Global Outlook on Agriculture AFOA Outlook Forum, NYC October 2018 Marketing Communication Stefan Vogel Global Sector Strategist, Grains & Oilseeds Head of Agri Commodity Markets Research
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Weather issues all over, but Worst drought in EU and Argentina in >20years. Drought in Australia & issues elsewhere. average Bad drough Below average Slightly above average Bad drough Bad drought Source:Rabobank 2018 3
Despite Worst drought impact in EU & Argentina in >20years Just imagine where prices would be if all countries have a record crop 700 600 500 400 USD/tonne 300 200 100 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: Bloomberg, Rabobank 2018 CBOT Wheat CBOT Soybeans +/- 20% of average CBOT Wheat +/- 20% of average CBOT Soybeans CBOT Corn +/- 20% of average CBOT Corn 4
Trade Wars on the political agenda 5
US agri commodities heavily impacted reliant on exports Source: USDA, Rabobank 2018 6
WHEAT
2018 WHEAT production shortfall in EU & Australia and normalized Russian crop Change in production vs 2017 1000 t 5,000 0-5,000-10,000-15,000-20,000-25,000 2018 vs 2017 2019 vs 2017 Source: USDA, Rabobank 2018 8
Russian Wheat prices lift off again Russian wheat prices reflect strong export demand (which are up 20% yoy to 15m t for Jul- Sep, despite a 20% lower yoy export potential of 33m t vs 40m t) Biggest bull factor: Potential RUSSIAN export restrictions Source: BSG, Rabobank 2018 9
Global Wheat with largest deficit in 15 years But what will the year after bring? Million tonnes 800 750 700 650 600 550 500 450 400 350 300 Update 80 60 40 20 0-20 -40 Million tonnes Source: USDA, Rabobank 2018 Surplus/Deficit (RHS) Production Total consumption 10
2019 WHEAT production (assuming average yields) brings enough Change in production vs 2017. 1000 t 5,000 0-5,000-10,000-15,000-20,000-25,000 2018 vs 2017 2019 vs 2017 11
US wheat prices for late 2019 nice for farmers, but EU prices more realist! +40% +20% Source: Bloomberg, Rabobank 2018 12
CORN 13
Corn: Record US yield, but don t underestimate demand Record $2/bu Wheat-Corn spread to drive corn feeding demand in 2018/19 700 250 YOY change in corn feeding globally (outside US) underestimated! 40 USc/bu 600 500 400 300 200 100 0 200 150 100 50 0 mln tonnes 30 20 10 0-10 -20 December 2018 Wheat-Corn Spread (RHS) CBOT Corn CBOT Wheat corn wheat wheat & corn Source: USDA, Rabobank 2018 14
US corn balance: Bulls need yield shortfall and strong use, bears look at ASF & record yield 2017/18 saw exports underestimated by 600m bu! Will history repeat? Yes, but NO! Sep WASDE bear bull % Change 16/17 17/18 (f) 18/19(f) 18/19(f) 18/19(f) Beginning Stocks 1,737 2,293 2,002 2,140 2,140 Yield 174.6 176.6 181.3 183.0 180.0 Production 15,148 14,604 14,827 14,964 14,719 Total Supply 16,942 16,937 16,879 17,154 16,909 MY Exports 2,294 2,425 2,400 2,400 2,500 Feed Consumption 5,470 5,450 5,575 5,400 5,600 FSI Consumption 6,885 7,060 7,130 7,130 7,130 Ethanol Usage 5,438 5,600 5,625 5,625 5,625 Total Consumption 12,355 12,510 12,705 12,530 12,730 Total Usage 14,649 14,935 15,105 14,930 15,230 Ending Stocks 2,293 2,002 1,774 2,224 1,679 Stocks/Usage 16% 13% 12% 15% 11% Source: USDA, Rabobank 2018 15
US 2019/20 corn exports with a strong start, but competition will be stiff US exports & export sales 50% up YOY so far Corn export potential from key exporters excl US at strong levels 100 80 mln tonnes 60 40 20 Source: USDA, Rabobank 2018 0 2015/16 2016/17 2017/18 2018/19 Ukraine Brazil Argentina others 16
In China, de-inventory is faster than expectation S&D indicated that Chinese ending inventory could decline to critically low levels by 2020, USDA already for 2018/19 shows stock/use >30 yr low! 300 250 Million tonnes 200 150 100 50 0 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19f 2019/20f 2020/21f End inventory Production Domestic consumption Source: MOA, Rabobank 2018 17
US corn and soybean prices heavily depend on exports What if they disappoint?! Record Wheat-Corn spread to drive corn feeding demand in 2018/19 Resolved trade wars Low US exports Source: Bloomberg, Rabobank 2018 18
SOYBEANS
