PDF US$ Weakens, Now at Lowest Point Since December have ...

[Pages:1]Volume 7, Issue 100

E-Livestock Volume

LE (E-Live Cattle): GF (E-Feeder Cattle): HE (E-Lean Hogs):

19-May

14,774 1,303

12,593

May 19, 2009

18-May 12-May

10,683 20,009

830

1,448

18,890 26,890

Free real-time Globex quotes: elivestockquotes

Market Comments

125%

US$ Weakens, Now at Lowest Point Since December

Trade Weighted Exchange Index, Broad Basket of Currencies, % Change Since July 1, 2008

120%

115%

110%

105%

100%

95%

7/1/08

8/1/08

9/1/08 10/1/08 11/1/08 12/1/08

1/1/09

2/1/09 3/1/09

4/1/09

5/1/09

6/1/09

7/1/09

Source: US Federal Reserve. Basket of currencies includes Euro Area, Canada, Japan, Mexico, China, United Kingdom, Taiwan, Korea, Singapore, Hong Kong, Malaysia, Brazil, Switzerland, Thailand, Philippines, Australia, Indonesia, India, Israel, Saudi Arabia, Russia, Sweden, Argentina, Venezuela, Chile and Colombia

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The US currency is getting weaker and this could have significant implications for US meat trade in 2009 and 2010. According to the latest USDA supply and demand estimates, the United States is expected to export 12.760 billion pounds of beef, pork and poultry products in 2009, or 14.1% of the amount of red meat and poultry that will be produced in the US this year. On the other hand, combined red meat and poultry imports for the year are expected to be 3.732 billion pounds. Exports account for a significant part of the overall demand for US products and shifts in currencies tend to change the relative price that consumers in different parts of the world see, thus providing an incentive or disincentive for consumption, something may not be quite as obvious if one were to study only US dollar denominated prices. USDA expects combined US meat exports to increase by 3% in 2010, an estimate that likely reflects a simple trend increase and will likely be revised quite a few times depending on the path of economic growth and exchange rates. The chart to the left shows the change in the value of the US currency since July 1, 2009. By March 2009, the US dollar had gained about 20% against a trade weighted basket of currencies and it was up even more against specific currencies, such as the Euro or the Australian dollar, or the Russian Ruble. This is important because even as the wholesale price of some beef, pork or poultry export items were somewhat lower compared to last summer, the decline in price was more than offset by the rise in the value of the US currency. For instance, the price of chicken leg quarters last summer was around 53 $/cwt or 1245 Russian rubles (at 23.5 exchange rate). By March 2009, the price of US chicken leg quarters was 34 $/cwt, or 36% lower than last August. When converted to Russian rubles using the March exchange rate of around 35 to 1 $US, the actual price that Russian buyers likely saw was 1190R/cwt, only 4.4% lower than last summer. Right now, the price of US chicken leg quarters is around 45 $/cwt or 1395 R/cwt, +12% higher than last summer, not exactly a bargain. One can do this exercise with a number of export items but the idea is the same. Keep an eye on the exchange rate as a sharp depreciation will tend to lower overall prices for world buyers and make them more competitive with the US consumer. At a time when domestic meat supplies are expected to be very tight in 2010, a shift in exchange rate could provide a significant demand boost...or maybe not.

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