Industry Update Food and Agribusiness

Transcription

1 Y/Y Change (%) April 2018 Industry Update Food and Agribusiness Key Demand Developments Growth in residential real estate indicators continue to signal consumer balance sheet positives. New residential construction indicators trending upward, led by housing starts, with March 2018 a 10.9% Y/Y. (US Census Bureau, HUD). Home prices are as measured by the Case-Shiller 20 city index rose 6.7% Y/Y in February. Offsetting the positive real estate indicators is the recent volatility in the S&P 500 during 1Q18, which peaked at , then fell 10. to a low of 2,581.00, and ended the quarter at 2,640.87, (down 2. Q/Q). Market uncertainty related to the Chinese tariffs drove this volatility. Nonfarm unemployment numbers remain flat at 4.1% for the last 6 months, as reported by U.S. Bureau of Labor in March. Average hourly earnings continue to rise, up 2.7% Y/Y as of March While relatively lower gas prices (since 2016) have benefitted the consumer, Y/Y prices are trending 28% higher as of April. Crude oil futures have doubled since the low in 2016, but are still hovering at $65/barrel in Q The Consumer Confidence Index, as measured by the Conference Board decreased in March to This has been widely reported as a reflection of a moderation in short-term expectations, including stock market, but overall index remains historically high. Food Retail Sales According to Nielsen, US Food Retail posted declines in volume by dollars of 0.8% Y/Y and in units by 2. Y/Y across departments, while prices increased 0.6% Y/Y. (52 wks ending 04/08/18) Across all retail channels, E-Commerce continues to post gains of approximately 1 Y/Y, accounting for 9.1% of total retail sales (US Census Bureau.) Look for continued blurring of retail options for the US consumer. Consumer and Producer Price Indices 1 CPI Food Away From Home CPI Food At Home PPI All Food 8% 6% % -8% Source: U.S. Bureau of Labor Statistics Price and Food Inflation Developments We maintain a constructive outlook for volumes with pricing levels inching above 3% Y/Y. The spread between restaurant and food retail pricing has narrowed 276 bp from August 2016 highs, but has increased by 12 bp M/M for March Restaurant pricing measured by the CPI Food Away From Home index (CPI-FAFH) increased 2. in March Y/Y, which is down.1 vs. the prior month. Food Retail pricing measured by the CPI Food at Home index, increased 40bp in March Y/Y, but is down 20bp vs. the prior month. The Producer Price Index (PPI All Food) increased 2.1% in March Y/Y, and up 1. vs. the prior month. Industry Research Update: Food and Agribusiness 1 1

2 Grocery Department Trends: Dry Grocery, Dairy, and Frozen Food volumes increased in 1Q 18 from low levels the prior year. Deli, Fresh Produce, and Bakery volumes continued to show growth. Dry Grocery 3% Volume Price Frozen Foods Volume Price 3% 1% -1% - -3% - 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 Source: Nielsen AOC+C Dairy 8% Volume Price 6% % 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 Source: Nielsen AOC+C Fresh Produce 1 Volume Price 8% 6% 1% -1% - -3% 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 Source: Nielsen AOC+C Deli 1 Volume Price 8% 6% - 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 Source: Nielsen AOC+C Bakery 8% Volume Price 7% 6% 3% 1% % 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 Source: Nielsen AOC+C -1% - -3% 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 Source: Nielsen AOC+C Dry Grocery 1Q 18 price/mix decreased 1.39% Y/Y while Dry Grocery volumes increased 1.1 Y/Y. Dairy 1Q 18 price/mix increased 1.18% Y/Y. Dairy unit sales volume increased 0.5 Y/Y, the first increase since 4Q 15. Fresh Produce 1Q 18 price/mix increased 0.91% Y/Y. Fresh Produce volumes increased 3.6 Y/Y. Frozen Food 1Q 18 price/mix increased 0.96% Y/Y. Frozen Food volumes increased 1.37% Y/Y for the second consecutive quarter. Deli 1Q 18 price/mix increased 0.9 Y/Y, while Deli volumes increased 4.93% Y/Y. Bakery 1Q 18 price/mix decreased 2.06% Y/Y, and has declined the last 3 quarters. Bakery volumes increased 7.1 Y/Y. 2

