US and World Agricultural Outlook 2010

by 5m Editor
7 April 2010, at 12:00am

Income and population growth are expected to raise per-capita meat consumption and fuel expansion in world trade, according to the Food and Agricultural Policy Research Institute (FAPRI) report 2010 US and World Agricultural Outlook.

Executive Summary

According to the FAPRI report, the slow-down in the world economy in 2009 proved to be deeper and more widespread than originally anticipated, with an annual rate of real gross domestic product (GDP) growth of -1.9 per cent. However, recovery is projected to begin in 2010, with long-term real GDP growth of 3.3 per cent reached by 2011. With the recovery primarily driven by a fiscal stimulus and restocking of inventory, its sustainability centers on how quickly and robustly confidence is restored and the employment picture is improved, leading to transition into private consumption and investment demand for medium- to longer-term growth. Also, the economic recovery is accompanied by stronger energy prices of $94.2 per barrel in 2019, a cost pressure that might take some of the steam off the growth momentum.

The US dollar made significant gains in 2009 but resumes its real depreciation over the rest of the decade against the currencies of Australia, the EU, New Zealand, and Argentina. Many Asian currencies appreciate in real terms against the US dollar, with China experiencing especially large real appreciations.

In the world ethanol market, the 37 per cent drop in crude oil prices in 2009 as well as the 60 per cent reduction in US ethanol net imports contribute to an eight per cent decline in the world price of ethanol. The ethanol price is projected to remain relatively stable in 2010 before declining by nine per cent in 2011. The price of ethanol increases over the rest of the projection period as a result of increased demand brought about by US biofuel mandates. US ethanol imports are expected to come mainly from Brazil, which continues to increase the share of sugarcane production going into ethanol. World net trade increases over the decade, approaching 4.2 billion gallons. Mandates also drive demand for biodiesel in the EU and the Americas and raise net trade to 602 million gallons as well as pushing the world price to $5.58 per gallon.

In the outlook for sugar, because of the production shortfall in 2009/10, particularly in India, the world price of sugar increases by almost 60 per cent. The price declines by 26 per cent, to 19.0 cents/lb, in the following year as countries recover. However, it continues to remain high and reaches 20.4 cents/lb by the end of the projection period, as more sugarcane is used for ethanol in Brazil, and sugar imports of countries like China and the EU remain strong.

The world wheat price drops to $216 in 2009/10 because of larger crop production in key wheat importing countries, which lowers import demand. After downward pressure from high carry-over stocks in 2010/11, the price strengthens and reaches $222.7 per metric ton (mt) at the end of the decade. With strong competition from Russia and Ukraine, the US loses market share in the world wheat market. US net exports of wheat are projected to decline over the next decade.

The world corn price decreases to $162.9 per mt in 2009/10. It is projected to increase in 2010/11 to $168.3 per mt and reach $175.6 per mt in 2019/20. Argentina regains its market share while Brazil loses its market share. The world barley price declines in 2009/10 to $135 with lower import demand in world markets. It is projected to decline further, to $131.9, in 2010/11 and to reach $148 in 2019/20.

World prices of oilseeds remain relatively stable in 2009/10 as the supply rebound (especially for soybeans) is met with increased demand because of the economic recovery. Vegetable oils lead the oilseeds complex, as demand from both food and biodiesel uses expands firmly over the outlook period. While Asian countries, and in particular China and India, underpin much of the food demand growth, consumption mandates in the EU, Argentina, Brazil and the US strongly expand the usage for biodiesel production. Increased demand for protein meal from the growing and intensifying livestock sector in Asia supports the price of meal against the backdrop of large supplies owing to strong oil-driven crush and relatively stable demand for this commodity from developed countries.

Sanitary/phytosanitary and food safety concerns stemming from disease outbreaks and from traceability issues continued to affect the world meat market. While recovery from the economic recession in 2009 continues, income and population growth raise per-capita meat consumption and fuels expansion in world trade. Meat trade is projected to increase by 22.5 per cent, reaching 20.5 mmt in 2019. A recovery in demand, coupled with strong grain prices, keeps all meat prices relatively high over the next decade. Brazil and the US gain significant shares in the world meat market.

Dairy prices declined significantly in 2008/09 as a result of economic recession. They increase in 2010 because of economic recovery. In the long run, growth in population and incomes continues to put upward pressure on dairy prices. Australia, New Zealand and the EU remain the big exporters. While exports from the EU stagnate, Argentina and Brazil expand their dairy exports.

