Value of the U.S. Dollar – Worth Watching for Cattle Producers
Over the last several years, starting in 2008, international trade has had a good run for the U.S. beef industry. From 2008 through 2014, the total value of U.S. exports has significantly exceeded the value of our imports.
In 2015, that positive run came to a screeching halt.
Several factors contributed to this dramatic reversal, including domestic and foreign supply of beef, but the relative value of the U.S. dollar may have played the biggest role.
At the latter end of 2007, the dollar began to decline in relative value and bottomed out between the end of 2011 through mid-2012. The Livestock Marketing Information Center (LMIC) estimates that in 2008 the beef industries exports exceeded the imports by $500 million dollars. In 2011, the net value of exports had climbed to an impressive $3.4 billion. That was a significant chunk of change for the U.S. beef industry. Starting in 2012 the value of the dollar began to strengthen, taking its biggest jump midway in 2014 through 2015. It is no coincidence that during this same time the beef industry net export value began to decline.
2014 cattle and beef export value set a new record high at $9.3 billion. However, cattle and beef imports also set a new record high of $8.3 billion. Still, this left the beef industry with a positive net export value of $986 million.
In 2015, the total U.S. export value for cattle and beef declined 14 percent to just under $8 billion, while the total value of imports increased nine percent to almost $9 billion. The resulting reversal is that the U.S. went from a net exporter of $986 million in 2014 to a net importer of $996 million in 2015. That is a negative swing of nearly $2 billion dollars to the U.S.
Influence of byproducts
A major portion of the beef industry’s export of cattle and beef is made up of beef byproducts. Cattle byproducts consist of cheek meat, hearts, livers, tripe, tongues, bone meal, tallow, hides, etc. These byproduct values, much more than traditional beef cuts, are driven by international demand. Domestic use of cattle byproducts is relatively low.
According to LMIC beef byproduct values are currently at $11.49 per hundredweight. Historically, beef byproduct value ranges between $13 and $14 per hundredweight. The hide makes up a significant portion of the beef byproduct value. With the increase in the value of the U.S. dollar compounded by an economic slowdown in China, beef hide prices have suffered. Currently, a butt-branded steer hide is $72 per piece. LMIC points out that a year ago this hide was $95 per piece, and the previous five-year average was about $90 per piece.
So where do we go from here? Is 2016 going to be a repeat of 2015?
I think there is room for optimism, but producers should keep an eye on exchange rates. Looking at the current exchange rates, the U.S. dollar has not continued to climb in relative value through the first quarter of 2016. There are even some indications that it may show slight declines in 2016.
In the end, I think 2016 should be a better year for U.S. beef industry trade than 2015.