US soy balance: The dark side of trade wars: potentially >1bn bu ending stocks Contrary to Corn, USDA does not underestimate use. US soybean stocks to potentially hit more than 1bn bu! Sep WASDE Oct WASDE trade issue (Mln acres/mln bu.) 16/17 17/18 (f) 18/19(f) 18/19(f) 18/19(f) Beginning Stocks 197 302 395 438 438 Yield 52.0 49.1 52.8 52.8 52.8 Production 4,296 4,392 4,693 4,693 4,693 Total Supply 4,515 4,715 5,113 5,156 5,156 MY Exports 2,166 2,130 2,060 2,060 1,950 Crush 1,901 2,055 2,070 2,070 2,055 Domestic Consumption 2,047 2,191 2,208 2,208 2,193 Total Usage 4,214 4,321 4,268 4,268 4,143 Surplus/Deficit 105 93 450 450 576 Ending Stocks 302 395 845 888 1,014 Stocks/Usage 7% 9% 20% 21% 24% Source: USDA, Rabobank 2018 20
Single digit US soybean exports to China in 2018/19? US might ship some soybeans to Arg/Brazil but requires strong market share in rest of world 80 73 70 60 60 50 46 40 36 28 30 20 10 0 Source: IEG, Rabobank 2018 6 9 6 2 2 0 3 2 3 1 2 3 2 2016/17 2017/18 2018/19 USA Brazil Argentina Canada Uruguay Others 21
US soybean exports dilemma The US needs either 100% market share outside of China or price back into China US soybean exports are as big as World excl. China imports, requiring the US to gain ~100% market share or to get China back into the trade mix Source: USDA, Rabobank 2018 22
Perfectly timed implementation of Chinese duties on US soybean China introduced duties in May, when anyway no US soybeans go to China. But 10,000 mln tonnes per month 8,000 6,000 4,000 2,000 - Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Min Range avg 2017-18 23
Total US soybean exports stronger than usual supporting prices US gained market share in import countries (ex China) due to price discount mln tonnes per month 12,000 10,000 8,000 6,000 4,000 2,000 - Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep typical US exports to world Range avg 2017-18 24
How to align US exports with world excl China import pattern? Global monthly imports excl. China of 3m to 6m tonnes per month are not enough to absorb the typical high US post harvest exports in Oct-Dec Source: USDA, Rabobank 2018 25
Trade war & pricing structure: South American soybeans at USD 400/t, while US soybeans are well below due to the 25% duty Spread between Brazilian and US soybean prices will prevail, but seasonally will change Source: USDA, Rabobank 2018 26
Waving Chinese imports? Or flattening Brazilian Exports? Showing the need to get more South American soybean exports in especially Nov-Dec to China. million tonnes 14 12 10 8 6 4 2 0-2 -4 Early harvested Parana soybeans not enough! Almost sufficient Chinese Oct-Nov coverage. Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Brazilian total exports Arg, Can, Ugy total exp Total Chinese imports How to meet China s Dec demand? Can, Ru, Ukr not enouth Source: USDA, Rabobank 2018 27
The World outside of the US can just about meet China s demand, but only if China get s ~100% of the exports China is expected to import 95m tonnes, equivalent to all soybeans exported by countries other than the US mln tonnes 100 90 80 70 60 50 40 30 20 10 0 China import potential, 94 85 75 Source: USDA, Rabobank 2018 12 8 6 6 3 3 1 Brazil Argentina Paraguay Canada Uruguay Ukraine Russia 28
The Outlook for 2019 with South American currencies under pressure Production is being incentivised in many producing countries but not in the US. Source: Bloomberg, Rabobank 2018 29
Brazil 4-6% acreage expansion keeps production about unchanged at 120m t, but good yields are required!! Exports might hit 80m t vs 76m t in current season, requiring a slower crush. 1000 tonnes 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 Area Harvested Production Exports Crush 2015/16 2016/17 2017/18 2018/19 2018/19 alternative Source: USDA, Rabobank 2018 30
Argentine export tax changes: Soybeans gain in competitiveness relative to grains Weak Argentine peso benefits exports, while farming costs are only 55-60% in USD (fertilizer, seed, ) while 40-45% is in ARS (labor, fuel, ) Good news for Argentine biodiesel: EU Com decided not to reinstate import tariffs on imported Argentine biodiesel (for now! Further Investigations will take place) Source: Rabobank 2018 31
