A Stronger Dollar and Less Exports

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1 Louisiana Cattle Market Update Friday, March 20 th, 2015 Ross Pruitt, Department of Agricultural Economics and Agribusiness LSU AgCenter A Stronger Dollar and Less Exports Exports have been on forefront of many economists mind since the end of last year and certainly in the past week as the OSU Cow/Calf Corner and LMIC s In the Cattle Markets newsletters have focused on this topic. Each newsletter does an excellent job in discussing the importance of exports to U.S. livestock and poultry production in recent years as well the headwinds meat and poultry exports faced as 2014 ended and 2015 began. Even with record high prices for much of last year, the small declines for U.S. livestock and poultry exports reflect the success of trade promotion efforts in many different markets in recent years. Export markets tend to be price sensitive, so a brief recap of what is contributing to the U.S. dollar achieving strength not seen in over a decade and what that means to foreign customers may be worthwhile. Recent strength in the U.S. dollar is tied, in part, to the Federal Reserve indicating that higher interest rates are likely in the next few months. Other major economies do not appear to be interested in raising interest rates in the near term. This makes the U.S. more attractive for investment dollars and the returns that would generate leading to additional demand for the U.S. dollar. The end result is higher prices that foreign consumers face to purchase U.S. goods. Additional strength in the U.S. dollar also likely reflects economic growth seen domestically relative to other countries. The graph below indicates how quickly the U.S. Choice beef cutout value has risen on a monthly basis compared to the previous year. Year-on-year increases to U.S. consumers have not been as strong since August of last year, but still have exceeded 20%. The year-on-year price increases within the U.S. can be compared to what the prices have been for major foreign buyers of U.S. beef. The combination of higher U.S. beef prices and the strength of the U.S. dollar is readily apparent to those countries which import a large amount of U.S. beef. Differences in tastes and preferences between the countries in the graph mean that not every country is competing for the aggregate cutout or those cuts most popular in the U.S. Even with the strong price increases to foreign customers over the several months, they do not comprise the majority of the market for U.S. beef. With the domestic market staying strong, the drop in exports will likely only have a small impact on the overall value of fed cattle. However, the impact to byproduct values and some of the primals will be felt as the year progresses. For those markets where we are competing head to head against other countries beef exports, the U.S. is currently losing its comparative advantage because of the strengthening dollar. Yet, the relative comparative disadvantage the U.S. currently finds itself in those markets is not nearly as great as the early 2000s.

2 rcentage Change from Previous Year 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% % Year-on-Year Percentage Change in Monthly U.S. Beef Cutout to Domestic and Foreign Wholesalers Source: USDA AMS, ERS; IMF; LMIC; author s own calculations Canada Japan South Korea Mexico U.S. Choice Cutout March USDA NASS Cattle on Feed Report summary: Pre-Report Estimates 1,000 head % of Prior Year Avg. Range Placed in February 1, Marketed in February 1, On Feed March 1 10, This month s Cattle on Feed report from USDA NASS was largely in-line with pre-report estimates. Most of the major feedlot states were down at least 4% from year ago in placements with Texas down 30% (125,000 head); Kansas showed a 6% increase. Placements of cattle weighing less than 800 pounds were 13% lower compared to a year ago with placements greater than 800 pounds 3% higher. The total number of cattle on feed at least 120 days at the beginning of March is 12.4% higher than a year ago. For the month of February, marketings and placements were the smallest and 4 th smallest, respectively. Corn futures finished the week higher on weather concerns as moisture is preventing field work. A lower U.S. dollar also provided some additional strength as South Africa will need to import corn due to its drought. Ethanol inventories were lower as production increased providing additional support. Live cattle futures finished the week higher due to support that developed on Wednesday and continued through the end of the week. This support was tied to the expectation of grilling season being near supporting beef demand. Anticipation of cash prices being at least stable with the previous week was also present. Feeder cattle futures were also able to move higher on the week due to the strength of the live cattle pit from Wednesday through the end of the week. Most feeder cattle contracts reached their highest levels since min January during the week. Limited cash fed cattle trade occurred during the week, mainly on Friday. Live cattle sales were $2/cwt higher than last week at $163/cwt in Kansas. Dressed sales were $260/cwt in Iowa and Nebraska, a $3/cwt increase over last week.

3 Feeder Steer Prices* $350 $300 $250 $200 $150 $100 $50 $ lbs lbs lbs $ $ $ $/Cwt $ $ $ $ $ $ *Prices are for Medium and Large 1-2 Steers **Mississippi prices are for midpoint of steers Note zero values in table represent no reported sales for that weight group. Source: USDA AMS $/Cwt $130 $120 $110 $100 $90 $80 $70 $60 Mississippi Cull Cow Prices Breaking Boning Lean This Week $ $ $ Last Week $ $ $ This Week Last Week Source: USDA AMS

4 Table 1. Futures Prices Live Feeder Month Cattle Change* Cattle Change* Corn Change* March $ April $ $ May $ /2 June $ July 392 3/4 4 3/4 August $ $ September $ /4 4 3/4 October $ $ November $ December $ /4 4 1/2 January $ February $ Source: DTN * Change is from the previous Friday s close

5 Table 2. State and National Market Information Commodity This Week Last Week Last Year 5 Area Fed Steer Price Live $ $ $ Dressed $ $ $ Oklahoma City Feeder Cattle Prices cwt Med and Large #1 $ $ $ cwt Med and Large #1 $ $ $ Boxed Beef Cutout Values (weekly average) lb Choice cutout $ $ $ lb Select cutout $ $ $ U.S. Pork Cutout Value $ $ $ Georgia Dock Broilers $ $ $ Georgia B/S Breasts $ $ $ Georgia Leg Quarters $ $ $ Meat production (million lbs) Beef Pork Slaughter (1,000 head) Cattle Hogs 2,237 2,227 2,024 Broilers/Fryers 164, , ,210 Average Dressed Weight Cattle Hogs /13/2015 3/6/2015 3/7/2014 Poultry Placements (in thousands) 1 LA Broiler Egg Sets 3,817 3,833 3,833 US Broiler Egg Sets 204, , ,824 LA Broiler Chick Placements 3,354 3,365 3,397 US Broiler Chick Placements 169, , ,415 Source: USDA Agricultural Marketing Service, USDA National Agricultural Statistics Service and Livestock Marketing Information Center 1 Note the placements numbers are lagged by one week prior to publishing.