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Preview: SwineCast - exchange rates

SwineCast - exchange rates





 



Falling Exports Vs. Falling Supply: Which Will Win?

Mon, 09 Feb 2009 12:34:35 -0400

     The total demand for US Pork can be conveniently broken down into two components: domestic demand plus net exports.  Net exports is the excess of exports over imports of pork for the US.  We seem to know that US production of pork will be falling in 2009.  I say seem to know since this is based on projections by USDA (Hogs and Pigs Report).  What we do not know is if the projections are correct (what is their error variance) and what will happen to productivity increases to offset this decline in farrowing intentions from last fall.  We can surmise that the sows leaving the industry are the poorest performing ones (least productive) and that productivity gains from the remaining farms is likely to rise.

     We also know that net exports are very likely to fall this year (compared to the record setting levels of 2008) but we do not know by how much.  China came into the market in a huge way last year due to their catastrophic pig health disaster and the big earthquake which killed a lot of additional pigs.  They vaulted to second place just behind Japan in taking US exports.  They seem, however, to be recovering from the disasters some and their personal income, especially among those "new demanders for pork" (the Walmart Factory workers) will take a big hit this year with tens of thousands of manufacturing plants closing.  Japan, Mexico, Russia and Korea are heading south big time in forecasted year over year GDP so national income is falling there too and with the exception of Japan, our currency has appreciated against the importers substantially making US pork more expensive. 

     Comparing January 2008 vs February 2009 monthly average exchange rates to the US dollar we find it took about 940 Won (Korea) in 2008 to buy a buck, now 1385, 10.9 Pesos (Mex) to buy a buck, 14.5 now, 107 Yen (Japan) to buy the buck, now about 89 (Good news at least with our largest importer!), for the Russian currency there is the new and the old but suffice it to say that we are an all time record devaluing of the current Russian currency against the dollar. Canada fell sharply too as we were trading about par with the Canadian dollar in January 2008 and now it takes about 1.24 Canadian to buy the buck.  Mark China as about the same as last year.  Their currency has appreciated a tiny bit but probably not enough to really impact purchases in and of itself.

     Again, we are facing a projection by USDA that net exports of US pork will be about 14% down this year from 2009.  One thing you should consider in all of this, and something that I have mentioned here before, is that all of the countries to which we export pork are themselves caught up in the global recession and are undergoing various degrees of contraction and demand erosion.  Keep in mind that only seven countries account for over two-thirds of all imported pork regardless of which country it originates in.  Supply down (maybe; but down more maybe in broilers and beef) and demand down both here and abroad (probably). Which one (supply or demand) down faster will determine the profit outcome for US pork producers this year.

    




Commodities Up, Pig Production Down

Thu, 21 Feb 2008 14:05:07 -0400

     Canada is a commodity economy.  While commodities were suffering as the poor step sister of branded items, Canadian exchange rates were relatively low and it was a nice place to produce things like hogs and export.  A significant share (much larger than the U.S.) of canadian pork found its way to finishing houses, slaughterhouses and kitchen tables outside of Canada and all over the world. 

     When the rise in demand for the lowly commodities began to accelerate in the last few years, engendered by the steamrolling growth of China, India and emerging nations of the world, all of that changed.  In order to buy Canadian lumber, minerals and oil, these nations have to demand the Canadian dollar to pay for them.  This has resulted in a dramatic increase in its purchasing power especially relative to the U.S. dollar.

     This has turned the tables on the economic bonanza Canadians have enjoyed for some years.  With the Canadian dollar par with the U.S., and in the face of skyrocketing feed ingredient costs, producers are abandoning production (up to 20% of producers in Ontario quiting), and they are stopping the feeding out weaned pigs, instead shipping them to the U.S. and losing market share globally on pork product exports.

     Canadian producers, like everywhere in the world, are optimistic that things will change in the future but are growing increasingly worried that the passthrough of higher grain prices will delay until the bank calls their note, which is of course, the condition necessary to create the pass through.  They have suffered losses longer than the U.S. and some are reported to be paying interest only on bank notes to stretch their financial viability to the limits.

     Many are worried that COOL will deal the final blow if U.S. packers follow through with their current threats to stop purchasing pigs of Canadian origin when trace-back is implemented.  Economic limbo is as uncomfortable as the -25F temperatures of Winnipeg.

      




SwineCast 0252 for November 13 2007

Tue, 13 Nov 2007 08:55:23 -0400

(image) SwineCast 0252 Show Notes:

  • Do you have the power? BI's fun feature video
  • Dr. Claudia Mobley looks at five macro consumer trends that will affect all business
  • Fusion in Japan with much interest in all things American
  • Exchange rate pain from producers and suppliers north of the border