Poultry
xClose

Loading ...
Swine
xClose

Loading ...
Dairy & Ruminant
xClose

Loading ...
Aquaculture
xClose

Loading ...
Feed
xClose

Loading ...
Animal Health
xClose

Loading ...
RSS
 
December 18, 2008

 

US livestock herd cuts reduce need for grain acreage

 
 

Reductions in US livestock mean less feed grain demand and fewer domestic acres planted to grains, Barclays Capital analysts said Wednesday (December 17).

 

Feed for commercial farm animals accounts for more than 40 percent of domestic corn and soy consumption, said Chris Bledsoe, agribusiness analyst at Barclays.

 

In 2008, elevated corn and soy costs and an oversupply of meat reduced protein processor profitability in 2008, said Bledsoe, who spoke at the Barclays Capital Agriculture Outlook 2009 conference call. In response, processors cut production, leading to expectations for a 5 percent to 10 percent contraction in US livestock herds and flocks that will play out in spring and summer of 2009, Bledsoe said.

 

In effect, a 7.8 percent production cut across the protein complex would translate into a 4.5 percent decrease in the amount of acres needed to grow corn and soy if the production cuts annualize at a 7.5 percent decline, Bledsoe said.

 

Before ethanol mandates were introduced in 2005, grains processors and protein processors shared a more symbiotic relationship, although the fuel initiatives disrupted that dynamic, he said.

 

With the shift in herd size and feed demand, Bledsoe said it makes sense for investors to put their money in meat processors rather than grain-centric companies. Protein processors include Sanderson Farms Inc. (SAFM), Tyson Foods Inc. (TSN), Hormel Foods Corp. (HRL) and Smithfield Foods Inc. (SFD), he said.
Bledsoe also mentioned grain processors Archer Daniels Midland Co. (ADM) and Bunge Ltd. (BG). Chicken is the least expensive protein to produce, followed by hogs and cattle, he said.

 

Peter Meyer, director of US agriculture sales and structuring at Barclays, said grain and oilseed acreage would slip in 2009.

 

US planted corn acreage is projected to slip 1.7 percent to 84.5 million acres in 2009, Meyer said. In 2008, farmers planted 86 million acres of corn.

 

Soy acreage will stay roughly steady with the previous year. He said Barclays projects US 2009 soy acreage will be trimmed to 75.5 million acres, down 0.5 percent from 75.9 million in 2008.

 

Wheat acreage will drop 4.8 percent in 2009 to 60 million acres, Meyer said. In 2008, US farmers planted 63 acres of wheat.

 

"Cotton is going to be the real big loser here," with US 2009 planted acres coming in at 8.5 million acres, down 21.5% from the 2008 level of 10.83 million, Meyer said.

 

In the longer term, demand from China will remain an important factor in agricultural commodities, said Sudakshina Unnikrishnan, commodities analyst at Barclays.

 

China's corn consumption is rising to the point the country will likely be a net importer, Unnikrishnan said. China's corn imports were up 85 percent on the year at 5,693 tonnes, and up 66 percent in the January-October period at 21,838 tonnes.

 

China's reliance on soy imports will continue strong, Unnikrishnan said. China's soy imports in October fell 25 percent on the year to 2.13 million tonnes but soy imports rose 26 percent to 30.82 million tonnes in the January-October period. China is the world's biggest importer of soy and gets most of its supplies from the US, Brazil and Argentina, the world's leading soy producers.

 

However, a sharp fall in Chinese cotton imports is slowing demand, she said. China's cotton imports in October fell 30 percent on the year to 96,122 tonnes. In the January-October period, cotton imports fell 8.3 percent to 1.865 tonnes from the previous year. China is the world's largest cotton importer and gets most of its supplies from producing countries such as the US, Uzbekistan and Australia.

 

Current bearish behaviour in agricultural commodities increases expectations of countertrend rallies in Chicago Board of Trade grain prices, said C. MacNeil Curry, chief North American technical strategist for Barclays.

 

CBOT corn is projected to break to the US$4.55 to US$5 a bushel zone before moving back to the US$3, and then US$2, levels, Curry said.

 

CBOT wheat could bounce to the US$5.75 to US$6.65 levels up to $7 a bushel, but a large head-and-shoulders chart pattern will then push prices back to the US$3 range, he said.

 

CBOT soy prices will likely break higher near the US$10.2995 area before falling back into the bear trend, Curry said.

 

Share this article on FacebookShare this article on TwitterPrint this articleForward this article
Previous
My eFeedLink last read