Released March 8, 2010
URBANA, Ill. – It is not uncommon for daily fluctuations in corn prices to be attributed to fluctuations in the value of the U.S. dollar relative to other currencies. So, what is the connection?
From the side of the U.S. corn importer, a lower valued dollar in relation to the currency of that country, all else equal, is in effect a reduction in the price of corn. A lower price to the importer might be expected to result in larger imports. That is, there would be a movement down the demand curve to a new, larger equilibrium of quantity supplied and quantity demanded.
For the U.S. market, larger exports at the same nominal price of corn is in effect an increase in demand. That is, there is an upward shift in the demand curve for U.S. corn. In turn, the increase in demand results in a higher equilibrium price of corn. Theoretically then, a lower-valued U.S. dollar should result in larger exports and a higher nominal price in the United States, assuming no change in other price factors.
--continued on University of Illinois news
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