United States Agribusiness Report Q2 2010

The USDA's National Agricultural Statistics Service (NASS) 'Cattle' inventory report, published on January 29 2010, put the US national herd at a 52-year low of 93.7mn head as of January 1 2010. The 2009 calf crop was down by 1.0% year-on-year (y-o-y) at 35.8mn head while the number of beef replacement heifers fell by 2% y-o-y to 5.4mn. The livestock sector has been further hit by the harsh weather conditions in late 2009 and early 2010.

Storms and heavy snowfalls across the Plains States have led to higher death losses, increased feeding costs and slower weight gain for both cattle and hogs. Cattle in feeding lots have also been hit and are reported to weigh in at 40-60 pounds less than anticipated. Concerns about delays to cattle and hog marketings fuelled price increases through January and February. We expect to see livestock prices continue to rise over 2010, bringing some relief to the troubled sector.

Figures from the Livestock Marketing Information Center published in February 2010 forecast average fed cattle prices to rise by 5% y-o-y in 2010 and US cattle futures hit a 15-month high in February 2010. The prospect of improved returns, combined with the fall in cost of grains, means that the price of finishing cattle in feedlots could break even in the coming months. We therefore expect to see the numbers of cattle placed in feedlots increasing through Q210.

2010 also promises improved returns for the beleaguered US dairy industry. With milk production down y-o-y, supply restrictions pushed up prices over the first two months of 2010. Figures from the World Agricultural Outlook Board put all milk prices for February 2010 at US$16.20-16.90/cwt, up from US$12.81 a year previously. Prices are forecast to average US$16.35-17.15 in 2010, up from US$12.70- 12.80 in 2009. The price of cheese also rose, standing at US$1.575-1.645/pound in February 2010, up from US$1.296 in February 2009. Prices are forecast to average US$1.615-1.695 over 2010, up from the 2009 average of US$1.290-1.300 per pound. The cost of butter was also high in February 2010, reaching US$1.395-1.495/pound, an increase from US$1.2096 a year previously. Falling feed costs as the price of soybean meal and corn drop will also boost profit margins.

The unwieldiness of the US sugar industry was brought into focus in Q110. Although domestic production is set to increase in 2010, growth has been lower than expected, due to weather damage to sugar beet crops and lower than expected cane output in Texas. In addition, the volume of out-of-quota imports entering the US from Mexico is set to drop steeply. Mexican sugar output is now forecast to decline by 10% in 2010, owing to weather damage to crops. US domestic producers are unlikely to be in a position to fulfil their marketing allotments and imports from Mexico remain difficult to predict. With the prospect of restricted supply later in 2010, the USDA has to evaluate whether to boost sugar imports from other sources.

Thus far, the USDA has authorised an import quota of 1.231mn tonnes, the minimum amount required to fulfil WTO commitments. However, the department has come under pressure from the sugar processors to increase imports to ease shortages and pull back escalating raw costs. Raw sugar prices on the global market more than doubled over 2009, and as global supplies remain restricted, there are fears that the US may have trouble attracting supplies if the USDA postpones increasing import quotas for too long.

source: officialwire