Lower A$ bolsters cattle markets in 2015

29 October 2015


Australia’s position as a net red meat exporting nation means that currency fluctuations can have a large influence on global trade flows and consequently impact livestock prices.

From an exporting point of view, the A$ has worked in Australia’s favour for the duration of 2015 – commencing the year at 82US¢ and as at 27 October was 73US¢. This ultimately means that Australia’s competitiveness has improved for any meat traded in US$ terms.

The declining A$ occurred over the same period as a correction in the US cattle market, and as a result meant that Australian cattle prices were cushioned from the US impact. This is important, as there is a long standing correlation between US and Australian cattle prices. For the Australian cattle market to have continued finding new highs, while the US was falling rapidly, highlights the influence of currency on the cattle market.

The Eastern Young Cattle Indicator (EYCI) peaked at 595A¢/kg cwt in September, up 58% from the close of markets in 2014, while the CME feeder steer index in the US was down 19% over the same period, at 418US¢/kg cwt.  

On the demand side, while the US is the largest importer of Australian grassfed beef, it is also a competitor in markets like Japan and Korea. Influenced by the weaker A$ relative to the US$, Australia’s imported beef market share in Korea and Japan improved in 2014-15, at 56.3% and 56.6%, respectively.

Looking forward, according to Business Monitor International (BMI), due to wide current account deficit, the A$ will remain under pressure during 2016, where it is forecast to average 63US¢. This will further assist the Australian livestock markets.

The A$ has also declined against other major importer currencies in 2015, including the Japanese yen (down 10%), Korean won (down 8%) and China renminbi (down 9%).

Of course, the A$ is one of a myriad of factors that influence livestock prices, among seasonal variability, tariffs, quotas, competing country production levels and competing protein levels. However, with the A$ forecast to continue weakening, it will be of assistance. 

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