The Value of a Dollar Is Influencing the Value of Commodities 

What Happened

Since late September, the U.S. dollar has surged, gaining 8% in value. There are many reasons the dollar can rally, often related to expectations for stronger interest rates or increased confidence in the U.S. economy. In this case, it is likely the latter. Interest rates have moved lower in 2024, yet confidence in the U.S. economy — and perhaps in the new administration — may have helped propel the desire to own U.S. dollars.

Why This Is Important

From the perspective of agricultural exports, a rising dollar increases the cost of imports for foreign countries. When the dollar rises, it may have the same effect as raising the price of the commodity. However, the price of the commodity typically declines for U.S. producers. Wheat prices tend to have an inverse relationship with the value of the dollar. Wheat futures recently peaked in price on Oct. 3 and have since been in a downtrend. The same can be said for the soybean market this fall, with a rally peaking on Sept. 30 — the same day the dollar index bottomed.

Without other outside influences to affect price, it appears the movement of both wheat and soybean prices in the last seven weeks has exemplified the inverse relationship between the trend of the U.S. dollar and the value of both commodities. South American weather continues to remain favorable. Without perceptive concerns about supply disruptions due to challenged crop conditions, the argument that traders have positioned themselves opposite the dollar certainly seems to have merit.

What Can You Do?

Both buyers and sellers of commodities should keep an eye on the trend in the dollar and potential signals that a trend could be changing. Have a conversation with your advisor and encourage them to communicate their thoughts on the dollar and “what if” scenarios. Hindsight is 20/20; however, an oversold dollar and over-bought conditions in the wheat and soybean markets may have been signs a change in price trend was at hand.

Find What Works for You

Work with a professional to find the strategy or strategies that are best suited for your operation. Communication is important. Ask critical questions and garner a full comprehension of consequences and potential rewards before executing. The idea is to make good decisions for the operation rather than emotionally charged responses to market moves, which are always dynamic.

Editor’s Note: If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing: 800-334-9779.

Disclaimer: The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy, or discipline will guarantee success or profits. Any decisions you may make to buy, sell, or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of the National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.

About the Author: With the wisdom of 30 years at Total Farm Marketing and a following across the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market advisor and vice president of brokerage solutions, Doherty lives and breathes farm marketing. He has an in-depth understanding of the tools and markets, listens, and communicates with intent and clarity to ensure clients are comfortable with the decisions.