3 Food Company Margin Heat Map YoY Price vs. Volume Commodities Labor Grain Protein Constructive Mixed Inflationary Inflationary Mixed Energy Inflationary Food Company Input Cost Summary: As we end 1Q 18 a large portion of commodities have shown moderate inflation vs. Q1 17 levels. Economic Backdrop: The start of the new year is historically a time when firms test pricing power. With the economy on an upswing and commodity prices continuing to rise, upward momentum should continue into Corn, Wheat & Soybean Prices: Corn and soybean futures above year ago due to South American production shortfall. Wheat futures solidly above last year on concern about US yields. Chicken: Broiler and thigh prices have remained above 2015/16 levels on strong exports. Egg sets once again start to build. Beef: Cut-out prices are above 2017 levels as Y/Y inventory levels are down sharply and exports continue to be strong. Pork: Prices have dropped below 2017 YTD, but are still well above decade-low October 2016 levels. The build in cold storage inventories and slaughter counts is offset by the increase in exports Y/Y. Packer Margin Environment: Chicken, beef and pork estimated packer ratios are all near 2017 levels with all cut-out values increasing M/M. Seafood: Shrimp prices remain below 2017 levels due to higher Y/Y imports, while salmon prices remain below last year despite higher imports. Pollock prices have firmed in early Dairy: Milk prices have increased slightly, but remain pressured as international milk supplies continue to outpace demand. Ample global skim powder stocks should limit potential price upside. USDA is forecasting April 2018 National All Milk price at $15.85/cwt, down $1.78/cwt from 2017 levels. Specialty Crops: Price for almonds trending higher as 2018 yields likely affected by frost and rain. Tree nut acreages continue to push higher. Key Commodity Heat Map Commodity Price Y/Y M/M Corn $ % +4. HRW Wheat $ % +4.9% Soybeans $ % +3.1% Broilers $ % +12. Cattle $ % -6. Hogs $ % -11.1% Class III Milk $ % +6.1% Shrimp $ % Salmon $ Natural Gas $ % +0.9% Electricity $ % -0.1% Heating Oil $ % Restaurant Labor $ Supermarket Labor $ % +0.3% Food Labor $ % +0.3% Monthly avg. corn, wheat, soybeans in $/bu; broilers, shrimp in ; cattle, hogs, milk in $/cwt; salmon in $/kg; gas in $/Mct; oil in $/gal; electricity in $/kwh; labor in $/hr Sources: CBOT, USDA, Urner Barry, EIA, BLS Forest Products: US housing starts and remodeling continue to trend upward driving demand. As a result, framing lumber prices are at record highs, and structural panel prices are near decade highs. Crop Inputs: Seasonal increase in nitrogen prices limited by a slow start to planting. DAP prices remain firm due to closure of a large US plant. Fuel prices well above year ago. Energy and Labor: Global oil prices have kept energy prices relatively in check, while we observe wage inflation gains in supermarket and food manufacturing. Wine: After two years of increased acreage and record grape harvests, bulk wine is experiencing higher inventory levels. The conversation on the market has switched from premium production to margin management. 3

