From Barron's Commodities Corner:
The surging greenback makes it tougher for U.S. farmers to sell their output abroad and easier for foreign countries to sell here. Barbecue, anyone?Strong Dollar Means Lower Pork Prices
The stronger dollar is great for American tourists but awful for U.S. hog farmers.
While gains in the U.S. currency increase Americans’ purchasing power overseas, it also makes exports more expensive, curbing demand for U.S. pork at a time when supplies are ample. The combination of high supplies and weak demand is making lean-hog futures the biggest loser among commodities this year.
“There always seems to be a curve ball in commodity markets, and right now the U.S. dollar is taking the limelight,” says Craig VanDyke, an analyst at Top Third Ag Marketing, an agricultural advisory firm in Chicago, in a recent note.
Currencies trade in pairs, so a stronger U.S. dollar means most other currencies are weaker in comparison. When importers want to buy U.S. pork, it costs more in terms of their local currencies. But the strong U.S. dollar also encourages other pork-producing countries, such as Canada, to sell their meat to the U.S., which only adds to the glut of supplies here.
The export market is important to American hog farmers. The U.S. is the world’s largest exporter of pork and pork products, with exports averaging more than 20% of commercial pork production, according to the U.S. Department of Agriculture.
The USDA recently lowered its estimate for 2015 pork exports and raised its forecast for imports, citing the dollar. The USDA expects the U.S. to export 4.75 billion pounds of pork this year, down 1.5% from its February forecast and down 2.2% from a year ago. At the same time, the U.S. is likely to import one billion pounds of pork, the USDA said, up 9.9% from the February forecast but down 0.7% from 2014.
“It is likely that lower prices will be required to offset the currency effect and restore competitiveness,” say livestock analysts Steve Meyer and Len Steiner in a recent note....MORE
