United States Agribusiness Report

The outlook for US farmers has become increasingly bleak since our last report. While livestock and dairy farmers have been suffering from the poor economic climate for some time now, despite the fall through the second half of 2008 many grain and oilseed producers were still enjoying historically high prices for most of the first half of this year. Since June, however, the price for both soybeans and corn, the US's two most significant field crops, has plummeted.

Prices have been weighed upon by the announcement of forecasts for bumper harvests of both corn and soybean in the 2010 crop year. Demand for feed is also suffering from the poor health of the US livestock sector. While we expect prices to climb back up moving into 2010, any increase will be gradual and we do not rule out bouts of significant retracement towards recent lows.

The gloomy outlook for the agricultural sector was confirmed at the end of August by the release of a report by the US Department of Agriculture (USDA) forecasting that farm profits will fall 38% in 2009.

The USDA forecasts a 9.8% fall in crop receipts and a 15.0% fall in revenue from livestock. The larger fall in livestock revenues reflects the sorry state of the livestock and dairy industries. Pig farmers are in the most difficulty. The sector was already having difficulties before the recession hit. Since the beginning of the year, things have gone from bad to worse with the outbreak of H1N1 'Swine Flu' in April. In Q209, US pork exports plummeted 31% year-on-year (y-o-y) as consumers stayed away from pork.

Meat production was down across the board in the first half of 2009; beef production fell 3.1% y-o-y; pork production 2.7%; and broiler production 5.8%. With demand for both beef and dairy poor, the national cattle herd has fallen to the lowest level in more than 35 years. Dairy farmers were given a muchneeded boost at the end of July when the USDA announced that under the Dairy Product Price Support Program it would raise prices for cheese and non-fat dry milk powder produced from August to the end of October 2009.

The agricultural news is not all bad, however. Sugar producers have been benefiting from the surge in prices this year on the back of a global supply shortage. Even without the price surge, the US sugar sector would be unlikely to suffer badly in the recession - the sector enjoys some of the highest levels of government support in relation to its size of any of the country's agribusiness industries. The protection offered to sugar processors has for years been angering free traders, environmentalists and those working in international development. The protection from imports maintained through prohibitively high tariffs means US consumers, as well as industries that use sugar such as candy makers, generally pay more than the global price for sugar. Critics attribute the continued support for US sugar to the lobbying activities of the key players. Despite pressure both from the food processing industry inside the US and from trading partners, we do not anticipate any significant liberalisation of the sector anytime soon.