4 Economics: The start of a new year is historically a time when firms test pricing power. With the economy on an upswing and commodity prices continuing to rise, upward momentum should continue into Voluntary Quits as % of Employment Trade Weighted Dollar vs. Ag Index 3. Ag Bulk Commodities Trade Weighted 120 Jan 2014= Source: BLS, Wells Fargo, Federal Reserve, Wells Fargo 95 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 Weekly Earnings Rates Weekly Wages $950 Food Inflation Adjusted Net Trade Balance $40 China HK ROW $900 $30 $850 $800 $20 $10 $0 2.6 (6.1) (1.1) (4.5) $750 -$10 (17.9) (21.6) -$20 (35.1) $700 $650 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Source: BLS, Wells Fargo -$30 -$40, Wells Fargo Billions of Miles Driven Net Export as % of Production 21% Beef Pork Chicken 18% 1 1 9% 6% 230 3% % Source: Federal Highway Admin 200 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18-6%, Wells Fargo The February 2018 voluntary quits as a percentage of employment of 1.8% is slightly above the Feb17 level of 1.7%. The 12 month rolling average is near prerecessionary levels. The February 2018 weekly average earnings are growing 2.9% YoY on a nominal basis; when deflated by food & beverage CPI the February 2018 average wages of $730/week increased 2.9% Y/Y. The pre-recession inflation adjusted peak was $699/week in December The December 2017 monthly average miles driven of 262 billion increased 0.7% vs. December 2017 as stronger employment offset an increase in gas prices. The March 2018 trade weighted dollar index value of vs. bulk commodity dollar index value of represents a lesser gap when compared to the February 2018 values of and , respectively. The 2017 net trade balance of 7.1 billion represents a larger surplus compared the 2016 total of 3.3 billion The 2017 pork and broiler markets face a stronger headwind from dollar strengthening as net exports comprise 17.8% and 16.3% percent of total production vs. 0. for beef. 4

5 $/Bushel $/Bushel $/Bushel Grain Prices: Corn and soybean futures above year ago due to South American production shortfall. Wheat futures solidly above last year on concern about US yields. Corn $4.40 $4.20 $4.00 $3.80 $3.60 $3.40 $3.20 Futures Source: CME Nearby corn futures averaged $3.80 per bushel during March. This was up 15 cents from February and up 17 cents from March A decline in South America s crop due to a drought in Argentina and smaller plantings in Brazil has led to larger US export sales and firmer prices. USDA forecasts 2017/18 global corn production at 1,036 million tonnes, which would be down from 2016/17 on declines in the US, South America and Ukraine. Global corn ending stocks are projected to decline 1 to the lowest level in four years. Wheat $5.70 $5.40 $5.10 $4.80 $4.50 $4.20 $3.90 Futures Source: CME Nearby Kansas City wheat futures averaged $4.96 per bushel in March. This was up 23 cents from February and up 53 cents from a year earlier as US production declined sharply in 2017 and could be low again in 2018 due to projected declines in both acres planted and yields. USDA projects 2017/18 global wheat production at 760 million tonnes, which would be up 1% from 2016/17 with increases in Russia and the EU more than offsetting declines in the US and Australia. World wheat stocks are forecast to rise 7% to a record level. Soybeans $12.00 $11.50 $11.00 $10.50 $10.00 $9.50 $9.00 $8.50 Futures Source: CME Nearby soybean futures averaged $10.40 per bushel during March. This was up 31 cents from February and up 43 cents from the previous year. US ending stocks for 2017/18 are forecast to be the largest in 11 years, but prices have risen because Argentina s crop is forecast to be the smallest in nine years. USDA projects 2017/18 world soybean production at 335 million tonnes, down from 2016/17 with declines in Argentina and Brazil more than offsetting an increase in the US. World stocks are forecast to decline 6% from a record level the previous year. 5

