The Agribusiness World Today

Ken Shwedel
Investigador de Agronegocios, Rabobank, México
18 - 22 de Agosto de 2008

The World

Selling bovine the growth hormone brand: It isn't always science that forces companies to make decisions regarding products and brands. Science, in fact, probably plays a very minor role. The growing consumer concern regarding additives and a preference for "natural" foods in the U.S. have led to a "controversy over the use of recombinant bovine growth hormone (rBGH) [with] a growing number of dairy processors and retailers ...seeking to add a 'no-rbST' label." The concern about consumer backlash has also spread to the institutional market as well. Starbucks, for example, says that they have "removed all rBGH". If this wasn't bad enough for anyone trying to sell bovine growth hormone, in the U.S. different states have different labeling requirements. We feel that this is what is behind Monsanto's decision to sell their Posilac bovine somatotropin growth hormone brand. The company says that they are doing this to "concentrate on [their] core seeds and traits business." But with their "rBGH not permitted in the US" and consumers' concerns in the U.S., their market options are increasingly limited, especially since we imagine that they don't want the potentially bad publicity like they had with GM soybeans. All in all it makes good strategic sense to get out of the business.

How low will they go: Just about a month ago the commodities markets’ upward drive broke. Now instead of asking how high will they go, analysts are asking at what point, will the market bottom out? Undoubtedly part of the upward pressure on the market earlier this year came from concerns about the U.S. crop, especially after the flooding in the midwest portion of that country. Now, as the crop year progresses, the outlook is clearer. For corn, even though production this year in the U.S. will be below last year’s harvest, the outlook is much better than just two months ago. On the global level the USDA’s projections for corn, wheat rice and soybeans were revised upwards this August and show 2008/09 production ahead of 2007/08. In the last couple of days it appears, nevertheless, that the downward trend has encountered some resistance. Even though production is projected to be somewhat higher, the demand outlook is still strong. This means that there will be no significant buildings of inventories, which traditionally has exerted downward pressure on prices. So where will the market go? Over the next couple of months weather will most likely be the single most important factor. We would, however, suggest that U.S. dollar and the economic outlook should be watched as they too will be an important factor impacting on commodity prices.

Mexico

Slowdown in sales: The Supermarket and Department store association (ANTAD) has come out with their monthly report on store sales. Total supermarket sales continue strong, growing by 7.2% compared with July of last year. Looking at same store sales, however, gives a different picture of what is happening. Sales actually declined 0.4%. The growth in total sales is a reflection in the expansion of the supermarket sector. Floor space in self-service stores increased by 9.2% compared with July of last year. With sales growing slower than the increase in floor space —although we wouldn’t expect to see a one-to-one correlation— and sales’ growth below the increase in the cost of food and beverage sales index (9.2%), this suggests that food market sales have slowed down.