United States Agribusiness Report Q3
2011

United States Agribusiness Report Q3 2011

BMI View: The world's largest agricultural producer will remain as such over the long term, although some of its sectors may decline in terms of their global impact. This is particularly the case for livestock, as other large producers (particularly Brazil) are becoming more important by the year. However, one area where the US will maintain its dominance is in grain output, especially for corn. Although we are forecasting strong production growth over the long term, demand (particularly due to poultry and ethanol production growth) will grow almost just as quickly. Given that the US is also responsible for almost half of all corn exports, the progress of the US corn crop will maintain vital importance over the long term. So far, the 2011/12 crop appears to be in good shape. However, any future downgrades could make an already tight corn market tighter and cause grain prices to rise in H211.

Key Trends

• Corn production growth to 2014/15: 18% to 393.8mn tonnes. This will be due to significant consumption growth (much of which will go towards livestock, but also some ethanol production). The export market will also be a significant growth driver for domestic production.
• Poultry consumption growth to 2015: 24% to 19.4mn tonnes. This will far outstrip red meat consumption growth as consumers increasingly prefer the healthier option.
• Wheat production growth to 2014/15: 10% to 66.4mn tonnes. The key driver for wheat production will be export potential, since domestic consumption will stay largely flat over the long term.
• 2011 Real GDP Growth: 2.6% (down from 2.9% in 2010; predicted to average 2.7% from 2010 until 2015).

Industry Developments

We have stated in the past that any amendment putting an end to ethanol subsidies in the US is unlikely to be adopted in the short term. However, if any amendment or subsequent reforms to the system were adopted, we see two potential and important outcomes: moderating corn prices and higher sugar and ethanol prices over the long term. The US Senate voted on June 14 on a proposal to end ethanol subsidies.

In line with our view, the amendment was not adopted. We see any major revision to the US subsidy program as unlikely in the short term. Any reform would need a majority at the Senate, a subsequent vote at the House of Representatives and President Obama's approval in spite of his apparent opposition to the subsidies' elimination. Also, the importance of farmers' lobbies and issues on cutting jobs in the ethanol industry makes the amendment unlikely in the short term.

On June 16 2011, Smithfield Foods reported strong fiscal Q411/FY11 results. The company reported a net income of US$512mn compared to a net loss of US$101.4mn in 2010. Earnings per share was US$3.12, compared to a negative US$0.65 in 2010. Two thirds of these results are driven by the pork segment, within which the packaged meat segment experienced higher revenues. In light of these results, we are optimistic about Smithfield's position compared to meat producer peers such as Tyson Foods in 2012 and 2013 for three reasons. First, average margins forecast by analyst consensus show operating margins for Smithfield slightly higher. Second, Smithfield's revenues mainly come from pork, which translates into higher margins, contrary to other meat producers focused on beef or chicken. Third, Smithfield's business model shifted recently towards increasing revenues from consumer packaged meats (56% of total pork products in 2011 versus 53% in 2009).

According to the US Department of Agriculture (USDA), US beef beginning stocks in 2011 are estimated to be 31mn head, one of their lowest levels in half a century. Furthermore, despite high prices that should encourage production, we do not see a significant increase for US beef production over the short term as poor margins, financial concerns and small herds keep it subdued over the medium term. The US beef herd is at its lowest levels in almost 50 years and despite increasing slaughter weights and an expected rebound in domestic consumption, high local beef prices are likely to continue making it less competitive compared to other livestock products. Over the full forecast period, we see a 13% increase in production. However, most of that growth will not come until the end of the period.

• Executive Summary
• SWOT Analysis
• United States Agricultural SWOT
• United States Political SWOT
• United States Economic SWOT
• United States Business Environment SWOT
• Industry Forecast Scenario
• United States Grains Outlook
  • Table: United States Wheat Production, Consumption & Trade
  • Table: United States Corn Production, Consumption & Trade
  • Table: United States Barley Production, Consumption & Trade
  • Table: United States Sorghum Production, Consumption & Trade
  • Table: United States Wheat Production, Consumption & Trade
  • Table: United States Corn Production, Consumption & Trade
  • Table: United States Barley Production, Consumption & Trade
  • Table: United States Sorghum Production, Consumption & Trade
• United States Dairy Outlook
  • Table: United States Milk Production, Consumption & Trade
  • Table: United States Butter Production, Consumption & Trade
  • Table: United States Cheese Production, Consumption & Trade
  • Table: United States Milk Production, Consumption & Trade
  • Table: United States Butter Production, Consumption & Trade
  • Table: United States Cheese Production, Consumption & Trade
• United States Soybean Outlook
  • Table: United States Soybean Production, Consumption & Trade
  • Table: United States Soybean Production, Consumption & Trade
• United States Sugar Outlook
  • Table: United States Sugar Production, Consumption & Trade
  • Table: United States Sugar Production, Consumption & Trade
• United States Livestock Outlook
  • Table: United States Poultry Production, Consumption & Trade
  • Table: United States Pork Production, Consumption & Trade
  • Table: United States Beef & Veal Production, Consumption & Trade
  • Table: United States Poultry Production, Consumption & Trade
  • Table: United States Pork Production, Consumption & Trade
  • Table: United States Beef & Veal Production, Consumption & Trade
• United States Rice Outlook
  • Table: United States Rice Production, Consumption & Trade
  • Table: United States Rice Production, Consumption & Trade
• Commodity Price Analysis
• Monthly Softs Update
• Cocoa
• COCOA
• Coffee
• COFFEE
• Milk
• MILK
• Sugar
• SUGAR
• Monthly Grains Update
• Corn
• CORN
• Rice
• RICE
• Soybean
• SOYBEAN
• Wheat
• WHEAT
• Downstream Supply Chain Analysis
• Industry Forecast Scenario- Food
• Consumer Outlook
• Food
• Total Food Consumption
  • Table: US Food Consumption Indicators, 2005-2015
• Confectionery
• Canned Food
  • Table: Canned Food Value And Volume Sales, 2055-2010
• Mass Grocery Retail
  • Table: Sales Breakdown By Retail Format Type, 2009 And 2019
• Trade
  • Table: Food & Drink Trade, 2006-2015 (US$mn)
• Macroeconomic Forecast
  • Table: United States - Economic Activity, 2008-2015
• Global Food & Drink View
• Food & Drink Roundup Q111: Core Views
• BMI FOOD & DRINK CORE VIEWS
• BMI Forecast Modelling
• How We Generate Our Industry Forecasts