Outlook for US Agriculture

The global recession has had dramatic effects on the US farm sector. Net farm income declined by $30 billion in 2009, as commodity prices fell far below the peak levels of 2008. A modest forecast recovery of the general economy contributes to a modest projected recovery in the farm economy in 2010.

Livestock, poultry and dairy

Domestic and export demand for meat and dairy products was severely affected by lower incomes and higher unemployment rates in 2009. Meat consumption and exports declined and prices for livestock, poultry, and milk fell. The outlook for 2010 and beyond depends on the strength of the economic recovery. If incomes increase and consumer confidence returns, demand for meat and dairy products will strengthen. Meanwhile, livestock producers have scaled back production in response to the large losses many experienced in 2008 and 2009. The combination of stronger demand and limited supplies should result in at least some price recovery in 2010.

In spite of declining cattle numbers and beef production, cattle prices fell sharply in 2009 because of very weak demand. Reduced beef production and recovery in demand are expected to result in higher cattle prices for the next several years. Eventually, improved profitability encourages another modest expansion of beef production, and cattle prices level off.

Higher feed costs in 2008 and weak demand in 2009 contributed to two straight years of large economic losses to pork producers. The combination of reduced production and recovery in demand should result in higher hog prices in 2010 and 2011. As with beef, a return to profitability results in renewed growth in pork production in later years.

In the poultry sector, low returns resulted in a sharp decline in broiler production in 2009, the fi rst decline in decades. This steep reduction in supplies helped keep broiler prices from dropping as much as cattle and hog prices, and positioned the sector for resumed growth in 2010. One important concern for the broiler sector is the recent suspension of imports by Russia, a major US export market.

Also of concern to the poultry sector in particular and the meat sector in general are future levels of US meat consumption. After decades of growth, per capita meat consumption began to level off after 2004 and to decline after 2007. Projected meat consumption expands slowly after 2012 but remains well below the 2004 peak.

Milk prices fell sharply from record levels in the final months of 2008 and caused large losses for most dairy producers in 2009. As with the meat sector, the resulting reduction in supplies and the expectation of stronger domestic and foreign demand are expected to result in higher milk prices in 2010 and beyond.

Outlook for World Agriculture

A deeper and more widespread economic slowdown than originally anticipated depressed trade and prices in 2009. However, projected recovery in income growth, along with continuing world population growth and expanding bioenergy mandates, fuels recovery and sustains long-term strength in food, feed and fuel demand in the world.

Livestock and poultry

Driven by income growth, per capita meat consumption increases by 6.1kg in the next decade, representing a 1.3 per cent annual increase. Meat consumption reaches 54.5kg per person per year by 2019. Pork consumption has the highest share in the consumption basket, growing the fastest among the three meats at 1.6 per cent annually.

While sanitary and phytosanitary (SPS) issues and food safety concerns continue to impact the world meat market, recovery in meat demand increases world meat trade 22.5 per cent (3.76 million metric tons; mmt) in the next decade, with net trade reaching 20.47 mmt in 2019. Rising meat demand fuels a 16.8 per cent (36.43 mmt) increase in world meat production over the next decade, with production reaching 253.68 mmt in 2019.

Recovery in the global economic situation pushes livestock and poultry prices relatively higher over the projection period. After an eight per cent drop in 2009, the beef price increases and peaks at $176.5/cwt in 2014. Despite the slight decline thereafter, it remains above $175/cwt in 2019. From a peak in 2004 of $52.5/cwt, the pork price cycles throughout the decade. The pork price peaks again in 2012 at $55.9/cwt and ends at $53.9/cwt in 2019. The poultry price strengthens over the next decade, growing 1.8 per cent annually and reaching a record high of $91.5/cwt in 2019.

