Foreign beef buyers boosted by weaker U.S. dollar value

Markets
Oct 15, 2010
by WLJ

Fed cattle trade last week was stalled last Thursday with packers and feeders deadlocked over prices. Packers were attempting to push prices lower to the range of $94-95 live and $148-150 dressed, while feeders were holding out for $97-98 live and $156-158 dressed. Analysts predicted that for the week, feeders were likely to win the waiting game and called the market $1 higher on the firming beef cutout trend and decent beef movement, particularly in the export markets.

Boxed beef markets appeared to have found a near-term bottom and trade was mostly sideways last week. Midday last Thursday, the Choice product was trading 44 cents higher than the previous day at $153.06 while Select was up 45 cents at $146.54. Slaughter volume for the week was estimated at 516,000 head through Thursday, up 4,000 head from the same period the previous week and 18,000 head more than the same period last year.

The falling dollar has been pushing up input prices across the board in recent weeks, but it has been helping to spur action among foreign buyers of U.S. beef. The U.S. dollar is trading at near parity to the Canadian and Australian currencies, which makes U.S. beef a smart purchase, particularly in Asia, where the U.S. dollar is trading near a 15-year low to the Japanese yen and other currencies. The situation is similar in Europe, where the Euro is trading at nine-month highs against the U.S. dollar, making U.S. beef relatively inexpensive compared to other sources in Australia, New Zealand and South America. As a result, beef exports have been strong in recent weeks, rising from already good levels.

Shipments to the important Japanese market for the year are running approximately 26 percent ahead of last year through August in terms of both volume and value, according to U.S. Meat Export Federation Communications Director Joe Schuele, who said the market, although strong, has shifted over the past couple of years.

"People assume that the Japanese economy has been immune to the economic problems because their currency has remained strong, but that’s not the case," said Schuele. "If you talk to retailers and wholesalers in Japan, they will tell you that there has been a big shift toward lower priced cuts away from some of the more expensive product over the past year. So, we’ve had to show some versatility in what we are marketing over there."

He said that there has been an increase in the volume of chuck and round meat being sent to Japan as consumers trade down there, similar to the trend that has taken place in the U.S.

"The market for middle meats going into Japan is still good and it’s still an important market, but we are targeting some more economically priced cuts and trying some different strategies in Japan to market some less expensive cuts of beef there," said Shuele.

According to USDA, through July, U.S. shipments of beef to Japan totaled 43,088 metric tons, compared to 35,202 metric tons for the same period in 2009. The Japanese market is also important for U.S. producers because it is the largest importer of U.S. beef variety meats, which see little domestic demand. The Japanese market has, during the past decade, imported 21 percent of all U.S. beef variety meats. As consumers shift toward lower priced cuts, the variety meat market may also improve overseas, adding to the beef drop value.

In fact, the value of U.S. beef variety meats has significantly contributed to beef prices, with such products accounting for approximately 24 percent of all U.S. beef exports. As noted, Japan has historically been an important market for variety meat exports. However, other countries are increasing their purchases of U.S. variety meats. In 2009, more than 33 percent of all U.S. variety meats went to Egypt, with a particular focus on beef livers, where the product is gaining in popularity.

Mexico is another important market for U.S. beef variety meats, although exports south of the border are down for the year.

"One area that a falling dollar hasn’t helped is Mexico, where the peso has been slow to come back," said Shuele. "That’s one place where we’ve had problems this year because it has made U.S. beef comparatively more expensive to consumers there."

In 2009, Mexico was the second largest buyer of U.S. variety meats behind Egypt. However, for the year, purchases of all beef and variety meats has slowed considerably. For the year-to-date period, total exports to Mexico are down 106,000 metric tons from the same period in 2009, according to USDA’s Foreign Agricultural Service. Until the Mexican economy improves, allowing the peso to make gains on the U.S. dollar, that number may continue to trend lower.

Feeder cattle

Despite the rise in corn prices last week, feeder cattle managed to post gains in many markets across the country. Most markets reported prices steady to higher than the prior week’s sales, with light supplies and fair feeding margins getting the credit for the rise in values. Trade in the futures markets has been choppy but that didn’t keep buyers in many markets from stocking up on feeder cattle needs. Numbers have been trending below last year’s offerings in most markets, a factor that was expected by many heading into the fall marketing season.

The deferred live cattle futures are also showing a premium to the spot month, a premium that some market analysts are expecting to grow as corn prices rise, pulling live cattle contracts ahead with them. If that trend continues, it will give cattle feeders an opportunity to lock in profits for placements this fall, an encouraging factor for the feeder cattle market, which would otherwise be suffering the effects of nearly $6 per bushel corn.

As it was, feeder cattle contracts were hit hard last week, with the up-front contracts taking the biggest hit. The September contract fell 7 points last Thursday to close the day at $108. November ended down 5 points at $108.07 while January feeders also slipped back 7 points to end the session at $108.92.

The market in Oklahoma City, OK, last week saw the brunt of the jump in corn market volatility last Monday, posting some of the biggest market losses reported. Feeder steers and heifers were called $2-3 lower last week while steer and heifer calves traded $5-8 lower, with five-weight steers at the least decline. Buyers were also discounting for age and flesh condition of calves as cooler weather approaches, which will stress placements. Demand at the sale was called moderate for all classes on offer.

Farther northwest in Phillip, SD, feeder steers weighing 400-450 lbs. sold mostly $1 higher last week. Steers in the 450-500 lb. range sold $9 lower, with steers 500 lbs. and heavier selling $3-4 lower. Feeder heifers sold steady to $1 higher on a larger offering than in recent weeks. Buyer attendance was reportedly good with moderate demand. Meanwhile in La Junta, CO, quality steer calves sold steady to $2 higher last Tuesday. Fleshy, plain-type calves weighing 450-550 lbs. were called $3 lower. Heifer calves under 600 lbs. were reportedly steady to $2 higher; those over 600 lbs. traded $2 lower. Yearling feeder steers under 800 lbs. were $1-2 lower and those over 800 lbs. sold steady to $1 lower. Yearling feeder heifers traded $2-3 lower.

In the Southwest at the market in Prescott, AZ, steer and heifer calves traded $2-5 higher last week while yearlings were steady. In Galt, CA, the market was called steady on all classes of feeder and stocker cattle on offer last week. — WLJ

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