Rabobank sees change in '09

by Josh Sosland
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NEW YORK — Changes in how consumers shop, a dimmer agricultural export outlook and challenges presented by commodity price volatility are three key issues affecting the food and agribusiness outlook in 2009, according to a new report by Rabobank.

Despite many severe challenges, the industry is not without opportunities in the year ahead, Rabobank said in its 2009 North American Food & Agribusiness Outlook. The outlook is produced annually by the bank’s Food & Agribusiness Research and Advisory team. Based in the Americas, the team is part of a larger global group at Rabobank that includes about 80 research analysts worldwide.

Shifting consumer shopping trends was the first theme highlighted for 2009 by the Rabobank group.

"The downturn in the economy has reversed the way consumers shop," said Stephen Rannekleiv, F.A.R. vice-president. "Five years ago there was a growing trend of U.S. consumers willing to pay more for high quality luxury goods. Today, there has been a 180-degree turn."

A rising preference toward discounters, such as Wal-Mart Stores, Inc. and Costco, is pressuring other retailers to keep prices low, Rabobank said. Additionally, private label sales have been boosted by consumers’ increased desire for value.

"There is a generalized return to frugality across all levels of society," Mr. Rannekleiv said.

As consumers curtail discretionary spending, food and beverage marketers and retailers have to work harder than ever to try convincing customers to spend more. Mr. Rannekleiv added that it is possible this change of mindset may last longer than the current economic downturn.

Turning to exports, Rabobank noted that one of the key catalysts to strong export sales in earlier 2008 — a weak U.S. dollar — is no longer present going into 2009.

"Last year was a very different world," said Michael Whitehead, F.A.R. vice-president. "We can look back on one of the most eventful years for agricultural in memory, but more critically we look toward one of the most important years agriculture has faced."

With the stronger U.S. dollar, a weaker global economy and softer demand, export sales are likely to be weak in the year ahead.

Rabobank said progress of Doha trade negotiations will be a key factor in the year ahead. U.S. sales could be further hurt by other countries imposing tariff increases and other trade restrictions. On the other hand, the World Trade Organization may take action on a wide range of products in 2009, such as cotton, corn, sugar and ethanol.

"The best thing for the global trade outlook for 2009 is that 2010 will follow," Mr. Whitehead said. "Despite this, forecasts for longer-term growth should provide some optimism for the U.S. ag sector that positive fundaments, in terms of population increase, rising incomes and evolving diets are very much still there."

Perhaps most uncertain looking forward is the commodity price outlook.

"Market whiplash has presented the grain and oilseed complex a tough prognosis," said Karol Aure-Flynn, F.A.R. executive director. "Crude oil, investor speculation and exchange rates continue to generate unpredictable swings. Global demand growth is expected for the long term but is uncertain during the currently unstable global recession."

Ms. Aure-Flynn said high commodity prices have fueled volatility, which may constrain organic expansion and demand strategic planning and risk management measures.

"Price volatility will be the key challenge for all segments of the sector as players examine their long-term strategy and short-term tactics," she said.

Longer term, once markets are able to refocus on fundaments of low stock levels and increasing food demand and the "strong de-leveraging process coming from investors" slows, commodity prices should begin to recover from recent lows, Ms. Aure-Flynn said.

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