Last Wednesday, August 27, you only got part of the story about the phenomenal impact that exports have on US livestock prices. Niche Markets, The Olympics, And The US Pig indicated that pork exports are more important than corn exports at the current time. But pork is not the only US livestock commodity in global demand, and the whole story gets the spotlight today.

The pork, poultry, and dairy sectors of US agriculture have benefited from expansion of exports, primarily resulting from the currency exchange rates. Iowa State University livestock economist John Lawrence says this added marketing opportunity has allowed producers to grow their business beyond what would be possible if the US consumer was the only market. In his monthly newsletter, Lawrence says meats, dairy, and poultry products totaled $7.87 billion for the first six months of the year. Currently, the US imports more beef than it exports, but that could change by the end of 2008.

Pork has a nearly $1.5 billion net export surplus for the first half of the year, compared to nearly $1.6 billion in a comparable period last year. Poultry had a $3.6 billion trade surplus in 2007 and carries a $2.1 surplus in 2008 so far. Dairy products are $633 million ahead for 2008, compared to $156 million last year. Including a small trade surplus for eggs, livestock product exports exceed imports by well over $4 billion in value for the first half of the year both this and last year says Lawrence.

The Iowa State economist also reminds farmers that “if they live by the sword, they die by the sword,” in that exposure carries increased risk if trade is disrupted for some reason. Beef export trade was abundant in late 2003 when a Canadian cow with BSE caused a nearly complete halt in beef exports from the US. Cattle prices were $112 before and $75 after that incident, as a result of loss of export demand. A similar drop in poultry exports to Russia occurred when export channels backed up and meat prices were depressed in early 2002.

Current market dynamics include the fact that 63% of US beef exports go to Canada and Mexico; China is an emerging market for US pork; and Russia announced August 27 that it was lowering its imports for pork and poultry which will have a negative impact on US meat prices. South Korea has been a problem for the US beef industry, after once being a large importer, it has frustrated exporters and trade negotiators working to restore that status following the Mad Cow issues.

The export market has outbid the domestic consumer market so far this year, resulting in less beef and pork finding its way to grocery stores, along with broiler meat equal to 2007, and only small increases in turkey compared to last year being available for the domestic market. The issue here is the value of the US dollar, and since it is relatively cheap compared to many other international currencies, those countries are eating up US meats. Lawrence says, “In July 2008 compared to January 2005 the US dollar was approximately 15% cheaper in Canada, Russia, China, and Europe, 10% less in Mexico and 5% lower in South Korea.” That means it only takes 683 Chinese Renminbi to buy a $100 box of US meat compared to 827 Renminbi in January of 2005.

US livestock producers have benefited from the economics in the marketplace that have expanded trade. However, the risks are greater because trade issues can change without much warning and little can be done about it. Lawrence says those include policy changes by trading partners, governmental disagreements that disrupt the flow of meat, disease concerns and export rules, currency values, and energy prices. Lawrence says livestock producers should recognize the benefits, but have risk management protection in place.

Summary:
While a large amount of pork goes into the export market to help support pork prices, the same is true of all other livestock products currently except for beef, and that may change by the end of the year. Primarily, the value of the dollar has allowed many foreign buyers to outbid US domestic markets for meat, just as grain markets have benefited. However, export markets can be fickle and disappear as quickly as they appear.