6 Grain Fundamentals: 2017/18 stocks/use forecast below 2016/17 for corn and wheat; up sharply for soybeans. Prices forecast slightly below 2016/17 for corn and soybeans, higher for wheat. Corn 2015/ / /18F 2017/18F M/M Change Y/Y Change March April Forecast Forecast Area Planted (mm) Area Harvested Yield per Harvested Acre (bu) Beginning Stocks (mm bu) 1,731 1,737 2,293 2, Production 13,602 15,148 14,604 14, Imports Total Supply 15,401 16,942 16,947 16, Feed and Residual 5,114 5,467 5,550 5, Food, Seed & Industrial 6,648 6,889 7,045 7, Ethanol 5,224 5,439 5,575 5, Total Domestic 11,763 12,356 12,595 12, Exports 1,901 2,293 2,225 2, Total Use 13,664 14,649 14,820 14, Ending Stocks 1,737 2,293 2,127 2, Stocks to Use (%) 12.7% 15.7% % % Average Farm Price ($/bu) $3.61 $3.36 $3.35 $3.35 $0.00 -$0.01 WASDE USDA lowered its 2017/18 US corn feed and residual use forecast 50 million bushels in April after the Mar. 29 Grain Stocks report showed Mar. 1 stocks were larger than expected. The smaller feed and residual use forecast and a 5-million-bushel cut in industrial use raised USDA s ending stocks forecast to 2,182 million bushels for a stocks-to-use ratio of 14.8%. USDA held farm price forecast at $3.35 per bushel in April. USDA s Mar. 29 Prospective Plantings report included 88.0 million corn acres, down 2.1 million () from Wheat 2015/ / /18F 2017/18F M/M Change Y/Y Change March April Forecast Forecast Area Planted (mm) Area Harvested Yield per Harvested Acre (bu) Beginning Stocks (mm bu) ,181 1, Production 2,062 2,309 1,741 1, Imports Total Supply 2,927 3,402 3,076 3, Food Seed Feed and Residual Total Domestic 1,174 1,167 1,117 1, Exports 778 1, Total Use 1,951 2,222 2,042 2, Ending Stocks 976 1,181 1,034 1, Stocks to Use (%) % 52.9% % Average Farm Price ($/bu) $4.89 $3.89 $4.65 $4.65 $0.00 $0.76 USDA lowered its projection of 2017/18 US wheat feed and residual use by 30 million bushels after the Mar. 1 stocks estimate was larger than expected. The smaller feed and residual use projection increased USDA s 2017/18 carryout forecast to 1,064 million bushels. This reflects a stocks-to-use ratio of 52.9%, which would be down slightly from the previous year but among the largest in 30 years. USDA s average farm price forecast for 2017/18 was held at $4.65 per bushel, which would be up 76 cents from 2016/17 due to the smaller US crop. WASDE Soybeans 2015/ / /18F 2017/18F M/M Change Y/Y Change March April Forecast Forecast Area Planted (mm) Area Harvested Yield per Harvested Acre (bu) Beginning Stocks (mm bu) Production 3,926 4,296 4,392 4, Imports Total Supply 4,140 4,515 4,718 4, Crushings 1,886 1,899 1,960 1, Exports 1,942 2,174 2,065 2, Seed Residual Total Use 3,944 4,213 4,163 4, Ending Stocks Stocks to Use (%) % % 6. Average Farm Price ($/bu) $8.95 $9.47 $9.30 $9.30 $0.00 -$0.17 WASDE USDA raised its 2017/18 US soybean crush forecast 10 million bushels in April. USDA s carryout forecast was trimmed 5 million bushels as the larger crush was partly offset by smaller seed use and residual use. The projected stocks-to-use ratio of 13. would be well above each of the past 10 years. USDA s 2017/18 farm price forecast was unchanged at $9.30, which is down from $9.47 in 2016/17. USDA s Prospective Plantings report included 89.0 million soybean acres, down 1.2 million (1%) from

7 million lbs Chicken: Broiler and thigh prices have remained above 2016/17 levels on continued strong exports. Egg sets continue to grow, although at a slower pace in February Y/Y. Whole Broiler Prices $1.15 $1.05 $0.95 $0.85 $0.75 $0.65 Boneless Skinless Breast Prices $1.70 $1.60 $1.50 $1.40 $1.30 $1.20 $1.10 $1.00 $0.90 Boneless Skinless Thigh Prices $1.50 $1.35 $1.20 Cold Storage Inventories 900 Chicken (million pounds) Y/Y Change (%) Egg Sets 230 Egg Sets (million) Y/Y% Change Broiler Exports % 6% - - $ $ $ $ The March USDA broiler price of $1.02/lb. increased 1 vs. the prior month and increased 8% vs. March The WASDE U.S. median average price forecast for 2018 is $0.954/lb., up from $0.935/lb. in The prior projection for 2018 was $0.905/lb. Total 2018 production is estimated to be 41.9 billion lbs., up vs The March average breast price of $1.30/lb. increased 17% M/M and was up vs. March The March average thigh price of $1.13/lb. decreased 7% M/M but was up 16% vs. March Fundamentals: Chicken cold storage increased 13% in March Y/Y, and is up 2.9% vs. the prior month. Egg sets increased 1.9% in March Y/Y, and were up 0.17% vs. the prior four weeks. Broiler exports increased 1. in February Y/Y, and 0.7% M/M. The March average combined regional large egg price of $2.10/dozen increased 3 vs. the prior month and 21 vs. March The WASDE U.S. per capita egg disappearance is forecast at million dozen in 2018, up compared to 2017 s actual of million dozen. 7

