AUSTRALIA GRAINS INDUSTRY CONFERENCE SINGAPORE MICHAEL WHITEHEAD ANZ CLIENT INSIGHTS MARCH 2014
AGENDA > 2 SECTION TOPIC 1. GRAIN & OIL SEED INDUSTRY OUTLOOK 2. GRAIN & OIL SEED FORECAST 3. GRAIN & OILSEED SUPPLY CHAIN INVESTMENT REQUIREMENT
INCREASING COMPETITION TO GAIN ASIA FOOD BOWL SHARE INCREASING SHARE OF GLOBAL MIDDLE CLASS 2030:66% 2013:28% TO DRIVE GRAIN CONSUMPTION IN LONG TERM KEY GLOBAL GRAIN EXPORTERS TO COMPETE FOR THE ASIAN MARKET SHARE US & CANADA BLACK SEA AUSTRALIA
GLOBAL GRAINS & OILSEEDS RECORD PRODUCTION FORECAST > 4 GLOBAL GRAIN & OIL SEED PRODUCTION AND CONSUMPTION (In MT) 3,500 700 2,800 560 2,100 420 1,400 280 700 140 1961/1962 1965/1966 1969/1970 1973/1974 1977/1978 1981/1982 1985/1986 1989/1990 1993/1994 1997/1998 2001/2002 2005/2006 2009/2010 2013/2014 Stock (RHS) Production (LHS) Consumption Source: USDA & ANZ Analysis Note 1: Production forecast is based on 25 year Long term growth rate
GLOBAL GRAINS & OILSEEDS S/U REMAINS STEADY > 5 GLOBAL GRAIN & OIL SEED PRODUCTION vs. STOCKTOUSE (In MT) 3,500 35% 2,800 28% 2,100 21% 1,400 14% 700 7% 1961/1962 1965/1966 1969/1970 1973/1974 1977/1978 1981/1982 1985/1986 1989/1990 1993/1994 1997/1998 2001/2002 2005/2006 2009/2010 2013/2014 Production (LHS) StockToUse (RHS) Source: USDA & ANZ Analysis Note 1: Production forecast is based on 25 year Long term growth rate
GLOBAL GRAINS & OILSEEDS CONSUMPTION GAP LOOMING > 6 GLOBAL GRAIN & OIL SEED PRODUCTION AND CONSUMPTION FORECAST (In MT) 5,000 4,000 3,000 2,000 1,000 2013/2014 2017/2018 2021/2022 2025/2026 2029/2030 China United States European Union India Former Soviet Union 12 Brazil Argentina Canada Australia ROTW Rapid convergence consumption ABARES consumption FAO consumption Source: USDA & ANZ Analysis Note 1: Production forecast is based on 25 year Long term growth rate
AUSTRALIAN WHEAT FORECAST HIGHLIGHTS THE NEED FOR 40% INCREASE IN HARVEST AREA > 7 AUSTRALIA WHEAT FORECAST (In mt) 26.6 26.3 26.8 27.3 27.8 28.4 28.9 29.5 30.1 30.7 31.3 31.9 32.5 33.1 33.8 34.5 35.1 19.5 19.0 20.0 20.4 20.9 21.3 21.8 22.3 22.8 23.3 23.8 24.4 24.9 25.5 26.0 26.6 27.2 6.6 6.6 6.7 6.8 6.9 7.0 7.1 7.1 7.2 7.3 7.4 7.5 7.5 7.6 7.7 7.8 7.9 4.2 4.8 5.4 5.5 5.6 5.6 5.7 5.8 5.8 5.9 6.0 6.0 6.1 6.2 6.2 6.3 6.4 6.4 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 WHEAT YIELD FORECAST (T/Ha) Opening Stock Production Export Domestic Consumption HARVEST AREA REQUIRED TO SUPPORT FORECASTED PRODUCTION (Indexed to 2013) 4 150 3 130 2 110 1 2014 2018 2022 2026 2030 Kazakhstan Russia Ukraine Australia 90 2014 2018 2022 2026 2030 Kazakhstan Russia Ukraine Australia Source: USDA Foreign Agricultural Services, ABARES and ANZ Analysis Note 1: Production forecast is based on 25 year average growth, ending stock is based on stock to consumption median for 25 years Note 2: OECD forecast till 2022 is extrapolated for 2030 based on 2013 to 2022 data Note 3: Harvest area calculation is based on production forecast divided by yield per hectare
AUSTRALIA SUPERIOR WHEAT QUALITY & EXPORT > 8 AUSTRALIAN WHEAT EXPORT Percentage of exports 45% 36% 27% 18% 9% Wheat Variety Competition Region (Quality) AU (APH/AH) AU (APW) AU (ASW) USA (HRW) USA (DNS) CAN (CWHWS) CAN (CPSW) CAN (CWRS) IND WHEAT PAK WHEAT Noodles Bread Biscuits Steamed Bread RUS WHEAT HIGH PROTEIN WHEAT PRICE (USD/T ) APH AH APW ASW AGP Milling Noodle Durum Feed BULK EXPORT 450 400 350 300 2009 2010 2011 2012 Q1 Q2 Q3 Q4 Blacksea 14.5 DNS 14 CWRS 13.5 APH13 AH12 UKR WHEAT Preferred CONTAINER EXPORT 450 400 350 300 Acceptable Q1 Q2 Q3 Q4 Blacksea 14.5 DNS 14 CWRS 13.5 APH13 AH12 Source: Trade sources, ABARES and ANZ Analysis Note 1: Based on CNF Malaysia for 2013
