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A New Outlook Offers Insight to 2008

Rabobank releases annual review of the North American food and agribusiness industry offers a peek into the future.

With 2007 winding down, a look into 2008 could offer help for business planning. That's the aim of the Rabobank 2008 North American Food and Agribusiness Outlook - a comprehensive review of the food system from consumer trends to world demand.

To sum it up - demand from China and continued biofuels requirements will keep on impacting the world meat and grain markets. And there are increased business opportunities as the world consumers keep focusing on health concerns.

Livestock producers can take heart from the reports conclusion that international customers want more protein in their diets. Rabobank analysts say that China could be the next big pork market, even as exports of pork products to Mexico decline. The analysts note that pork prices could remain historically high for the next 12 months because the Chinese pork inventory is barely keeping up with current demand, while demand keeps boosting the need for pork in that country.

Fiona Boal, Food and Agribusiness Research team executive director at Rabobank, discussed the future protein market and noted that China has seen losses in its pork market due to diseases and a "structural adjustment."

"We don't know the size of the decline in the herd," Boal notes. "The government says it is 1 million hogs, but large meat packers say it could be as much as 20% of the hogs for the country." Those hog losses have boosted pork prices in China but the government wants to stimulate supply.

Boal expects that U.S. pork exports to China and Hong Kong could reach 150,000 tons on a carcass weight basis.

But the U.S. will face some stiff opposition for the Chinese market - Brazil is a strong player in the Chinese market and Boal also notes that France and Denmark have recently reinstated trade-distorting refunds that could provide an edge to the Chinese market.

Boal adds that country of origin labeling will be mandatory in Sept. 2008, which could impact the Canadian market next year.

Biofuels ahead

Rising use of biofuels will push more dried distillers grains with solubles into the market. Boal notes that DDGS are an increasingly important income stream for ethanol makers as they struggle with lower prices, and they will work to make their byproducts - some call them coproducts - higher in quality and consistency.

Talk of new fractionation technology that ethanol plants could start installing in 2008 may impact the market for DDGS too. The technology allows more separation of key components of the incoming corn crop before it enters the ethanol-making process.

Boal told Farm Progress: "My understanding is that the end result of fractionation from a feed perspective is a feed product that has a higher concentration of protein and less non-detergent fiber than DDGS produced from the more widely used dry milling process. A better quality byproduct would obviously be more highly valued by livestock producers. A byproduct with a higher concentration of protein may also compete more directly with soybean meal, which is currently the main source of protein in livestock rations. Such a feed would also be more attractive than current DDGS to the hog and poultry industries."

Crops see benefits

Michael Whitehead, vice president at Rabobank, says the grain market will be characterized by one idea: "V for volatility."

He explains that the "perfect storm for grain in oilseed prices" is coming with the rise in demand and the fall in stocks. "Stock to use ratios are at historic all-time lows combined with sustained demand for biofuels, food and feed."

The challenges are impacted by global events too. Whitehead notes that trouble in other countries including a drop in soybean production Argentina or wheat in Australia could impact the 2008 market.

The volatility isn't going away. Whitehead says that corn acreage could fall 8 million acres in 2008, even as ethanol demand for corn rises. That would lead to even lower ending stocks and potentially higher prices into 2009.

Meanwhile there's not a lot of good news for cotton producers who will see a little more pain in 2008. "Despite cotton planted acreage dropping 40% in 2007 prices have not recovered enough to reverse the trend," he says. "Grains and oilseeds offer a more attractive return, so we see acreage for cotton falling another 15% in 2008."

He sees brighter days ahead in 2009 as imports to China rise.

Consumer trends offer opportunity

Sometimes in agriculture it makes sense to look at the end consumer to get an idea of the impact that may be coming to the farm. In the food world, the biggest trend is the increase in healthy lifestyles. Stephen Rannekleiv, vice president for beverages and retail at Rabobank, notes a number of trends:

  • Functional food sales - those with nutritional impact beyond the basics - are up 30%. This is the segment that includes such items as "bioactive" yogurt.
  • Spoonable yogurt sales are up 260%.
  • Whole grain claims have seen major growth.
  • Omega 3 sales hit $2 billion in 2006 - could reach $7 billion by 2011.
  • Soft drink makers - Pepsi and Coke - are seeing a rise in healthy drink sales.

Rannekliev says "consumers are trading up and the most dynamic change has been growth at the higher end of the market. Consumers are selecting quality and convenience over price and quantity in all segments."

He notes that between 1997 and 2006 fresh-cut produce sales rose nearly 170% and reached $13.4 billion in sales. That comes from a rise of women in the workforce and the increased need for convenience foods in the home.

The annual Rabobank Food and Agribusiness Outlook offers a glimpse into what could happen in 2008. You can learn more at, under the heading of "Rabo Agrifinance" click on "F&A Research". Data from the report is available for Rabobank customers.

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