8 Pounds (000s) $/cwt million lbs % Chg YoY Beef: Cut-out prices are above 2017 levels as Y/Y inventory levels are down sharply and exports continue to be strong. $1.40 $1.30 Live Cattle Prices Futures Heifer Slaughter $ $1.10 $ $0.90 Source: CME Cut Out Values Beef and Veal Exports Cold Storage Inventories 600 Beef (million pounds) Y/Y Change (%) Monthly Cattle Processing 2,550 2 Baseline Slaughter Incremental Weight Y/Y Change (%) 2, , , ,950 1,800 1,650-1, ,350-1 The March cattle price of $1.20/lb. decreased 6% vs. the prior month and increased 1% vs. March The WASDE U.S. median average price forecast for 2018 is $116.40/cwt, down from $121.52/cwt in Total 2018 production is estimated to be 27.7 billion lbs., up 6% vs The March average cut-out value increased vs. the prior month and increased 3% vs. March Fundamentals: Cold storage decreased 8. in March Y/Y, and dropped 8.6 vs. the prior month. Beef and veal exports increased 9.9% in February Y/Y but was down 7.3% vs. the prior month. Heifer slaughter numbers increased 7.8% in February Y/Y, but were down 8. vs. the prior month. Cattle head processed increased 2. in February Y/Y, but down 12. vs. the prior month. 8

9 Pounds (000s) $/cwt million lbs % Chg YoY Pork: Prices have dropped below 2017 YTD, but are still well above decade-low October 2016 levels. The build in cold storage inventories and slaughter counts is offset by the increase in exports Y/Y. Lean Hog Prices $1.00 Futures $0.90 Sow Slaughter (3-Month Rolling Average) 8% 6% $0.80 $0.70 $0.60 $ $0.40 Source: CME Cut Out Values % Pork Exports Cold Storage Inventories 750 Pork (million pounds) Y/Y Change (%) Monthly Processing 2,400 2 Baseline Slaughter Incremental Weight Y/Y Change (%) 2, , , , , , , ,600-1 The March average hog price of $0.64/lb. decreased 11% vs. the prior month and decreased 6% vs. March The WASDE U.S. median average price forecast for 2018 is $45.78/cwt, down 9% from $50.48/cwt in Total 2018 production is forecast to be 26.8 billion lbs., up vs The March average cut-out value decreased 7% vs. the prior month and decreased 9% vs. March Fundamentals: Cold storage inventories increased 7.8% in February Y/Y, which is up 5.9% vs. the prior month. Three-month average sow slaughter increased 2.8% in February Y/Y, but declined 1.7% vs. the prior month. Exports increased 9.1% in February Y/Y, and increased 0.9% vs. the prior month. Hogs processed were up 2.8% in February Y/Y, but dropped 9.6% vs. the prior month. Slaughter weight data indicates that total slaughter volume is up 2.8% vs. the prior year period. 9

10 1st Q 3rd Q Ratio 1st Q 3rd Q Ratio 1st Q Ratio 3rd Q Packer Margin Environment: Chicken, beef and pork estimated packer ratios are all near 2017 levels with all cut-out values increasing M/M. Chicken The March USDA monthly average chicken breast price-to-feed cost ratio of 15.4 increased 13% vs. the prior month and was unchanged vs. the prior year period. The 10-year average ratio of 13.6 places the March 2018 result in the third quartile of the monthly results. 9 Beef The March USDA monthly average beef cut-out to live cattle ratio of 1.87 was up 1 vs. the prior month and was up vs. the prior year period. The 10-year average ratio of 1.64 places the March 2018 result in the top quartile of the monthly results Pork The March USDA monthly average pork cut-out to live hog ratio of 1.15 increased vs. the prior month and decreased 3% vs. the prior year period. The 10-year average ratio of 1.11 places the March results on the third/fourth quartile line of the monthly results