South American soybean production could hit a new record in 2019 Close to 200m t of production and a 12% to 17% recovery from this year! 200 170 185 171 193 mln tonnes 150 100 50 59 97 55 38 115 120 121 57 0 2015/16 2016/17 2017/18 2018/19 Brazil Argentina Paraguay Bolivia Uruguay Source: USDA, Rabobank 2018 32
El Niño A Real Threat in 2018/19? Risk has been somewhat lowered recently, but still a factor to watch 30 20 10 SOI 0-10 -20-30 -40 Strong/ Moderate Moderate Strong Weak Weak Moderate/ Strong Weak Strong El Niño threshold La Niña threshold Southern Oscillation Index (SOI) 5-month moving average Previous El Niño Source: Australian Bureau of Meteorology, Bloomberg, NOAA, Rabobank 2018 ENSO Alert System Status: El Niño Watch Equatorial sea surface temperatures (SSTs) are near-to-above average across most of the Pacific Ocean. There is ~55% chance of El Niño in the Northern Hemisphere fall 2018 (September-November), increasing to ~70% during winter 2018-19. 33
Potential Impacts of a Southern Hemisphere El Niño Event Both unfavourable and favourable impacts are possible for agri commodities Australia Drier and warmer-than-normal South East Asia Drier and warmer-than-normal Source: NOAA, Rabobank 2018 India Often a reduction in the intensity of the Indian Monsoon Southern US Canada and northern US can see mild winters, while the US southern states can expect a wetter-than-normal winter Brazil Wetter-than-normal conditions are often experienced across southern Brazil, while northern Brazil can experience dryness. 34
US change in plantings for 2019: Less soybeans, but how much? Soy/corn price ratio at 2.3 for end 2018 and end 2019, calls for some more corn, but not a dramatic cut in soy acreage, while market actually needs a 4-5m acres cut in soybean soy/corn 3.9 3.7 3.5 3.3 3.1 2.9 2.7 2.5 2.3 2.1 1.9 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 Dec-18 Feb-19 Apr-19 Jun-19 Aug-19 Oct-19 more soy more corn Source: Bloomberg, Rabobank 2018 35
US 2019 acreage split: Less soy, more others US soy acreage cut not to immediately move all into corn, if trade wars stay in place & South American crop s are good, a 6m acres cut is no problem at all!! yoy change in acreag (m acres) 4 2 0-2 -4-6 -8 soybean corn wheat cotton with tarrifs without tariffs Source: Rabobank 2018 36
VEGOILS VEGETABLE OILS 37
Global oil production growth exceeds trend in recent years (CAGR 4.3%) Production growth CAGR 4.3% in past decade Source: USDA, Rabobank 2018 38
Palm oil stocks are high and soybean oil is getting cheaper due to trade wars. Malaysian May and Jun 2018 CPO produc7on lowest in many years 2.2 2 5yr high 16/17 17/18 5yr avg Indonesia produc7on strong, offse@ng Malaysian shorball, but it has been quite 5 dry posing future produc7on risk 4 millions tonnes 1.8 1.6 1.4 1.2 1 0.8 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Source: MPOB, Bloomberg, Rabobank 2018 millon tonnes 3 2 1 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2016 2017 2018 39
India: Slow veg. oil growth due to high import duties. Especially soy oil use and somewhat consumption slowed 2018/19 to bring rising imports due to poor cotton and peanut crop and despite soy recovery 1000 tonnes 25,000 20,000 15,000 10,000 5,000 0 0% 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 Oil, Palm Oil, Soybean other imports consumption growth (%) 16% 14% 12% 10% 8% 6% 4% 2% YOY growth (%) Indian soy crop to recover to 10m vs 8.2m t, but cotton & peanut down Source: USDA, Rabobank 2018 40
Chinese veg. oil imports to recover in 2019, driven by reduced soy crush Imports of palm oil, soy oil and partly other oils to benefit from trade wars 12,000 10,000 8,000 6,000 4,000 2,000 0 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Source: USDA, Rabobank 2018 41
10 year 0utlook for oils & meal veg oils and soymeal October 2018 Marketing Communication Stefan Vogel Global Sector Strategist, Grains & Oilseeds Head of Agri Commodity Markets Research
Global vegetable oil production increased 3.5X in last 25years, with palm rising 5X. Will this production rally continue in the next decade? 80,000 Mal & Ind Palm 70,000 60,000 50,000 40,000 China soy 30,000 20,000 Soy Rape & sun & soy Soy 10,000 0 Southeast Asia Source: USDA, Rabobank 2018 East Asia South America European Union - 28 North America Former Soviet Union - 12 1993/94 1998/99 2003/04 2008/09 2013/14 2018/19 other Asia Africa other 43
