There has been widespread and understandable rejoicing as the Aussie dollar has slipped away in value over the last week or two, helping lift Australian beef’s price competiveness in the international marketplace.
As recently as mid-April the A$ was still sitting above US105c, but has since sunk 7.6 percent in value to open on Monday this week at US97.37c. It opened today at US98.1c.
Looking at the graph plotting the A$ against the US$ on Beef Central’s home page, it’s evident that currency value is following a strikingly similar path to last year, when it sank to a low in the US96’s in early June.
But what does the movement mean to beef producers? Will there be a sudden adjustment to grid prices simply on the performance of the dollar?
The trend is no doubt lifting confidence a little and making the phone on the typical export processor’s meat sales desk ring a little more frequently, but it is a long way yet from being reflected in livestock prices.
The immediate value to the industry may be little more than in helping ‘keep the pipeline clear’, and minimising risk of a larger backlog of export beef building up on the domestic market.
If the A$ is still below parity by the end of June, however, several processor contacts said it might then start to bear some influence on cattle pricing, given the long lag-time in livestock slaughtered today, and when it arrives as carton meat in export destinations. Another claimed the dollar’s impact on pricing was ‘over rated’, saying it was largely overwhelmed by cost of production and other impacts.
“If nothing else, the A$ at, or below parity will help start to inject a little more confidence back into the supply chain – a lot better than when it was at 105 or 106c,” a processor contact said yesterday.
Importers want a piece of the action
One of the challenges faced by exporters when there is a currency devaluation like this is the tendency for customers in importing countries to ‘want a piece of the pie.’
“It probably opens up some more opportunities in markets where Australia might have been less competitive at US104c or more, but inevitably importers all want money back when the see the A$ fall,” a trusted trade contact said.
“That applies particularly when demand is flat, and markets are sluggish. It is not so evident when demand is strong.”
The trend is in clear evidence in the price decline being seen for imported 90CL in the US grinding meat market early this week. Exporters say this is linked squarely to the recent performance of the A$, with US importers saying they want a ‘piece of the action’ with the currency relief.
One large processor told Beef Central yesterday that his company did its costings last week at US100c, and again this week at US98c, and ended up with the same money, once pricing was factored in.
A prominent non-packer exporter said there was no doubt that Australia’s beef customers around the world were ‘well in-tune’ with exchange rate movements in Australia.
“Customers in the US and Japan see our dollar come back in value, and immediately ask the question, ‘What sort of discount can you offer meat at, as a result?’” he said.
“That’s just the modern world of instant communication.”
“The CIF US market this week has come lower, and it is still very hard to sell meat on the grinding side. The positive is that a few of the non-traditional markets, including Halal, are providing a little more support. While we’re doing well this week to get 385-390c/kg for 90CL into the US, there is 85s going into other markets, including Halal, at the same sort of price.”
“It is those non-traditional markets, including China, that are really providing the support. Ten years ago, Australia was doing 35,000 tonnes a month into the US at this time of year. This year, we’re barely doing 20,000t.”
Aussie dollar continues to slide
Monday’s currency of US 97.37c represented its lowest level since June 4, 2012, amid concerns of China's economic outlook, a response to the federal budget and renewed strength from the US dollar.
Currency analysts said traders dumped the Australian currency after it pushed below US98c on Friday. One said there were no signs the sell-off in the A$ would end any time soon, and he expected it to fall to around US95c.
LTG Goldrock director Andrew Barnett said the Australian dollar's fall was not due to the economic data but because of a wider continuing trend.
"At the moment, the dollar is out of favour with the market," he said. "It's been a double whammy."
Mr Barnett said the A$ had been hit because the local economy over the next two years was unlikely to perform at its previous stellar levels and the market also was starting to believe the US economy was experiencing a genuine recovery.
"Put those two together, and it doesn't surprise me the A$ is at US98c and it won't surprise me if it is at 93c between now and the end of July," he said.
In a commentary issued on Monday, National Australia Bank’s foreign exchange strategist, Ray Attrill, said the cause of the recent downside range break in the A$ /US$ was not the somewhat unexpected RBA rate cut on the previous Tuesday, but rather broad-based US gains driven by rising US Treasury yields.
“The break below parity has very much been part of a broader US$ story led by the break above ¥100 on US$/Japanese Yen, and alongside a further push higher in US yields, which has not upset risk appetite,” he said.
“At the same time, there is no denying that sentiment towards the A$ has turned negative, with the A$ weaker against all G10 currencies bar the Yen so far in May.”
For as long as 10-year Treasury yields hold beneath the recent range highs (2.06pc), Mr Attrill said NAB was not rushing to revise its current A$ forecast radically lower. NAB made a modest downward revision to its forecast a week ago, which now has A$/US$ holding near parity through mid-year and down to US0.98c by year’s end.
While there were ‘some risks’ that the fall might be greater, NAB’s view is that a few days of relative stability in the A$ is likely to encourage renewed overseas portfolio inflows, still enamoured with the yield attractions on Australian assets and which it turn would be the makings of a modest recovery in the currency.
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