The outlook for US exports is getting darker by the day as the US dollar appreciates in comparison with other currencies.
Simply put, gains in the US dollar’s value make US goods and services more expensive since it takes more kropnicks, (or whatever) to buy the dollars it takes to buy US products. This is true of all products that are traded in US dollars, but it is especially true of US exports.
On an annual basis, the US dollar remains below this year’s high-water mark at 99.98, but with Federal Reserve leaders talking of another fed funds interest rate hike, possibly as early as next month, the bottoming and rise in May could be the start of something new.
Since bottoming on May 3 at 91.80, the US dollar index has risen 3.87, or 4.22% to Monday’s high of 95.67. This was the highest the index has been since March 29, the day it fell sharply the cycle high of 96.42 set on March 28.
GRAIN EXPORTS MORE AFFECTED THAN BEEF
While US beef exports will be affected, it’s grain and soybean markets that will be hurt the most since there is ample competition for world market share among world grain producing countries and fewer competing exporters in world meat markets.
Writing in the weekly Tennessee Market Highlights, a publication of the University of Tennessee extension office, Aaron Smith, agricultural economist, wrote “The value of the USD will be an important factor if corn, soybean, wheat, and cotton exports are to meet the USDA’s recent projections for the upcoming marketing year.”
Corn prices also are being boosted by the Environmental Protection Agency’s proposed RFS volume requirements for 2017, which imply 14.8 billion gallons of conventional biofuels (corn-based ethanol).
Corn net sales reported by exporters from May 6 through May 12 were above expectations with net sales of 58 million bushels for the 2015/16 marketing year and 21.3 million for the 2016/17 marketing year. Exports for the same period were up from the previous week at 46.3 million.
Corn export sales and commitments were 92% of the USDA annual estimate for the 2015/16 marketing year.
However, the latest trend may be about ready to change as buyers of US corn could see even higher prices coming and are just doing some bargain hunting now.
Keeping the corn export potential in the back of their minds, traders now will look to the weather as their prime motivator of price direction. Current weather conditions are very good as planting and emergence are on schedule with the five-year average, but adverse weather during the growing season could take the market higher despite challenging export markets.
CASH CATTLE MARKET QUIET
Cash cattle markets Tuesday were quiet with early bids at $125 per cwt on a live basis in Texas and asking prices of $130 to $132. In Nebraska’s dressed market, bids were posted at $197 while asking prices remained undefined.
Cash markets last week were $1 to $3 per cwt lower at mostly $130 to $132 on a live basis and $204 to $206 dressed.
The USDA’s choice cutout Tuesday was $1.05 per cwt lower at $223.27 per cwt, while select was off $0.33 at $206.82. The choice/select spread narrowed to $16.45 from $17.17 with 108 loads of fabricated product sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Monday was $148.85 per cwt, up $1.57. This compares with the May settlement Tuesday of $146.00, down $1.00.