Summary
Typically the impact of a rising Australian dollar is a deterioration in US lean beef imports which can be bullish for the 90% beef trimmings market. The Australian dollar made 13 month highs this week.
Analysis
The chart of the week is the value of the Australian dollar (versus the US dollar) and the US 90% beef trimmings market. What does one have to do with the other? Good question! First we remember that beef processors utilize trimmings to make various beef products including the ever popular hamburger. Typically, a hamburger processor will mix 90% beef trimmings with a fattier trim, say 50% trimmings, to make their product. In the US, we produce at lot of fattier beef trimmings. So much so that we have an excess of 50% trimmings and a shortage of 90% trimmings. Thus, we have to import a considerable amount of lean beef to make up the deficit. And a lot of that lean beef comes from Australia. We remember that when our currency is weak, it makes international products more expensive to us and our products less expensive to the world. So, typically the impact of a rising Australian dollar is a deterioration in US lean beef imports which can be bullish for the 90% beef trimmings market. Notice that 90% beef trimming prices set record highs in the summer of 2008 at the same time the Australian dollar valuation was setting a record versus the dollar. Now you may notice that despite the recent run up in the Australian dollar (it made 13 month highs this week), the US 90% beef trimming market has mostly moved lower. This is due partly to the recent increases in dairy cow slaughter. However, dairy cow slaughter cannot be sustained at these levels for long and history tells us that neither can the 90% beef trimmings market at the current levels if the Australian dollar remains elevated.
David Maloni consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
