Boston, MA -- (SBWire) -- 06/14/2013 --With La Niña no longer a concern, we expect a big rebound in US grain production for the 2013/14 season, led by a significant increase in corn production as prices have remained high and soil conditions have improved. Unlike grains, we believe cotton production in 2013/14 will decline largely due to a reduced planted area. We have revised down our long-term forecasts for both corn and soybean by 12% and 9% respectively, as the area dedicated to these grains is already at record highs, and beyond the current recovery we see little potential for sustained increases in yields over the long term. Within the livestock sector, we believe production growth will be slow in the short term as the industry recovers from high grain prices and poor soil conditions. Over the longer term, we favour the poultry sector due to price competitiveness and changing dietary trends away from red meat.
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Key Trends
- Soybean production growth to 2016/17: 14.2% to 94.8mn tonnes. This is mainly owing to the increase in poultry production over the long term. However, we have revised our long-term figures down as we do not see continued increases in the area dedicated to soybean given our view of lower average prices in the medium term.
- Corn consumption growth to 2017: 10.1% to 307.1mn tonnes. This will be driven by increases in ethanol production and an increase in feed use in the later years of our forecast period as the livestock sector picks up.
- Poultry production growth to 2016/17: 20.1% to 23.1mn tonnes. The US is the world's second largest poultry exporter behind Brazil. As such, increased global demand for poultry, particularly from emerging markets, is likely to serve as a powerful production incentive.
- 2013 real GDP growth: 2.1% year-on-year, down from 2.2% in 2012; predicted to average 2.4% from 2012 until 2017.
- Consumer price inflation: 2.1% ave in 2013, same as 2012.
Industry Outlook
Our view for ethanol production to remain subdued in the months leading to the start of the 2013/14 year has played out, with average production in the first three months of 2013 still 13.1% lower year-on-year. Moreover, the recent surge in ethanol renewable identification numbers (RIN) illustrates that this tight picture is not close to be resolved in the near term. RINs are the mechanisms for insuring that the prescribed level of ethanol is blended into gasoline. RINs are issued by the Environmental Protection Agency at the point of biofuel production or import and are transferred to refiners and blenders of the fuel, who are required to blend a portion of their supply with ethanol or biodiesel. When less ethanol is being produced than mandated, RIN prices surge in order to reflect excessive tightness in the market. For example, RIN prices for 2013 ethanol tripled at the end of March, reaching USc83.00/gallon, compared with USc27.50/ gallon at the very start of the year.
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