View from Across the Pond
By: John Strak
Coalitions, currencies and PIGS
(The views and opinions expressed in this blog are strictly those of the author.)
You may have noticed that the Brits have had an election.
And we have a result – of sorts. In an extraordinary development the absence of a majority of Members of Parliament from any one political party has meant that two parties have had to form a Coalition Government to run the United Kingdom. Hence, the Conservatives (nearest to the U.S. Republican Party) and the Liberal Democrats (a cross between the Republicans and the Democrats) have joined up to form the new British Government and the previous Labour Government (where Labour can be visualized as a cross between the Democrats and, er, the Communist Party) is now out of office.
And how does this affect the price of hogs in Iowa, you might ask? Hang in there; there is a link….
The details are not there yet on what the British politicos will do. But there have been numerous statements from the members of the coalition about it being time for a “new politics.” Actually, coalitions are not new in most of Europe. Most countries are governed by a coalition of parties and only in Britain is such an idea deemed “new.”
The key point for overseas observers is this: will this new Government in the UK get a grip on its finances and will it inspire confidence from the markets? Not just in the UK, but across Europe almost every commentator is now asking about sovereign risk. Will Greece stay in the Euro Zone? If it leaves, who will be next? Portugal, Italy, Greece and Spain make up a group of economies (the PIGS) where each of the countries’ finances is deemed to be weak and is at risk of leaving the Euro. And whilst the speculation about these countries’ financial health is at fever pitch, the Euro heads for parity with the U.S. dollar.
And that’s the link with Iowa hog prices. Because a weak Euro means a strong dollar and that means U.S. pork exports could be increasing in value even at a time of a relatively low U.S. hog inventory. However, longer term, Europe’s pork exporters could take advantage of the weaker Euro and U.S .export values (and those Iowa hog prices) would not be advantaged.
If any of my readers finds this blog complicated they are in good company. This is a perfect example of how producers and processors have to juggle politics, economics, international currency rates, and multi-country hog census figures before they can understand how their profits will turn out.
May 26, 2010
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European debt might rain on pork’s parade
By Rita Jane Gabbett on 5/26/2010
The stock market isn’t the only place where concern about European debt is playing out. Implications for the world economic recovery and consumer demand might also hit the hog market, just as industry financials are moving from red to black.
That and related dollar strengthening have dimmed prospects for meat exports, according to Purdue University Extension Economist Chris Hurt.
“Last year demonstrated just how critical a recessionary economy was in weakening pork demand, Hurt wrote in a report. “A more cautious world now likely means some moderation in pork prices from recent lofty levels, but prices are not going to fold either.”
Another concern is the inevitability of rising retail prices, as grocers can no longer absorb into their margins higher wholesale prices due to reduced pork supplies. “You can bet that retail prices will soar in coming months,” he warned, predicting average retail pork prices will be close to $3.10 per pound this summer compared to $2.92 in April.
Hurt predicted live hog prices will average near $60 per live hundredweight in the second quarter, then drop into the $56 to $60 range in the third quarter, with fourth-quarter prices averaging near $50, for a 2010 price average of $54.
Due in part to moderating feedgrain prices, Hurt put profits at $21 per head in 2010 and $10 per head in 2011. These profits, he said, are needed “just to dig out from under the losses of the past two years.”
Profits notwithstanding, he does not expect much herd expansion. “While profitability will be strong in 2010, many producers, and their bankers, want to see balance sheets improve before giving the OK for any expansion.”
Editor’s note: For a more in-depth look at the European debt crisis’ impact on pork exports, read “As the world turns” in the June issue of Meatingplace in Print.
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Don’t count your chickens: economists
By Tom Johnston on 5/24/2010
Recent media reports around spiking ground beef prices point to the possible trend of fast-food restaurants shifting to chicken features, but some economists aren’t so convinced.
Omitted from such reports, analysts Steve Meyer and Len Greiner wrote late last week in their Daily Livestock Report, is the fact that prices for chicken, as well as pork, also have increased this year.
“For all the talk of escalating ground beef prices, the relative price of ground beef to the price of chicken breast is actually very close to the levels seen in the past three years or the five year average,” they wrote.
Meyer and Greiner said the ratio has held up well despite grinding beef prices falling — as they tend to do in late May — in the days preceding their report.
Meanwhile, the value of the Australian dollar also sunk, which could trigger increased exports of grinding beef to the U.S. market, loosening supply and reducing prices.
“It is possible that some large chains have favorable chicken contracts on their books, which could lead to more chicken offerings relative to beef,” the analysts wrote. “However, those looking to lock in prices at this time will find that chicken is no bargain either.”
meatingplace.com
