Trade expectations grow as A$ value falls

Jon Condon, 04/10/2011


The spectacular US12c decline in the value of the Australian dollar since the start of September has lifted expectations of renewed interest among front-rank beef export destinations like Japan, Korea and the US. 

On September 2, the A$ hit US 107.21c, before declining yesterday to 95.22c, a 12 percent slide in terms of trade against the greenback.

But have the Australian beef exporter trade desk phones started ringing? Not yet, it seems, judging by response from two of the nation’s three largest export processors today.

To be fair, yesterday’s public holidays in southern Australian states as well as parts of Asia may have limited opportunity for contact with buyers so far this week, but as a general rule, large currency movements normally lead to initial resistance from buyers, one experienced trader said.

“That’s because they believe they may be able to purchase the same beef cheaper tomorrow,” he said. “The initial reaction after the currency goes off the boil is a standoff, while everyone tries to realign the stars.”

Most large exporters already had sales in place, he said, meaning they were shipping against existing orders. So the sales in question are forward sales where currency movements are important.

The first reaction among importers after an A$ currency decline was often to try to bid the price down, because buyers were looking at the equation in A$ terms, meaning that the exporters would be getting the same value.

“Their initial bids in US$ terms are always lower, when there is a substantial movement in currency in a short period, like we have seen over the last four or five working days,” Beef Central’s export trade contact said.

“But the market generally finds its price. At the same time, however, there have been movements in other currencies also. Korea, in particular, has seen its currency devalued substantially recently, meaning its buying power in US$ terms has been decreased. Japan’s currency was less affected, but those movements also have a big bearing on the approach to trade. They are taking a wait-and-see approach, also.”

While grainfed export beef had been the worst affected by the earlier US currency devaluation, as the current more attractive A$ value took effect, the normal differential in price between grain and grassfed beef was likely to re-emerge, after a period when it had been as little as 5-10c/kg for slaughter cattle.

“Secondly, placement into feedlots three or four months ago were considerably reduced, due to exceptionally poor margins on grainfed cattle at the time. That suggests that there will be less grainfed cattle hitting the market in November/December, meaning prices for grainfed are likely to rise, relative to grassfed cattle, due to supply.”

The recent softening in Australian and other export competitor nations’ currencies against the US$ has not gone unnoticed within the US beef industry, which has recently enjoyed a memorable run in export markets due to currency advantage.

“The currencies of several key trading partners have tumbled in recent days relative to the US dollar, escalating concerns about price competitiveness for US export beef and pork,” the US Meat Export Federation noted yesterday.

“Comparing last month’s values to the averages posted in July, five major trading partners’ currencies were devalued against the US dollar,” USMEF said.

“This could adversely affect the purchasing power of US customers in these key markets. The Australian dollar (-7pc), Brazilian real (-17pc) and the Euro (-5pc) have also trended lower, softening prices for beef and pork originating from these competing providers,” MEF warned.


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