11 million lbs million kg million kg Seafood: YTD Farmed shrimp prices are down 6. through April due to increased import volumes. Salmon prices are up 1 YTD in 2018 despite increased import volume. Pollock prices have firmed in early 2018 on strong global demand and lower cod supplies. Urner Barry Farm-Raised White Shrimp Index Shrimp Imports: Total Volume Source: Urner Barry 35 Source: NOAA Urner Barry Fresh Farmed Salmon Index Source: Urner Barry Alaskan Pollock Single Freeze Alaskan Minced 0.60 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Source: Urner Barry The Urner Barry farm-raised white shrimp average price of $4.33/lb. in April was down 3. M/N and 11.3% Y/Y. YTD through April the index price is down 6. The Urner Barry fresh farmed salmon price of $6.15/lb. for April is up M/M and Y/Y. More importantly, YTD the index price is up 1. Single Freeze Alaskan Pollock prices stayed flat in March at $1.33/lb. Alaskan Minced Pollock prices stayed flat at $0.86/lb. Industry sources report the overall Pollock market has firmed; B season 18 pbo ( pin bone out ) Pollock block market is firming to $ $3300/mt range ,200 1, Salmon Imports: Total Volume 0 Source: NOAA Wild Alaskan Landings by Specie Pink Sockeye Chum Coho Chinook Source: Urner Barry U.S. Shrimp imports through Feb. 18 are 237 million lbs.,up 17.9% Y/Y. Strong supply is expected to continue barring unexpected disease or weather issue in key shrimp growing regions. The 2018 Bristol Bay Sockeye salmon forecast is for a chart-topping 51.3 million fish and a harvest of 37.7 million lbs., which is the second largest harvest on record. U.S. farmed Atlantic salmon imports through Jan. 18 are up 13% Y/Y on strong demand. Cold winter temperatures in Northern hemisphere growing regions and a small algae bloom in Chile could impact supply, resulting in further price increases. 11

12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18F 2Q18F 3Q18F 4Q18F Bn lbs, milk equivalent $/cwt billion lbs Dairy: Milk prices have increased slightly, but remain pressured as international milk supplies continue to outpace demand. Ample global skim powder stocks should limit potential price upside. USDA is forecasting April 2018 National All Milk price at $15.85/cwt, down $1.78/cwt from 2017 levels. Class I Milk 18 Milk Production 20 Production (mil lbs) Y/Y Change (%) % % % 13 Class III Milk 13 - Jan-14 Sep-14 May-15 Jan-16 Sep-16 May-17 Jan-18 Dairy Exports 16 4 Skim solids Milkfat Y/Y Change (%) Cheddar Cheese, 40lb. block Butter Prices, Grade AA The March USDA Class I milk price of $13.36/cwt decreased 6% vs. the prior month and decreased 21% vs. March The March average Class III milk price of $14.22/cwt increased 6% vs. the prior month and decreased 1 vs. March The WASDE U.S median average all milk price forecast as of April 2018 is $15.85/cwt, down 1 from $17.63/cwt in Total 2018 production is forecast to be bn lbs., up 1.6% vs The March USDA average cheddar cheese price of $1.56/lb. increased 3% vs. the prior month and increased 9% vs. March Fundamentals: Milk production increased 1.8% in February Y/Y and down 7.9% vs. the prior month. The milk cow herd size was up 0. vs. the prior year period. Total milkfat and skim solid exports are projected to increase 9. 1Q18 Y/Y, vs 11. from 2016 to March average USDA Grade AA butter prices of $2.20/lb. increased vs. the prior month and increased 3% vs. March

13 $/MT c/lb c/lb Specialty Crops: Currently cotton and cocoa prices are trending up, while sugar, coffee, and orange juice are trending down. Sugar, #16 (U.S.) Sugar, #11 (World) Source: ICE Orange Juice Source: ICE Cocoa 3,200 3, Source: ICE Cotton Source: ICE Coffee , , , , ,000 1,800 Source: ICE 1.10 Source: ICE The March ICE sugar #16 average price of $0.247/lb. decreased vs. the prior month and decreased 18% vs. the prior year period. The March ICE orange juice average price of $1.39/lb. decreased 6% vs. the prior month and decreased 21% vs. the prior year period. The March cocoa average price of $2,504/MT increased 19% vs. the prior month and increased 2 vs. the prior year period. The March ICE sugar #11 average price of $0.12/lb. decreased 6% vs. the prior month and decreased 29% vs. the prior year period. The March average cotton price of $0.83/lb. increased 6% vs. the prior month and increased 7% vs. the prior year period. The March average coffee price of $1.19/lb. decreased 1% vs. the prior month and decreased 1 vs. the prior year period. 13