The decrease in South-East Asian palm oil production post-2021 will result in a bullish palm oil price environment Low global palm oil price environment Neutral to already slightly bullish price environment Bullish price environment 90 85 80 Global palm oil production increases on the back of increasing South-East Asian production Global palm oil production decreases due to decreasing South- East Asian production, a result of replanting and old oil palm trees Improving global palm oil production situation, as oil palm trees which were planted in Indonesia and Malaysia from 2018 to 2023 reach their young mature and mature stages 75 million tonnes 70 65 60 55 50 2012 2013 2014 2015 2016 2017 2018f 2019f 2020f 2021f 2022f 2023f 2024f 2025f 2026f 2027f 2028f 2029f 2030f Global production high case Global production low case Global palm oil consumption is required to increase more than longterm consumption. Thus, low palm oil prices are needed Global palm oil consumption will have to decline from previous years, as global production decreases Global palm oil consumption will decrease more than long-term consumption in order to adjust for global palm oil supply availability Other vegetable oils will fill the difference between palm oil base-case consumption and long-term consumption Global production base case Global production better-seed case Source: United Nations, Chinese Ministry of Agriculture, Indonesian Directorate General of Estate Crops MPOB, USDA, Rabobank 2018 Agri Commodity Markets Research
China Soybean demand growth slowing, even if the trade wars would be resolved +45m tonnes +75m tonnes Source: USDA, Rabobank 2018 45
EU Rapeseed production maxed out, soy on the rise An almost flat outlook for EU rapeseed proction in next 10 years Source: USDA, Rabobank 2018 46
Consumption growth by region & key drivers China food India food Food 9m & industrial 12m t Food +4.5m & industrial+11m t Food +5m & industrial+5m t Food +4m & industrial+7m t food Source: USDA, Rabobank 2018 47
India s import growths of vegetable oils to slow to 25m t for 35m t consumption Palm oil to pose the biggest absolute increase, but to loose shares to soy & sun Sources: USDA, Rabobank 2018 48
Africa: Imports to rise by 1/3 rd through 2030 from 9m t to 12 m t The gap between vegetable oil consumption and production is widening, 2010-2030f Source: Rabobank 2018 49
Rising African Vegetable Oil Imports in Next Decade Source: Rabobank 2018 50
Global soymeal use rose by 75m t or ~50% in the past decade How much will the global soymeal demand rise in the next decade? Source: USDA, FAO, Rabobank 2018 51
Global meat & aquaculture growth is slowing in next decade (+56m t vs +84m t) Adding 56m t of meat production or +15% in 10 years Source: USDA, FAO, Rabobank 2018 52
Global meat & aquaculture growth is slowing in next decade (+56m t vs +84m t) Representing a 1/3rd slower growth compared to previous decade Source: USDA, FAO, Rabobank 2018 53
Global meat & aquaculture growth is slowing in next decade (+56m t vs +84m t) Poultry forecast to growth 55% less in next decade, pork and aquaculture 26% less Source: USDA, FAO, Rabobank 2018 54
Global soymeal use to rise by only 50-55m t or ~22% in the next decade How much will the global soymeal demand rise in the next decade? 287 Source: USDA, FAO, Rabobank 2018 55
Future exports of soymeal to grow at similar level as in the pastdespite a decline of global soymeal consumption growth Change of global soymeal use 2006/08-2016/18 vs 2016/18-2026/28 Source: USDA, FAO, Rabobank 2018 56
US Soybeans despite the China setback, long-term production is expected to rise US crush to benefit from domestic meal use Source: USDA, Rabobank 2018 57
Brazilian soybean production is expected to reach 157 m tonnes planted in 45.5m hectares in 2027/28 Brazil's soybean production and acreage forecast, 2000/01-2027/28f 200 50 160 40 m tonnes 120 80 40 30 20 10 m hectares 0 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18e 2018/19f 2019/20f 2020/21f 2021/22f 2022/23f 2023/24f 2024/25f 2025/26f 2026/27f 2027/28f 0 Source: USDA, Rabobank 2018 Production (LHS) Area (RHS) 58
