New Market Report: United States Agribusiness Report Q4 2013

By some measures, the US farm sector is in the best financial conditions in decades. Farm and cash income in real terms are at 30-year highs, while the leverage is at 50-year lows. The sector is also recovering from the droughts of 2012, although the grain sector should rebound faster than the livestock sector. However, the sector still faces concerns: Beef production is expected to remain weak over the short term, while we are forecasting a significant decline in cotton production for 2013/14. The country's sugar sector is also suffering in the wake of lower average prices. Over the longer term, the sector will face some uncertainty as the Congress debates a new farm bill, and will have to adjust to a different subsidy program once a new bill is passed. Nevertheless, we expect the US to remain the pre-eminent food producer and exporter in the world.

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Key Trends

* Soybean production growth to 2016/17: 11% to 91.2mn tonnes. This is mainly owing to the increase in poultry production over the long term. However, we have further revised our long-term figures down as we do not see continued increases in the area dedicated to soybean given our view of lower average prices in the medium term.
* Corn consumption growth to 2017: 17% to 304.1mn tonnes. This will be driven by increases in livestock production, particularly from the poultry sector. Part of this growth will also be low base effects.
* Poultry production growth to 2016/17: 20.1% to 23.1mn tonnes. The US is the world's second largest poultry exporter behind Brazil. As such, increased global demand for poultry, particularly from emerging markets, is likely to serve as a powerful production incentive.
* 2013 real GDP growth: 1.8% year-on-year, up from 2.8% in 2012; predicted to average 2.4% from 2013 until 2017.
* Consumer price inflation (avg): 2.2% ave in 2013, up from 1.8% in 2012.

Industry Developments

We believe the USDA's sugar-for-ethanol program will only be a temporary solution to the current glut of sugar on the US market, and is unlikely to have a major effect on the global benchmark #11 sugar price. The policy was created to help boost domestic (sugar #16) prices as domestic sugar producers are struggling with an oversupplied market. Although the program may temporarily raise prices by increasing the demand for sugar, ultimately, lower average corn prices will prevent producers from switching to sugar, and will keep sugar demand subdued. The plan was recently enacted to help sugar farmers to avoid defaults. Ordinarily, sugar farmers acquire loans using their crops as collateral, and then either repay the loans or essentially forfeit their crops to the CCC following the end of the loan period. However, when market prices are low, the CCC is required by law to purchase the sugar from domestic producers at above market prices and sell it to bio-energy companies in order to prevent losses for the sector.

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