In the past, the devaluation of the dollar has helped offset some of the negative inflationary effect of record high feed costs. Indeed, even as US beef and pork prices hit record highs in some years, world buyers did not feel the full impact of such increases due to the effect of a weaker US dollar.

More recently, however, the pendulum has swung in the other direction for the US dollar. Nowhere is this more evident than in the sharp depreciation in the value of the Japanese currency vs. the US currency. Japan is our most important meat trading partner, purchasing a little over $3 billion worth of beef and pork in 2012 (chicken was minimal, see chart). In the case of pork, Japan dominates US pork trade, accounting for about a third ($2 billion) of all US pork export receipts in 2012. Japan also accounted for almost 19 per cent of the value of beef and veal shipments (fresh, cooked and variety).

his context is important when noting that since November , the value of the Japanese currency vs. the US dollar has taken a nose dive, losing almost 18 per cent in a span of three months. When looking at the export data that will be released for January next week, pay close attention to the value of export to Japan and the impact that has on the value of all US exports. The change in the value of the Yen is not an accident that will be quickly rectified. It reflects a dramatic change in the stance of the Japanese Central Bank and the Japanese government.

Japan is expected to become much more activist in its monetary policy, printing more Yen and embarking on easy money policies similar to those in the US, Europe and Britain. Some have argued that the change implies direct political interference in the affairs of what is an independent body (similar to the US FED). However, the Japanese Central Bank has missed its inflation target for the past de cade and sooner or later it was bound to come under increased pressure to deliver on its mission.

The danger for US competitiveness in the meat trade is how other commodity exporting countries will respond to this change in Japanese policy. Developed economies have embarked on a struggle to generate growth via easy money. Countries like Brazil, Canada, Australia, New Zealand will either stay pat and see their exports/GDP decline, or they will also try to lower the value of their currencies via easy money and/or lower rates.

n the case of Brazil, we have already seen a dramat ic reduction in interest rates, from 10.5 per cent last March to 7.5 per cent in January and likely even lower going forward. This has lowered the value of the Real and bolstered Brazil beef exports. The US dollar also has gained ground vs. the Canadian dollar and Australian dollar in recent weeks, a development that hurts our exports and encourages imports. Domestic demand has struggled from weak income growth and the stronger dollar will further erode the profitability of US meat producers.