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Agribusiness: 2013 Review and Outlook for New Year


U.S. Crop


SAM HALPERT: The U.S. crop finished the year strongly with a positive yield for crop size.  The USDA recently released statistics of yields over 160 bushels per acre, substantially more than what we expected.  They did take down acreage but it still left us with a very large crop in corn.  Soy also had a good crop. Normalization in yield post-drought from the previous year is something that we'd been looking for and we continue to think that crop size has room to grow.


Renewable Fuel Standard


HALPERT: RFS, which is the Renewable Fuel Standard, will likely be reformed in 2014. There has been a ton of pressure from various constituents on the fuel standard.  It's based on assumptions about gasoline demand that are outdated and we think that it will change – it needs to change.  It probably won't change to the most effective mechanism, but the end result would be lower corn demand, which has a potential negative impact on prices next year.


 

Outlook for South America


 

HALPERT: Following the U.S. crop outlook, we think that South America should also see a large crop.  In Real, there's a fantastic return for farmers for soybeans because they are still priced at a premium.  With normal weather, we expect that you'll see good yields and a very large South American crop, which should put pressure on soybean prices next spring.


Outlook for Agribusiness Equities


HALPERT: With the U.S. crop and South American crop both normalizing and being rather large, what does that mean for the space in terms of the equities?  We think fertilizers have struggled recently.  They probably found a [price] floor, although potash might still have some room to move lower given the discord in the industry.


We also think that protein has had a strong run. One of the things that's interesting is that while securing protein supply is still an issue, the demand for protein is there. The Chinese bought Smithfield, the largest pork producer, this year.  We don't necessarily see a repeat of something like that, but I think it just highlights the need for an increased supply of protein.


Finally, I think the area that holds the most interest is in seeds, where you can see that – if you look at soybean yields, even in 2012 with the drought, the variability in yields has really diminished and I think that's largely a function of better technology.  Aside from seed technology, equipment technology has also served to impact yields.  Companies like John Deere have had a huge impact on the ability of the farmers to be more precise with their fertilizer application, to understand what's going on in their field.


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