Worldwide market influences impact production and exports in United States

Fort Collins, Colo. – “We were making our long-term highs in the cattle market through the fall of 2014 and early 2015. It’s no surprise that the market has rolled over, and it’s trending lower,” noted CattleFax CEO Randy Blach on Jan. 9 at the International Livestock Forum at Colorado State University in Fort Collins, Colo.

“The only surprise has been the magnitude of the change – how fast the market is changing,” he said.

As one of the top protein producers in the world, the United States is the fifth largest pork producer, first or second largest poultry producer and the country that produces the most beef. Of the meat and poultry produced in the U.S., the domestic market consumes 83 percent.

“To simplify this, 20 percent of U.S. protein has to be consumed by consumers somewhere else, outside of our border. If we don’t have those consumers, we lose market share,” Blach explained.

Increased production

In 2014, there wasn’t enough pork, poultry or beef to satisfy the market, and all of those products experienced record high prices. In 2015, pork production increased by eight percent, poultry by five percent and beef production remained flat.

“We have never produced more protein in the history of the United States as we did in 2015. 2016 will be bigger again,” Blach remarked.

As production increased, exports decreased. Seventeen percent of production was exported in 2014, but only 14.5 percent was exported a year later. The combination of increased production and decreased exports resulted in a net supply increase of 4.5 billion pounds of meat and poultry from 2014 to 2015.

“In 35 years, I have never seen a bigger shock in the history of our industry. Four and a half billion pounds of protein had to be absorbed by our domestic marketplace,” he stated.

Slowing economies

One factor affecting exports is the slowdown in China’s economy. Although the U.S. does not have direct access to China’s beef market, the U.S. does export pork and poultry to the country. Forty-two other countries also export protein products into China.

“When the Chinese economy slows down, countries that export into China, which also buy products from the U.S., begin to see their economies slow down, and then everybody’s markets slow down. They can’t reach and buy as much,” Blach explained. “This is all connected.”

Countries with petroleum economies are another factor in the equation. When oil prices suddenly dropped to $35 a barrel, oil-producing countries lost a huge amount of spending power.

“When we move into a global marketplace, as we have over the last 30 years – and really over the last decade and a half, these are things that we all will have to spend a higher percentage of our time understanding, researching and following on a regular basis to be successful in these markets,” he said.

Currency

Blach also emphasized the importance of the protein markets and the global economy, explaining that it is where commerce is and where money moves.

“We also hear about the strength of the dollar, but what does that really mean?” he asked.

“When we compare the value of the Japanese yen to the dollar, their purchasing power is down 16 percent,” he continued.

Manipulating currency, Blach argued, is one of the only ways to stimulate exports and business when economies slow down.

“The currency battle is going to be the biggest thing we deal with over the next 12 to 18 months,” he predicted.

Over the last 12 to 36 months, all U.S. commodities have seen devaluation in the marketplace. Most of them are down 40 to 60 percent, including feeder cattle – down 40 percent from an all-time high in October 2014, and soybean meal – down 50 percent from an all-time high in August of 2012. Crude oil is down 71 percent from the market high in April 2011.

Changing markets

“These markets are reacting very fast. They change to these dynamics in a hurry,” Blach commented.

He continued, “When there is this kind of global chaos, the market doesn’t know what’s going to happen. That’s part of the reason we are seeing so much volatility. There is lot of uncertainty.”

Historically, the United States has exported 16 billion pounds of meat and poultry out of the domestic market and into the global economy each year. Blach emphasized again that the role of world markets continues to have an important impact on domestic production.

Natasha Wheeler is editor of the Wyoming Livestock Roundup and can be contacted at natasha@wylr.net.