Strategic shifts in the global animal nutrition industry

Transcription

1 Strategic shifts in the global animal nutrition industry Our long term view Karen Heuvelmans RaboResearch Food & Agribusiness 27 September 2017

2 The four drivers of change 2

3 What are the key sector trends for feed companies? 1. Global demand for animal protein increases Aquaculture and poultry grow faster than red meat Higher demand growth for protein feedstuffs increases protein/energy price ratio 3

4 Global demand for animal protein increases Poultry is expected to become the No. 1 consumed global protein in 2021 Source: FAO/OECD, 2016; Rabobank,

5 mln tonnes (protein) 10 mln tonnes (energy) Larger share of protein in feed drives demand for vegetable proteins Global production of protein crops = twice the growth of energy crops / / / / / / / / / / / /17 Protein crops (soybean, sunflower, rapeseed) Energy crops (corn, feed wheat, barley, oats, sorghum, rye, mixed grains) Source: USDA, Rabobank

6 Mln MT Mln MT Yield improvement is of critical importance for production growth Soybean production growth -10Y Soybean production growth +10Y In the past 10 years, production growth mainly came from acreage growth Brazil US Argentina ROW Global total For 2026, more than half of production growth will need to come from yield improvement +80 mln MT Brazil US Argentina ROW Global total Expansion on acreage Expansion on yield Expansion on acreage Expansion on yield Source: USDA, Rabobank

7 What are the key sector trends for feed companies? 1. Global demand for animal protein increases 2. Developing markets grow faster & are larger Aquaculture and poultry grow faster than red meat Higher demand growth for protein feedstuffs increases protein/energy price ratio Growing share of feed production in net feedstuff importing countries increases focus on technical performance Premix and compound feed producers bring their expertise 7

8 Developing markets grow faster and are larger Mln tonnes Global compound feed production (2016) 1,200 1, Annual growth : Asia Pacific Europe North America Latin America Africa Middle East 4.4% 2.7% # Company MT 1 CP Group 28m 2 Cargill 20m 3 New Hope Liuhe 16m 4 Purina Animal Nutrition 14m 5 Wen s Food Group 12m 6 BRF 10m 7 Tyson Foods 10m 8 ForFarmers 9m 9 East Hope Group 8m 10 JA Zen-Noh 8m Source: Alltech, WattAgNet, Rabobank

9 China is the world s largest consumer of feedstuffs 21% 40% Grain and Meal Use by Region 18% 6% 15% China EU US Brazil Rest of world Source: USDA, Strategie Grains, Oilworld, Rabobank

10 30% 20% 65% 63% 61% 59% 55% 50% 40% 40% 28% 29% 30% 31% 34% 36% Mln tonnes 30% 40% 7% 8% 9% 10% 12% 14% China s demand for soy continues to grow, but at a slower pace Structural changes in the Chinese hog sector 100% 80% China s soybean import growth will slow % 30% 25% 60% 80 20% 40% 60 15% 20% % 5% 0% < 500 hogs ,000 hogs >10,000 hogs Source: China National Grains and Oils Information Center, Rabobank / / /19f 2025/26f Soybean imports (LHS) YOY growth (RHS) 0% 10

11 What are the key sector trends for feed companies? 1. Global demand for animal protein increases 2. Developing markets grow faster & are larger 3. Increasing share of vertically integrated feed production Aquaculture and poultry grow faster than red meat Higher demand growth for protein feedstuffs increases protein/energy price ratio Growing share of feed production in net importing countries increases focus on technical performance Premix and compound feed producers bring their expertise Supply chain partners increasingly formulate feed themselves Feed specialists need diversified product/market combinations 11

12 Different supply chain models in the poultry industry Horizontal specialisation Grains & Oilseeds Feed Breeding Farming Processing Customer Semi-vertically integrated Grains & Oilseeds Feed Breeding Farming Processing Customer Vertically integrated model from feed to poultry Grains & Oilseeds Feed Breeding Farming Processing Customer Multisector Fully vertically integrated model from feed to poultry Grains & Oilseeds Feed Breeding Farming Processing Customer Source: Rabobank 2016

