European Bank Move Hurts US Agriculture

The European Central Bank’s announcement Thursday that it intended to begin its own Quantitative Easing program in March hurt US agriculture, and it will continue to do so until it ends.

Thursday, ECB President Mario Draghi surprised the world with a QE plan similar to the one the US ended last year.  He said the bank intended to purchase 60 billion Euros worth of bonds a month until September of next year or “until we see a sustained adjustment in the path of inflation.”  The bank has stated that its inflation goal is just under 2% a year.

The program will weaken the Euro by pumping new money into the economy and strengthen the US Dollar, which has long been considered a safe-haven currency.  The effect will be to make all US exportable goods and services, especially Dollar-denominated exports, which includes agriculture products, more expensive to foreign buyers, and hamper export efforts.

The EU has been battling the effects of excessive national debt for years, and the ECB already has extremely low interest rates in an effort to stimulate economic growth.  So Draghi’s announcement was more than anybody expected.

The initial reaction was favorable as stocks rose.  The Euro, already weakening in anticipation of some type of Central Bank move, fell an additional 2% against the greenback to its lowest level since 2003, said the New York Times.

Predictably, the move has its critics.  The Times quoted Mohamed A. El-Erian, chief economic advisor at Allianz, saying the ECB will succeed in maintaining generally low interest rates, but the move is insufficient to deliver a growth breakthrough.

Even Draghi said it would take more than the ECB’s QE program to effect economic growth.  He called on the various governments of Europe to implement structural reforms of their own to bring about growth.

USDA statistics show that through November of 2014, the US exported 1.10 million tonnes of beef and beef products, up 2% from 1.07 million in the same period a year earlier.  These products were worth $6.49 billion, a 16% gain over the $5.61 billion a year earlier.

Total pork and pork variety meat exports through November amounted to 1.99 million tonnes, up 2% from 1.95 million a year earlier.  These products were worth $6.13 billion, an 11% gain over the $5.51 billion in the same period last year.




But life goes on, and in the short term, the US cattle market today awaits the January USDA Cattle-On-Feed report at 3:00 pm EST.  It is expected to show that feed yards placed 4.1% fewer young cattle on feed in December than a year ago as feedlot margins struggled with higher costs for calves and lower slaughter cattle prices.

The USDA report also is expected to show that feedlots slowed the sale of slaughter-ready cattle by 4.9% compared with a year earlier because of lighter placements a few months earlier and because prices began to sink.  The cattle sent to slaughter were heavier than a year earlier as feeders tried to maximize per-head returns as per-pound values faded.

After removing the cattle sent to slaughter and adding fresh recruits, today’s On-Feed report is expected to show feedlots had 1.6% more cattle on hand than a year earlier.  This would be the third straight month in which feedlot populations were shown to be larger than a year earlier.

The CME Feeder Cattle Index for the seven days ended Wednesday was $220.23 per cwt, down $0.85 from $221.08 the previous day.  In contrast, the Jan futures contract, with expires next Thursday, settled Thursday at $215.97 per cwt, up $0.27.