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CME: Livestock Futures Lower Thursday Due to Dollar Surge

25 June 2013

US - Livestock futures were for the most part lower on Thursday as macro concerns broadly impacted commodity prices, write Len Steiner and Steve Meyer.

The US dollar was stronger, which is negative for US livestock and poultry as a significant portion of US production now goes to export markets. Much of the focus in the US financial press has been on the ability of the FED to get the market to change gears without stalling the recovery.

But the sharp selloff in the last two days also has been driven by dismal economic news coming out of China. The second largest economy in the world, and one which is increasingly responsible for a major chunk of global demand, is finding it difficult to meet the lofty growth rates of the past two decades.

Reminiscent of the financial crisis in 2009, the interbank market in China was almost paralyzed in the
past two days. China bank rates were lower overnight as the China Central Bank intervened but the situation was a reminder of how fragile financial markets have become following the expansion of easy money policies in recent years.

US Beef Exports Remain Weak Despite a Surge in Beef Shipments to Japan

Indeed, at the start of 2013 part of the reason for the buoyant cattle futures was the expectation that liberalization of trade with Japan would lead to a notable increase in the supply of US beef going to exports.

The new rules regarding beef trade with Japan have been helpful and year to date shipments to this market are up about 20,000 MT or 33 per cent compared to the same period a year ago. Since April, beef exports to the Japanese market have averaged 50 per cent above year ago levels.

Pent up demand for US beef, especially for specific inexpensive cuts that are popular there have supported beef trade with this market. However, beef exports to other markets have languished.


It appears that to a certain extent, the expansion in trade with Japan may have cannibalized some US beef exports to markets such as S. Korea. Exports to South Korea so far this year are down 24,454 MT (-38 per cent ) compared to a year ago, erasing the gains made in shipments to Japan. And as it has reduced its imports from the US, S. Korea has sharply increased its beef purchases from Australia and New Zealand.

Beef exports to other important markets are down as well. Exports to Mexico through mid June were down 18,061 MT (-25 per cent) from a year ago while exports to Canada are almost at the exactly same level as a year ago. The loss of the Russian market has been by far the most significant for US beef exports to far this year.

While other markets may show some decline compared to last year, exports to Russia are non-existent. Through mid June last year, US packers had shipped close to 29,000 MT of beef to the Russian market.

So far this year, exports to Russia have been close to zero. Exports to Vietnam also have declined by almost 13,000 MT (-36 per cent ) as China has shut down some of the gray trade channels. China official beef purchases have increased sharply in recent months but US beef shipments there are non existent due to the long standing ban on US beef due to BSE.

US beef exports to Hong Kong and Taiwan are up but through mid-June, US beef shipments are down some 19 per cent from a year ago. 

Daily Livestock Report - Copyright © 2008 CME. All rights reserved.

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