14 Specialty Crops: Price for almonds trending higher as 2018 yields likely affected by frost and rain. Tree nut acreages continue to push higher. Almonds Pistachios Walnuts Hazelnuts Last month we updated you on the February freeze. Multiple reports of crop evaluation now estimate the Almond Forecast to be between ~2.2B-2.5B pounds. Demand remains high in all regions. Crop receipts appear to be 8 committed. To meet demand, a 2.4B pound crop is the target for appeasing the market. 1 increase in Chinese tariffs has kept Chinese buyers sidelined. While trade negotiations are still underway, and the final impact on Chinese consumption is expected to be limited, for now it appears to be a quiet market Grape Crush Results Pistachio yield outlook for 2018 is for increased production based on alternate bearing crop and increasing bearing acreage. Pistachio exports to Chinese markets are 37% of the total pounds shipped through February While the pistachio market shows the heaviest reliance on China, the amount of product shipped has decreased year over year, with 2016/17 results showing 43% of total shipments into Chinese markets. The walnut market shows the least reliance on sales to Chinese markets at less than of total shipments year to date through February According to a GAIN report dated 9/26/2016, China is the largest walnut producer in the world, reducing its appetite for imported walnuts. Late season rain in March has been advantageous for ensuring water availability during the growing season. Rain also helps in slowing the development of the vines, reducing their exposure to frost risk. Market activity remains slow on bulk wine and grapes. Prices are high. Business is progressing in small volumes. California s total bulk wine inventory is now the largest it has been since U.S. wine exposure to China tariffs is limited. Total U.S. wine exports to China were reportedly worth $79MM; a fraction of the $34B California wine industry. Source: Gomberg Fredrikson and Wine Institute 14

15 $/Thousand Sq Ft $ Billions $/Thousand Sq Ft Thousand Units Forest Products: US housing starts and remodels continue to trend upward driving demand. As a result, framing lumber prices are at record highs, and structural panel prices are near decade highs. Framing Lumber Index $520 $480 U.S. Housing Starts 1,400 New Units Y/Y Change (%) 1, $440 1,200 3 $400 1,100 2 $360 $320 1, $280 Source: Random Lengths 700 Source: US Fed -2 Structural Panel Index Repair & Remodel Expenditures (LTM total) $560 $ $ Billions Spent Y/Y Change (%) 8% 7% $ % $ $ % $ % $320 Source: Random Lengths 175 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 Source: jchs.harvard.edu The March Framing Lumber Composite Index of $502/thousand sq. ft. increased 1% vs. the month prior and increased 2 vs. the prior year period. March U.S. Housing Starts of 1.32 million units increased 7% vs. the prior month and increased 11% vs. the prior year period. The March Structural Panel Composite Index of $540/thousand sq. ft. increased 14. vs. the prior month and increased 3 vs. the prior year period. The 4Q17 LTM repair and remodel total expenditures of $314.8Bn increased vs. the prior quarter and 6% vs. the prior year period. 15

