Export markets expand | A growing middle class and increasing demand for food will spur livestock and grain sales
NASHVILLE, Tenn. — Agricultural producers should be bullish about their prospects as global demand for food grows every year.
“Every year we are adding 78 million people to the planet,” said Brett Stuart of Cattlefax.
“That is the equivalent of nine New York Cities every year.”
Income growth is also positive, which means an increased demand for beef, pork and poultry, he told a markets session held during the recent National Cattlemen’s Beef Association convention in Nashville.
Pork and poultry production is growing, but there is barely enough beef to keep up with demand. Herds are expanding in India and Brazil, but other large beef producing nations are falling behind. The result is higher prices, which are expected to continue strong for the next couple years.
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Global markets are diverse and affected by culture, politics and different food preferences.
For example, 85 percent of all chicken feet produced in the United States are sold to Hong Kong. Variety meats such as liver go to Egypt and beef tongue is bound for Japan.
“We are shipping just about every tongue we cut to Japan for $4 and sometimes up to $5 a pound,” Stuart said.
The world is watching countries such as Japan, China and Russia, which need to import food and other commodities. However, the entire industry must deal with fluctuating currencies and inflation.
Stuart said the skeptics who say exporting is risky should consider how offshore sales can diversify an economy.
“Look at the recession of 2008-09,” he said. “Thank goodness we had export markets.”
As well, agriculture is just a small part of the overall portfolio that is required to buoy up an economy.
“The Japanese economy is not concerned about beef,” said Michael Swanson, an economist with Wells Fargo. “Beef is way down on the list. What do the Japanese want to sell? Cars, televisions and semi-conductors because that is where the real money is.”
Still, trade with China in fish, grain, beverages and forestry products has had a positive effect on the U.S. economy.
“When you look at China and Hong Kong as a block, they have been the sole driver of U.S. economic growth,” said Swanson.
Beef has made inroads to Hong Kong with sales of $720 million last year.
“They are our buyer that has made a difference,” he said.
The need for food is balanced with currency rates, which affects trading nations’ ability to buy or sell commodities.
Food markets are evenly balanced in the North American Free Trade Agreement bloc of Canada, Mexico and the United States, even though each country’s currency changes.
Canada had a weak dollar against the U.S. in the early 2000s while the Mexicans did not. The loonie is again slipping, so that $1.12 buys one U.S. greenback. This is a major benefit for Canada as an exporting country.
Asian exchange rates are also moving, said Swanson. China allowed its currency to strengthen in 2006-07, and there has been a 30 percent increase in the Chinese exchange rate against the U.S. dollar.
Japan decided to let the yen weaken against the U.S. dollar in an attempt to kick start its economy. As a result, Japanese consumers find goods such as U.S. beef expensive.
Australia and New Zealand made a conscious decision to let their currency strengthen against the U.S. dollar. As major commodity exporters to Asia, this has been a benefit.
Argentina had a major devaluation in 2000, but its inflation rate is hard to track. The government says inflation is 12 percent, while independent economists say it is closer to 34 to 40 percent. However, Swanson said a devalued peso has allowed Argentina to sell beef, wheat, corn and soybeans around the world.
