Setting the Scene. Outlook for Commodities. Kevin Bellamy ASA Conference 11 September

Transcription

1 Setting the Scene Outlook for Commodities Kevin Bellamy ASA Conference 11 September

2 Food and Agribusiness Research Rabobank s world leading research network Over 80 research professionals across 18 offices globally - 14 focused on dairy. Entire product chain from farm inputs and primary production to processors and consumers covered 2

3 We are living in volatile times for Agriculture 3

4 Oil prices now at levels last seen in 2009, while this would seem positive, falling revenues in oil producing nations affects demand Source: Bloomberg 4

5 Exchange movements have been increasing beneficial for the Euro as the strengthening US Dollar prices out importers EUR/USD rate Index of importer currencies v USD 100=Jan 2013 Source: Oanda Source: Oanda 5

6 Chinese market growth has been slowing for some time Monthly growth rate of total retail sales of consumer goods CS Li Keqiang index v GDP 6

7 El Niño risk increasing which would likely add to any downturn in production El Niño conditions are present.* ENSO Alert System Status: El Niño Advisory Positive equatorial sea surface temperature (SST) anomalies continue across most of the Pacific Ocean. There is a greater than 90% chance that El Niño will continue through Northern Hemisphere winter , and around an 85% chance it will last into early spring 2016.* *Note: These statements are updated once a month (2 nd Thursday of each month) in association with the ENSO Diagnostics Discussion Source: NOAA 7

8 USc / bushel Million tonnes Rabobank forecast Wheat price forecast low through the Winter Neutral price outlook maintained, despite pressure from large harvests. Global ending stocks edge higher for a third consecutive year. Black Sea will dictate lowest FOB offers in the months ahead. unit Q4'14 Q1'15 Q2'15 Q3'15(f) Q4'15(f) Q1'16(f) Q2'16(f) Q3'16(f) CBOT USc/bu Matif EUR/t % 35% 30% 25% 20% 15% 10% Source: Bloomberg, Rabobank, 2015 CBOT Wheat Previous forecast Rabobank forecast Ending Stocks (RHS) Stocks/Usage 8

9 USc / bushel Percentage of total acreage Corn prices will also be low Corn price forecast revised down as beneficial weather improves yield prospects. US corn crop conditions are still above average, with western Midwest in great shape and eastern areas hit by abundant rains The USDA yield and stock estimates came in with much better than expected unit Q4'14 Q1'15 Q2'15 Q3'15(f) Q4'15(f) Q1'16(f) Q2'16(f) Q3'16(f) Corn USc/bu % % 70% 60% 50% 40% 30% 20% 10% 0% CBOT Corn Previous forecast Rabobank forecast 5 Yr. Range 5 Yr. Average 2014 % Good/Excellent 2015 % Good/Excellent Condition Source: Bloomberg, Rabobank,

10 USD / ton USc / lb Yield (pounds/bu) Soya and soya derivatives are looking much the same Our price forecasts for oil remains bearish from current prices levels, but slightly higher for soybean meal Central Illinois soybean oil basis levels have edged off recent lows and remain well below 2014 levels Strong crush offsets weak US soybean oil yield, contributing to the downward pressure on beanoil futures Unit Q4'14 Q1'15 Q2'15 Q3'15(f) Q4'15(f) Q1'16(f) Q2'16(f) Q3'16(f) Soy oil USc/lb Soymeal USD/tn CBOT Soybean Meal (LHS) CBOT Soybean Meal Forecast (LHS) CBOT Soybean Oil previous forecast (RHS) CBOT Soybean Meal previous forecast (LHS) CBOT Soybean Oil (RHS) CBOT Soybean Oil Forecast (RHS) / / / / /15 Source: Bloomberg, Rabobank,

11 Dairy has seen a significant downturn with 2015 values at 2009 levels Global Dairy Commodity Export Prices (f.o.b Oceania) Source: USDA 11

12 While a supply contraction is expected, the need for farmers in Europe to pay back post quota investments will still support growth Milk production growth and forecast of Big 7 exporters Source: Rabobank Note: includes EU 27, USA, NZ, Australia, Brazil, Argentina, and Uruguay. May and Jun 2014 includes EU estimates. 12

13 In saying this, a contraction in New Zealand supply during 2015/16 could bring the price recovery forward Assumptions Use total milk solids for 2014/15 of 1,885,455,490kg Cull number during 2015/16 of 185,000 Conversions of 18,000 No adverse weather conditions 371 kgms per cow (DairyNZ) Scenario 1: Removing supplementary feeding with a corresponding 5% reduction in milk solids per cow from 371 to kgms per cow 2015/2016 kgms Total milk solids from herd 1,791,182,716 Less culls (185,000 head) -65,120,000 Plus conversions 6,336,000 Total production 1,732,398,716 % difference v 2014/15-8% Scenario 2: Removing supplementary feeding with a corresponding 7.5% reduction in milk solids per cow from 371 to kgms per cow 2015/2016 kgms Total milk solids from herd 1,744,046,328 Less culls (185,000 head) -63,455,000 Plus conversions 6,174,000 Total production 1,686,765,328 % difference v 2014/15-11% 13

14 So meaningful recovery will require the main dairy importers to come back into the market Growth in Chinese and Russian Imports vs. Growth in 'Big 7' Exportable Surplus (yoy) Source: Rabobank 14

15 Dairy demand will expand, mainly driven by emerging markets Comments on trends Rabobank projections of dairy consumption growth by region shows that while solid, demand will be lower than previous periods Stagnant/declining Fluid milk (most regions) Ice-cream (USA) Some growth Yogurt Cheese Good growth Performance nutrition (sports, lifestyle) IMF (though less than 5 years ago) Weight management and ageing Dairy alternatives Hybrid products Butter (its back!) Within each category, several important trends Healthier options Natural & Organic Convenience Indulgence Protein Size of circle = relative size of market Source: Rabobank Unpublished research 15

16 In spite of Russian exports dropping, European beef markets continue to perform well European beef prices deadweight by category 16

17 Of course, Irish exports are heavily dependent on Stirling EUR v GBP rate Source: Oanda Irish dairy exports (LME) - tonnes Irish beef exports Source: Eurostat, LME equivalent for Cheese, Butter and Milk Powder Source EBLEX / GTIS 17

18 So what does it all mean? Everything is connected to everything else Poor global economic outlook Low global commodity prices, with forecast of continued price volatility Significant impacts of currency fluctuation on F&A sector Price risk management tools need to be developed Continued high stocks and depressed grain prices following 2015 harvest Slowing down of growth and importance of China in commodity driving demand Export markets continue to globalise Potential tightening of supply in dairy markets, as supply adjustments and demand evolution come to pass next year the next stage in volatility Changes within Irish beef will increase competition with continental players Weather will continue to be a key factor with the chance El Nino affecting production through to