Source: Rita Jane Gabbett, MEATINGPLACE, 6/24/16


The impacts of Britain’s decision to leave the European Union might help make livestock feed a bit cheaper in the near term, but a larger issue will be currency market fluctuations and a stronger U.S. dollar, which could curb global appetite for U.S. grain and meat.

U.S. corn and soybean futures prices fell in morning trade, though these prices have also been negatively impacted this week by timely rains in the Midwest. Corn futures were initially down from 7 cents to 10 cents per bushel across various futures contract months. Soybean futures prices fell by over 20 cents per bushel in early trade on GLOBEX.

The dollar
As the Euro and the British Pound fell — the latter plummeting to a 30-year low against the dollar — money sought safe havens this morning. Already the Swiss National Bank has intervened in the foreign exchange market as frightened investors boosted the Swiss franc.

For the U.S. meat industry, the concern will be the impact of a strong dollar on U.S. exports. All three major proteins — beef, pork and chicken — have become increasingly dependent on export markets in recent years.  

“The U.S. has already lost substantial (export) share to European producers in Asia and should the euro deteriorate further, which is a risk if other countries follow the UK's lead, we believe further share loss is likely. Given our concerns of burgeoning supplies later this year into 2017, along with risks to the feed cost outlook, the protein sector may bear the brunt of Brexit fallout over the short term,” wrote BB&T Capital Markets analysts Heather Jones and Brett Hundley in a note to investors.  

One possible exception is Hormel, given its limited international exposure, strong balance sheet and dividend yield, they noted.
In terms of currency strength, Japan, a major U.S. meat importer, also saw its currency rise on Britain’s decision, which could help dilute the impact of the stronger dollar in that market.

Trade
The U.S. Meat Export Federation called Britain's move,"an unprecedented development that will have implications that are impossible to predict today."

Still, there are concerns.

"To the extent that the UK’s decision to leave the EU contributes to economic turmoil in Europe, this will be of considerable concern to U.S. meat companies that have made significant investments in the EU market. More generally, the UK has been a moderating voice within the EU on trade and regulatory issues, and we will be watching for signs that the UK’s departure from the bloc results in a hardening of the EU perspective in these areas, which are of significant interest to companies doing business in Europe," USMEF spokesman Joe Schuele told Meatingplace.   

Pork
“Britain has not been a big player in pork markets for quite a few years so I see no direct impact. The impact will be indirect and probably most clearly felt in the value of the dollar,” EMI Analytics Vice President Pork Analysis Steve Meyer told Meatingplace.
He said the question would be whether the U.S. dollar moves out of the 93 to 100 range on the ICE’s dollar index that it has been in for 15 months.

“I don’t see this being very disruptive for pork trade if we stay in that range.  I don’t know what the odds are of that but we have been near the low of that range recently and thus have some room to move upward without breaking out the top of the range,” said Meyer.

Even if the dollar continues to strengthen, Sterling Marketing principal John Nalivka told Meatingplace he does not expect it to impact the current U.S. pork industry expansion. He noted strong U.S. producer margins and the likelihood of increased pork demand from China.  

Beef
“Beef is more vulnerable to a strong dollar than pork. Beef is a higher priced item relative to pork and poultry and not as universally consumed internationally as pork and poultry,” said Nalivka.

He added, however, that U.S. beef prices are declining, which would offset at least in part the strengthening dollar.

Poultry
Jim Sumner, president of USA Poultry & Egg Export Council (USAPEEC) said he does not see much impact on U.S. poultry exports. "We don't export to the EU or the UK," he noted. 

He acknowleged, however, that poultry exports to other markets could be secondarily impacted by a stronger dollar.

Grains
Exports are also important to U.S. corn and soybean markets. A stronger U.S. dollar could dampen global demand, ultimately weakening domestic prices for these commodities if crop conditions remain favorable, analysts predicted.

They were quick to add, however, that grain markets will continue to be more weather related than anything else.
Analysts also noted that market reactions today don’t tell us what they will be in a week, a month or a year.

“The dust is going to have to clear. Everything is up in turmoil and there is a lot being said. We see it all as sort of a mixed bag,” said Nalivka.

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