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CME: Appreciation of US Dollar a Key Issue for Livestock Companies

02 February 2015

US - A key issue facing US livestock and poultry companies this year will be the appreciation of the US dollar.

A strengthening dollar, of course, makes our products more expensive relative to other countries’ products, whether those countries be the destination of our exports or com? petitors.  

The weekly chart for ICE’s Dollar Index (DX) appears below. That futures contract traded above 95 for the first time since 2002 last week. Now 95 is far from the record DX value of 121.29 set back in July 2001 but it is nearly 20 per cent higher than just last July. That doesn’t mean that US products are 20 per cent more expensive everywhere, though, as the index is based on only six world currencies, some of which  do not involve US trade much at all.  (Note the weightings are from a a June 2012 ICE document.)  

Virtually every DX rally from 2008 through 2013 was associated with financial crises somewhere in the world (primarily in the EU) and the resulting “flight to safety” in the US dollar.  While the world today is certainly not void of such risks — we offer the recent shock of the separation of the Swiss franc from the Euro as evidence — this rally is different.  

The United States’ position as the largest importer of oil in the world has, historically, contributed to a strong negative correlation between the price of oil and the value of the US dollar as dollars flowed outward to pay for all of that oil.  The recent drop in oil prices and the very real prospect of the US becoming a net ex? porter of oil has changed that dynamic and, we think, set the stage for a stronger dollar.  But for how long?  

This rally likely has more staying power than those “flights to safety” but a likely duration is difficult to determine at the moment. More important for US livestock and poultry companies are the relationships with the currencies of key customers and competitors. 

There should not be many questions about the export challenges we have seen in Japan given the roughly 54 per cent fall in the value of the yen versus the US dollar.  Recent declines in the peso and Canadian dollar will leave a mark as well with the Canadian change im? pacting both exports to Canada and exports elsewhere as prices of Canadian products fall relative to those of the US

A piece of information regarding the entry of Australian and New Zealand beef into the US Courtesy of our friend Claire Mezoughem at USDA’s Foreign Agricultural Service, the majority of beef from these two major suppliers enters the US through EAST COAST ports.  Data from FAS’s Global Agriculture Trade System (GATS) can be pulled according to the Cus? toms District in which it enters.  Those data indicate that between 54.4 per cent and 57.5 per cent of total Australian and New Zealand imports from 2009 through 2013 came in through East Coast ports.   For January through November 2014, that figure is 56.2 per cent. 

 The GATS system is a powerful tool for US im? port and export data which can be found at http://apps.fas.usda.gov/gats /default.aspx.  Thanks, Claire for the information!

Further Reading

You can view the full report by clicking here.


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