13 Independent market is challenged by both vertical and virtual integration Grains & oilseeds trade Feed additives Premix Compound feed Animal protein production Global Global Global Global Global Europe Europe Europe Europe Europe Source: Rabobank

14 Independent market is challenged by both vertical and virtual integration Grains & oilseeds trade Feed additives Premix Compound feed Animal protein production Global Global Global Global Global Europe Europe Europe Europe Europe Source: Rabobank

15 What are the key sector trends for feed companies? 1. Global demand for animal protein increases 2. Developing markets grow faster & are larger 3. Increasing share of vertically integrated feed production Aquaculture and poultry grow faster than red meat Higher demand growth for protein feedstuffs increases protein/energy price ratio Growing share of feed production in net importing countries increases focus on technical performance Premix and compound feed producers bring their expertise Animal nutrition customers increasingly formulate feed themselves Suppliers need diversified product/market combinations 4. Mature markets need more technology Product and service innovations required, such as precision livestock farming, to improve efficiency and productivity Total nutritional service providers 15

16 Upstream potential for improvement in compound feed production EUR/kg pellets Pig pellet price difference in the Netherlands Spain (2015) Dutch pig pellet price Raw materials Inland transport Costs and margin compounder Spanish pig pellet price Source: Bloomberg, European Commission, Rabobank

17 Feed efficiency at the farm level can be a competitive advantage EUR/kg meat Feed cost difference in the Netherlands Germany (2015) Dutch feed costs/kg pork meat Compound feed prices FCR German feed costs/kg pork meat Source: Bloomberg, European Commission, Interpig, Rabobank

18 Precision Livestock Farming (PLF) technology can enhance productivity Four key farm performance indicators 1. Technical performance: increase efficiency of production Growth rates, FCR, milk yield, lean meat percentage 2. Animal health and welfare: keep animals healthy and stress-free Mortality rates, diseases, stress, antibiotics 3. Environmental impact: reduce footprint Nutrient excretion, energy and water usage 4. Financial performance: bottom-line Contain and reduce costs, increase earnings Source: Rabobank

19 Challenges and opportunities 19

20 #1 - Alternative protein sources are promising, but not competitive yet DDGS Rapeseed meal Sunflower seed meal Biofuel byproducts Field crops Legumes (pulses) Hemp Leafy crops Source: Rabobank, 2017 Algae? Yeast based ingredients? Insect based ingredients? Single cell proteins? Future alternatives Alternative proteins Concentrates Soybean meal concentrate Expensive? Synthetic AAs Six key limiting amino acids that can be synthesised 20

21 #2 - China s quest for food security continues to drive acquisitions Selected outbound acquisitions by Chinese SOEs, Category Acquisitor Target Year Deal value Seeds CITIC Dow Seeds Brazil 2017 USD 1.1bn Seeds & agrochemicals ChemChina Syngenta 2016 USD 43bn Agri commodity trade & farm inputs COFCO Nidera USD 1.2bn* Agri commodity trade COFCO Noble Agri USD 2.25bn Animal Protein Shuanghui/ WH Group Smithfield 2013 USD 4.7bn Agrochemicals ChemChina Adama USD 3.8bn Total USD 56bn Source: Bloomberg, Reuters, Rabobank 2017 * Note: The value of COFCO s Nidera acquisition concerns a 51% stake in The value of the remaining 49% acquisition in 2016 has not been disclosed. 21

22 #3 - Farm inputs providers should decide which role to play in PLF 1) Collect data through smart equipment and sensors Hardware 2) Create dashboards with insights Software 3) Generate advice and predictions Algorithms and livestock farming knowledge 4) Execute the advice precisely Smart equipment 5) Expand advice over multiple disciplines Optimisation of farm inputs 22

23 Thank you for your attention Karen Heuvelmans RaboResearch Food & Agribusiness Website: far.rabobank.com 23 23

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