As the value of the U.S. dollar falls against other currencies, dairy products could become more competitive in world markets and help boost exports somewhat—despite retaliatory tariffs.
“The sanity of market analysts has not been the only casualty of this year’s flurry of government activity and trade war threats. The U.S. dollar has also taken a hit in recent weeks,” said Monica Ganley, analyst with the Daily Dairy Report and principal at Quarterra, an agricultural consulting firm in Buenos Airies.
“The news isn’t all bad for the U.S. dairy industry, though, because a weaker dollar will also render U.S. dairy exports more affordable for foreign buyers, who will have to shell out less of their own currency to buy product priced in dollars,” Ganley said. “This dynamic could provide a competitive boost to U.S. exports and help counteract the negative impacts of retaliatory tariffs,” Ganley said.
Published by the Intercontinental Exchange, the U.S. dollar index, which measures the value of the U.S. dollar against a basket of other currencies, rose in the final months of 2024. In early January, the U.S. dollar index hit 109.6. But since then, the index has lost 5.7% of its value— the worst performance for the beginning of any year since the Global Financial Crisis in 2008, Ganley said.
“The value of the dollar has fallen because investors have eschewed the currency in favor of what they view as more stable alternatives, such as the euro. Extreme political uncertainty, punctuated by escalating trade conflicts, has increased the likelihood that the U.S. economy will enter a recession this year. If that occurs, the Federal Reserve will almost certainly lower interest rates to spur additional economic activity. Lower interest rates mean that returns for investors who hold U.S. dollar denominated debt will decline, pushing them toward more attractive investments.”
These and other macroeconomic factors have weighed on consumer confidence, which could lead to a slowdown in spending. Retail sales rose 0.2% in February after declining 1.2% in January, according to the U.S. Census Bureau.
“While a positive reading on retail sales was welcome news, the modest result suggests consumers are proceeding cautiously. A weak dollar will further undermine the purchasing power of American consumers who buy imported goods, which could push the economy into a recession if consumers stop buying,” Ganley said.
Even if exports are boosted by a declining dollar, about 84% of U.S. milk production is consumed at home, which means any slowdown of U.S. demand could outweigh stronger exports, she added.
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