In the outlook for trade, world beef trade recovers and is projected to continue to grow at an average rate of 3.1 per cent annually throughout the decade, ending at 6.7 mmt in 2019. Responding to the recovery in trade and the growth of the world price, beef production increases at an annual rate of 1.1 per cent (0.56 mmt) in the next decade, reaching 58.9 mmt in 2019. In pork, after recovering from a 12 per cent drop in 2009, pork trade grows 2.8 per cent (122 tmt) annually in the next decade, reaching 5.52 mmt in 2019. Pork production increases in the next decade at an annual rate of 1.9 per cent (1.85 mmt), reaching 115.47 mmt in 2019. In poultry, a lower TRQ in Russia reduces broiler trade in the short run, but trade recovers and grows at a rate of 1.3 per cent annually over the projection period. Total broiler trade increases by 0.97 mmt, reaching 8.29 mmt in 2019. Total broiler production increases 1.8 per cent (1.2 mmt) annually, reaching 79.36 mmt in 2019.

US Pork

Hog producers experienced another disastrous year in 2009. Equity losses in 2008 and 2009 wiped out profits gained from 2004 to 2007. Producers are expected to approach break-even profitability in 2010, though much hinges on the speed of economic recovery, both at home and abroad. The cyclical nature of profitability in pork production is expected to continue. Improved returns in 2011 and 2012 will lead to higher production, which will in turn limit profitability in subsequent years.

US sow numbers have declined by over six per cent in the past two years. However, gains in productivity have caused pork production reductions to be much smaller. The largest area of increase has been observed in the number of pigs per litter, which has increased by 6 per cent from 2006 to 2009. One limiting factor on productivity growth in the next decade will be a reversal of the long-term trend of increased hog imports from Canada.

Just as strong pork export growth from 2004 to 2008 buoyed hog prices in the face of strong production growth, the reverse occurred in 2009. The global economic recession, as well as the end of short-term export boosters such as hog disease problems in China, lowered pork exports by 500 million pounds last year. As pork export growth resumes in the coming decade, the amount of pork available for US consumers will decline.

US cattle and barrow and gilt prices

US livestock production

US meat net exports

World Pork

Recovering from a 12 per cent drop in 2009, pork trade grows by 2.8 per cent (122,000 metric tons; mt) annually in the next decade, reaching 5.52 mmt in 2019. Pork production increases in the next decade at a rate of 1.9 per cent (1.85 mmt), reaching 115.46 mmt in 2019.

The EU loses 7.0 percentage points of market share, dropping from 30.3 per cent to 23.3 per cent. Also, the long-term competitiveness of the EU is not very promising, given its appreciating currency and strict animal welfare and environmental regulations. Canada's market share decreases by 6.4 percentage points, while the US gains 13.2 percentage points. Despite SPS challenges, Brazil's long-term prospects are good, with new investments to improve infrastructure and raise productivity. Brazil's market share grows by 4.4 percentage points.

Hog inventory in Canada has declined since 2006. It begins to grow in 2011. A shrinking herd and lower industry returns cause lower production in the short run. Canada's exports of live hogs to the US decline at 0.8 per cent, reaching 5.93 million head in 2019, partly because of uncertainty about country of origin labelling (COOL). Pork net exports decline in the short run and stay at around 0.9 mmt over the baseline.

Brazil's pork exports grow by 9.0 per cent annually, reaching 1.1 mmt in 2019. Improvement in productivity, favorable domestic policies, and a weakening currency improve Brazil’s competitiveness in the world pork market.

Stimulated by increased export refunds, the EU's net exports jumped by 17.9 per cent in 2008, but they decline after that and end at 1.2 mmt in 2019. Strict environmental regulations and animal welfare requirements limit the EU's long-term capability. Production is stable over the projection period, compared to the 0.2 per cent growth in consumption.

Taiwan's pork production declined 11.7 per cent between 1997 and 2008. Constrained by environmental pressures and high feed costs, production increases at 0.5 per cent, which boosts net imports by 16 per cent per year over the next decade. Recovery in the beef and poultry sectors impacts Japan's pork sector. Consumption increases slightly, at 0.5 per cent, over the next decade, and production also increases, at 1.1 per cent. As a result, net imports decline in the short run but turn around in 2013 and reach 1.2 mmt in 2019.

Consumption recovery boosted China's net imports in 2008, with domestic production and consumption increasing four per cent and five per cent, respectively. Over the next decade, production grows at 2.8 per cent, falling slightly short of the 3.0 per cent growth in consumption. China's exports have continued to decline, and the country becomes a net importer in 2014, as growth in imports exceeds growth in exports. Net imports expand to 138,000 mt in 2019.

World meat production and trade

Per capita meat consumption

Major pork importing countries

Pork export market share (based on net exports)

Further Reading

- You can view the full report by clicking here.

April 2010