Argentine soybean production is expected to reach 68 m tonnes planted in 22m hectares in 2027/28 Argentina's soybean production and acreage forecast, 2000/01-2027/28f 80 24 60 18 m tonnes 40 20 12 6 m hectares 0 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18e 2018/19f 2019/20f 2020/21f 2021/22f 2022/23f 2023/24f 2024/25f 2025/26f 2026/27f 2027/28f Source: USDA, Rabobank 2018 Production (LHS) Area (RHS) 0 59
The Wildcards: India Rising domestic meal demand turns the country soon into a net importer either of soybeans or of soymeal Source: USDA, Rabobank 2018 60
Contacts: Rabobank Food and Agribusiness Research & Advisory Stefan Vogel Head of Agri Commodity Markets Research Global Sector Strategist Grains & Oilseeds Telephone +44 (0) 20 7664 9523 Email stefan.vogel@rabobank.com London office Thames Court One Queenhithe London EC4V 3RL United Kingdom This document is meant exclusively for you and does not carry any right of publication or disclosure other than to Coöperatieve Rabobank U.A. ( Rabobank ), registered in Amsterdam. Neither this document nor any of its contents may be distributed, reproduced, or used for any other purpose without the prior written consent of Rabobank. The information in this document reflects prevailing market conditions and our judgement as of this date, all of which may be subject to change. This document is based on public information. The information and opinions contained in this document have been compiled or derived from sources believed to be reliable; however, Rabobank does not guarantee the correctness or completeness of this document, and does not accept any liability in this respect. The information and opinions contained in this document are indicative and for discussion purposes only. No rights may be derived from any potential offers, transactions, commercial ideas, et cetera contained in this document. This document does not constitute an offer, invitation, or recommendation. This document shall not form the basis of, or cannot be relied upon in connection with, any contract or commitment whatsoever. The information in this document is not intended, and may not be understood, as an advice (including, without limitation, an advice within the meaning of article 1:1 and article 4:23 of the Dutch Financial Supervision Act). This document is governed by Dutch law. The competent court in Amsterdam, the Netherlands has exclusive jurisdiction to settle any dispute which may arise out of, or in connection with, this document and/or any discussions or negotiations based on it. This report has been published in line with Rabobank s long-term commitment to international food and agribusiness. It is one of a series of publications undertaken by the global department of RaboResearch Food & Agribusiness. 2018 - All Rights Reserved. 61
Where happened the growth and did crushing at origin or destination rise most? Additional soymeal demand by country from 2006/08 to 2016/18 (mln t) Regions with soymeal use decline over past decade (ttl -5.6m tonnes) Source: USDA, FAO, Rabobank 2018 62
Wildcards: Alternative Meat If it tastes like meat and looks like meat, it might not be meat 63
Veggie meals won t kill your feed business but will slow the future growth Despite strong consumption growth of alternative proteins, volumes are forecast to stay below 1% of meat production volumes, 2016-2022 Source: Rabobank 2018 64
Key drivers in 2019 for global vegoil tradeflows Vegoil supplies in global markets are likely to remain high in 2018/19; Indonesian CPO production more than compensating for slightly lower y-o-y Malaysian production, US is expecting record high soybean crop; and locally in India, thanks to decent monsoon, domestic oilseed and vegoil supplies are likely to remain better y-o-y. Trade war and crude oil are likely to continue dictating the global vegoil prices in coming season. Any upsurge in brent crude prices could trigger higher CPO consumption; or MPOB palm pricing has to go down from current levels to trigger demand recovery (but with current pricing, low scope for further price drop).