Declining Dollar Value Could Enhance Export Prospects

by James Mintert, Ph.D., Professor & Extension State Leader, Department of Ag Economics, Kansas State University

Japan agreed last fall to reopen its border to U.S. beef from cattle less than 21 months of age. In early January, discussions were still taking place regarding the possibility of verifying animal age without birth records. The inability to easily verify steer and heifer age has slowed the reentry of U.S. beef into Japan and could continue to hamper efforts to gain access to the Japanese market. And concerns still exist regarding Japanese consumers’ acceptance of U.S. beef when it reaches stores and restaurants in Japan. But once U.S. beef is available in Japan, a declining U.S. dollar value could help make U.S. beef competitive in the Japanese market place. To see why, let’s take a look at changes in the dollar’s value relative to the Japanese yen and how that impacts prices faced by Japanese importers.

Over the last three years, the U.S. dollar’s value has fallen sharply relative to the Japanese yen. During January 2002 the exchange rate was 133 yen per dollar. A year later the dollar’s value had fallen to an average of 119 yen per dollar. And, by January 2005, the dollar had fallen even further, dipping below 105 yen per dollar. The dollar’s declining value has the effect of making U.S. beef exports cheaper when expressed in yen, if everything else is held constant. The chart of monthly average exchange rates illustrates the sharp decline in the dollar’s value relative to the Japanese yen.

Over that same three-year time span, U.S. boxed beef values were increasing. During January 2002, USDA’s light Choice boxed beef cutout value averaged $111.53/cwt. A year later, the cutout averaged $128.59/cwt., an increase of 15 percent. By January 2004, USDA’s light Choice cutout value averaged $138.60/cwt., eight percent higher than the previous year. Finally, weekly average wholesale beef prices in early January 2005 were also above the prior year. But to see how the value of U.S. beef expressed in Japanese yen terms changed over the last several years, examine the accompanying chart of monthly average U.S. cutout values expressed in Japanese yen.

Although the USDA cutout value has fluctuated considerably over the past three years, the key is that U.S. wholesale beef values at the end of 2004 were virtually unchanged from their January 2002 level. During January 2002 USDA’s light Choice cutout was valued at an average of 14,796 yen vs. just 14,803 yen during December 2004. So, USDA’s light Choice cutout value actually increased about 28% in U.S. dollar terms, but the decline in the dollar’s value means that Japanese importers today are looking at prices that are virtually unchanged compared to three years ago. And that could be good news for exports of U.S. beef to Japan, once trade restrictions are lifted. ©