Various factors affect US feed industry

As a result of a number of intricate political, economic and demand-supply conditions, the current high feed prices in the US are here to stay.

During the International Production & Processing Expo (IPPE), Terry Barr, senior director of industry research at CoBank, presented his keynote address seeking to explain the current situation of high feed prices, as well as offering perspectives for the near future.

According to Barr, the rise of India and China as economic drivers will continue, which will account for 70% of the increase in the middle class between 2000 and 2030. Their ''ability to pay'' will set global market prices. He warned, however, ''significant volatility will prevail around the growth path''. China has been spurring global economic growth driven by trading. The EU topped the list in 2012, followed by the US, Hong Kong, ASEAN and Japan. However, with crises in the advanced economies, China has''suffered'' as growth figures could no longer contained double digits as they had in 2005-07. 2012 showed a ''mere'' 8% growth, relatively low when considering the recent history of China, and for 2013, Barr projected a growth between 7.5% and 9.5%.

The question remains whether Europe is going to profit so much from the challenges in the emerging markets. The euro region is struggling on its path to a banking union. Having built a monetary union, many Southern European countries like Greece, Italy and Spain have became financially weak and there does not seem to be an easy way out. Barr showed a projected 0.2% decrease of the European economy''s size, followed by a projected 1.7% growth in 2014.

The US Farm Bill, the primary agricultural and food policy tool of the federal government, passed on average every five years by the US Congress- is to be discussed soon as the latest one dates from 2008. Reduction of the US Farm Bill will be required. What will determine future agricultural commodity prices? Demand of crops by the fuel and energy sector, South American crops, the global economy and the 2013 crop in the US itself are all playing around.

That last issue may be a cause of worry, Barr said. Global grain stocks continue to be low- and with the continued demand from China, this is a major concern. The US produced 10% less in 2012-13 although acreage harvested grew by 4%. The hole in the market left behind by dwindled US production due to unfavourable weather condition over the last years has quickly been filled by Brazil and the countries in the former Soviet Union. Total global acreage planted in 2013 is projected to rise by 4-5% again, with major rises to be noted in corn and wheat production.

The weather uncertainty led to price volatility - he pointed to average prices for bushels of corn, soy and wheat over the last couple of years. The good news, however, is that the large acreage suggests that significant stock can be rebuilt significantly in 2013 if Mother Nature cooperates. With an acreage of 99 million acres planted, a potential production of 15,015 million bushels of corn (381.4 million tonnes) would be possible. This would mean that US stocks can rebound.

As for soy, Brazil and Argentina together have already taken over the US'' leading position as soy producer since 2002. Global soy stocks therefore rely on the South American crops. Most of these, however, go to China. Indirectly, a good South American stock would lead to higher US stocks as this will diminish the pressure on the market and thus a positive effect on prices.

High feed prices have had a direct impact on animal production, as they could not be fully transferred to the livestock product prices. The US cattle inventory has shown a downward trend since 1997 and is now the lowest since 1952. Beef production has not been growing substantially for years, and broiler and pork production seem to be breaking even. Total production increase in 2013 is expected to be less than 1%. The US broiler industry used to rely on export markets but is facing increasing competition, as Brazil has been exporting more poultry than the US since 2005.

In order to survive, the US poultry market diversified its output as the top-10 of markets in 2012 was substantially different from the one in 2000. Countries topping the list like Mexico, Russia and China/Hong Kong remained but the top-10 accounted for 60% of the total, whereas they did so for 82% in 2000. Among the newcomers, the US can count Angola, Cuba, Taiwan, Lithuania, the Philippines and Iraq.

In short, the background of rising feed prices has beenmulti-factorial. What the feed industry needs now is some time to catch up, a break from volatile markets. He stated, "The continued low of global grain stocks could be solved but it is going to take a lot of good harvests". Future years will tell whether this will be true.