16 $/Gallon $/Gallon $/ton $/ton $/ton $/ton Crop Inputs: Seasonal increase in nitrogen prices limited by a slow start to planting. DAP prices remain firm due to closure of a large US plant. Fuel prices are well above year ago. Ammonia DAP Source: Green Markets; US Corn Belt Source: Green Markets; US Corn Belt Urea Potash Source: Green Markets; US Corn Belt Ammonia prices in the Corn Belt increased to $436/ton in March. This is down from last year as planting progress in the Midwest has been limited by cold weather. Urea prices in the Corn Belt averaged $289/ton in March. This was in line with February, but up 13% from last year when prices declined during March through June. 210 Source: Green Markets; US Corn Belt DAP prices averaged $405 in the Corn Belt during March. This was up from February and up 11% from the previous year due to the closure of a large plant in Florida. Potash prices in the Corn Belt averaged $279/ton in March. This was up 1% from February and up 9% from a year ago due to higher fill prices. Diesel Fuel Prices Gasoline Prices $3.25 $2.75 $3.00 $2.50 $2.75 $2.25 $2.50 $2.25 $2.00 $2.00 $1.75 $1.75 Source: EIA $1.50 Source: EIA The US average on-highway diesel price of $2.99/gallon during March was down from February, but was 17% ($0.43) higher than in March Retail US gasoline prices averaged $2.59 in March. This was unchanged from February, but was up 11% ($0.27) from a year earlier. 16

17 cents/kwh $/tcf Energy and Labor: Global oil prices have kept energy prices relatively in check, while we observe wage inflation gains in supermarket and food manufacturing. Natural Gas Retail Prices $9.00 $8.50 Restaurant Hourly Earnings Y/Y Change % $8.00 3% $7.50 $7.00 1% $6.50 Source: EIA Heating Oil Retail Prices Source: BLS Supermarket Hourly Earnings (3-Month Rolling Avg.) Y/Y Change % 3-Month Avg 3% 1% -1% - -3% Source: BLS Commercial Electricity Prices Food Manufacturing Hourly Earnings Y/Y Change % 3% Source: EIA 1% -1% Source: BLS The March average natural gas price of $7.70/Mcf increased 1% vs. the prior month and stayed flat vs. the prior year period. The March average heating oil price of $2.84/gal decreased 1% vs. the prior month and increased 16% vs. the prior year period. The March average electricity price of $10.71/kWh stayed flat vs. the prior month and increased vs. the prior year period. The restaurant labor index increased 3. Y/Y in March, and was up 0. vs. the prior month. The supermarket labor index increased 0.3% M/M in February, and up 1.8% YOY. The food manufacturing labor index increased 2.3% Y/Y in March, was up 0.3% vs. the prior month. 17

18 Food and Agribusiness Industry Advisors Kevin Bergquist Forest Products Sector Manager David Branch Specialty and Non-Grain Crops Sector Manager Matt Dusi Specialty and Non-Grain Crops Sector Manager Scott Etzel Protein - Seafood Sector Manager etzel@wellsfargo.com Rob Fox Dairy Sector Manager Robert.g.fox@wellsfargo.com Tim Luginsland Grains and Oilseeds Sector Manager luginstr@wellsfargo.com Lee Ann Pearce Specialty and Non-Grain Crops Sector Manager Leeann.pearce@wellsfargo.com Ken Zuckerberg Packaged Food and Ag/Food Tech Sector Manager Kenneth.S.Zuckerberg@wellsfargo.com Karol Aure-Flynn Specialty Crops Analyst, Analyst Team Lead Karol.aure-flynn@wellsfargo.com Chris Eggerman Sector Analyst: Grains, Crop Inputs, Forest Products Chris.eggerman@wellsfargo.com Courtney Schmidt Sector Analyst: Protein, Dairy Courtney.b.schmidt@wellsfargo.com Brad Rubin Sector Analyst: Specialty and Non-Grain Crops Brad.Rubin@wellsfargo.com Michael Swanson, Ph.D. Chief Agriculture Economist Michael.j.swanson@wellsfargo.com Denise Cahill Director cahilldl@wellsfargo.com Matt Stommes Protein - Poultry and Beef Sector Manager Matthew.j.stommes@wellsfargo.com Lon Swanson Crop Inputs/Feed Sector Manager Lon.k.swanson@wellsfargo.com General disclosures The views expressed are intended for Wells Fargo customers only. They present the opinions of the authors on prospective trends and related matters in food and agribusiness as of this date, and do not necessarily reflect the views of Wells Fargo & Co., its affiliates and subsidiaries. Opinions expressed are based on diverse sources that we believe to be reliable, though the information is not guaranteed and is subject to change without notice. This is not an offer to sell or the solicitation to buy or sell any security or foreign exchange product. 18