August 30, 2012

US soy farmers unaffected by recession on high Asian demand

US soy farmers are not affected by the recessionary trends in global economy as Asian demand for animal feed and biofuel production in USA rises.

Depreciating dollar has also helped push exports from USA in recent years according to IBISWorld Industry analyst Agiimaa Kruchkin. As a result IBISWorld expects revenue to grow at an annualised rate of 6.4% in the five years to 2012. In 2012 the USDA has lowered its forecast of soy harvest yield per acre 18.0% due to an extensive drought.

Nevertheless the reduced supply will boost prices 8-20%. Therefore an industry revenue increase of about 7.2% between 2011 and 2012 to US$39.9 billion is expected by the end of the year. Despite strong growth the adoption of genetically modified (GM) seeds is reaching a saturation point no longer a major source of yield improvement.

Additionally the biofuels segment which has rejuvenated the industry and continues to strengthen domestic demand is stabilising adds Kruchkin. Consequently growth rates are forecast to slightly weaken in the next five years. A surge in South American inventory is responsible for the US experiencing a steadily declining share of global exports. The 2012 drought has reduced the global supply of soy with US exports expected to fall 6.8% for the year.

This situation presents a threat to the industry as Argentina and Brazil boost their global presence in the soy export market. The Soy Farming industry is overwhelmingly characterised by family held individual farms. In most cases soy producers operate as partnerships and sole proprietors rather than corporations. Despite some farm consolidations the industry remains fragmented. There is a long term trend toward fewer farms across the agricultural sector and this applies to the Soy Farming industry as well.

This trend is a result of rising costs and competition that make it difficult for smaller farms to succeed. During the next five years soy is anticipated to maintain their position as the second largest crop in the US behind corn. The crops' primary uses (in livestock feeds vegetable oils and biofuels) are unlikely to change even in the medium to long term. Still as a typical agricultural product the Soy Farming industry is heavily exposed to volatility from external factors such as weather conditions market prices and government subsidies.

Consequently profit margins may vary greatly from year to year. Despite this uncertainty continued biofuel demand will support a steady rise in soy prices. IBISWorld forecasts industry revenue to increase through.