       comparisons more at par with the U.S., bad news for poorer importing nations seeking grains and meat.

On the flip side, the Yen (-23%), Egyptian Pound (-18%), Korean Won (-17%) and Chinese Yuan (-4%) will find U.S. exports more expensive. Poultry exports, which have a more diverse market portfolio of overseas customers,  face additional headwinds as emerging-market governments face $83 billion USD denominated loan payments due by the end of 2023. Poultry exports to Sub-Saharan Africa are likely to decline (with the exception to oil exporter Angola), Cuba and Haiti are facing significant financial constraints, and Asian markets look to slow as domestic growth stagnates. It is going to be an interesting remainder of the year while world growth and financial projections for 2023 are gloomy. – Richard Fritz


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