August 1, 2011
Australian dollar hurts local red meat exports
As the Australian dollar rose above US$1.10 on the back of higher than expected June quarter inflation figures and the ongoing debt impasse in the US, Australian red meat exports deteriorated further this week.
Unfortunately for beef exporters, the recent kick in the Australian dollar couldn't have come at a worse time, with most markets already very soft, as economic and financial concerns take precedent. For exporters focussed on Japan, the high Australian dollar only accentuates what has become an extremely tough market since May, with the combination of increased US competition (assisted by their weak US dollar), sluggish consumer demand, and most recently, concerns surrounding radioactive beef.
Since the start of April, indicative chilled beef returns for Australian beef exports to Japan have declined 8-19% in Australian dollar terms, which has been clearly transferred to lower prices for heavy steers in recent months. In contrast, the same export prices in USÂ¢/lb terms have only declined 1-10%, illustrating the impact for Australian exporters from the record high Australian dollar.
The impact of the rampaging Australian dollar is also reflected in the US market, with the indicative 90CL price in Australian dollar terms back 15% in the past three months, compared to only 8% in USÂ¢/lb terms. Indeed, while this week's indicative 90CL price in USÂ¢/lb terms was up 20% on the same week last year, for Australian exporters, prices were 3% below last year.
However, beef is not be the only export focused industry feeling the Australian dollar impact, with lamb exporters also feeling the squeeze. Australia's two largest export destinations for lamb are the Middle East and the US, with the record Australian dollar serving to erode affordability in what are very competitive protein markets.
With many of the factors that have fuelled the record run of the Australian dollar in recent years unlikely to subside in the short term, Australian red meat exporters will again be looking for a rise in global beef and lamb prices to improve returns - as was experienced in late 2010 and early 2011.