AUSTRALIAN COARSE GRAIN FORECAST BARLEY FALL LOOMING > 9 AUSTRALIA COARSE GRAIN FORECAST (In mt) 1.0 1.0 1.4 1.4 1.4 1.4 1.5 1.5 1.5 1.5 1.5 1.5 1.6 1.6 1.6 1.6 1.6 1.6 5 6.7 5.8 6.3 6.5 6.7 6.8 7.0 7.2 7.4 7.6 7.8 8.0 8.2 8.5 8.7 8.9 9.2 13.0 12.6 6.3 12.8 13.1 13.3 13.6 13.8 14.1 14.4 14.7 15.0 15.3 15.5 15.9 16.2 16.5 16.8 6.4 6.5 6.6 6.7 6.7 6.8 6.9 7.0 7.1 7.1 7.2 7.3 7.4 7.4 7.5 7.6 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 BARLEY & SORGHUM EXPORT TARGET MARKET (In mt) Opening Stock Production Export Domestic Consumption HARVEST AREA REQUIRED TO SUPPORT FORECASTED PRODUCTION (Indexed to 2013) 200% 4 170% 3 140% 2 110% 1 80% 2014 2018 2022 2026 2030 Harvest Area (Max Yield:2.4 T/ha) 2007 2009 2011 2013 Harvest Area (Average Yield:1.61 T/ha) China Japan Korea Thailand Vietnam Other Harvest Area (Median Yield: 1.58 T/ha) Source: USDA Foreign Agricultural Services, ABARES and ANZ Analysis Note 1: Production forecast is based on 25 year average growth, ending stock is based on stock to consumption median for 25 years Note 2: Harvest area calculation is based on production forecast divided by yield per hectare
AUSTRALIAN COARSE GRAIN BEER CONSUMPTION HOPES > 10 AUSTRALIA COARSE GRAIN PRODUCTION (In mt) 16 AUSTRALIA COARSE GRAIN USAGE (In mt) 16 12 12 8 8 4 4 2001 2003 2005 2007 2009 2011 2013 Barley Oat Sorghum Corn (maize) Triticale ` 2003 2005 2007 2009 2011 2013 Domestic Consumption Export COARSE GRAIN EXPORT (In mt) 8 6 4 BARLEY & SORGHUM EXPORT MARKET (In mt) 5 4 3 2 2 1 2001 2003 2005 2007 2009 2011 2013 Barley Oat Sorghum Corn (maize) 2007 2009 2011 2013 China Japan Koprea Thailand Vietnam Other Source: USDA Foreign Agricultural Services, ABARES and ANZ Analysis
AUSTRALIAN OILSEED FORECAST SHORT TERM FALLS > 11 AUSTRALIA OILSEED FORECAST (In mt) 3.1 3.1 2.9 3.0 3.0 3.1 3.2 3.3 3.3 3.4 3.5 3.6 3.7 3.8 3.8 3.9 4.0 4.9 4.5 4.6 4.7 4.8 4.9 5.0 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 6.1 1.7 0.3 0.4 1.7 1.7 1.7 1.8 1.8 1.8 1.8 1.8 1.9 1.9 1.9 1.9 2.0 2.0 2.0 2.0 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.3 0.3 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Opening Stock Production Export Domestic Consumption CANOLA EXPORT TARGET MARKET (In mt) HARVEST AREA REQUIRED TO SUPPORT FORECASTED PRODUCTION (Indexed to 2013) 4 140% 3 120% 2 100% 1 2007 2009 2011 2013 Belgium Netherlands Pakistan China Japan Other 80% 60% 2014 2018 2022 2026 2030 Harvest Area (Max Yield: 1.78 T/ha) Harvest Area (Average Yield: 1.25 T/ha) Harvest Area (Median Yield: 1.28 T/ha) Source: USDA Foreign Agricultural Services, ABARES and ANZ Analysis Note 1: Production forecast is based on 25 year average growth, ending stock is based on stock to consumption median for 25 years Note 2: Harvest area calculation is based on production forecast divided by yield per hectare
AUSTRALIAN OILSEED OVERVIEW STRONG CHINA POTENTIAL > 12 AUSTRALIA OILSEED PRODUCTION (In mt) AUSTRALIA OILSEED USAGE (In mt) 6 5 4 3 2 1 6 5 4 3 2 1 2007 2009 2011 2013 Canola Cotton Seed Other 2001 2004 2007 2010 2013 Domestic Consumption Export AUSTRALIA OILSEED EXPORT (In mt) 5 CANOLA EXPORT TARGET MARKET (In mt) 4 4 3 3 2 2 1 1 2007 2009 2011 2013 Oilseeds Canola Cottonseed Other 2007 2009 2011 2013 Belgium Netherlands Pakistan China Japan Other Source: USDA Foreign Agricultural Services, ABARES and ANZ Analysis
INCREASING FOCUS ON ASIA TO PROVIDE NEW EXPORT OPPORTUNITIES FOR AUSTRALIA AUSTRALIAN EXPORTS BY REGION (In mt) ASIA IMPORT MIX CONSUMPTION (In mt) PRODUCTION (In mt) 20 16 12 INDONESIA 11% 3% 15% 71% 2030 2013 5.5 7.8 2030: 2013: 0.00 0.00 8 4 2007 2009 2011 2013 KOREA 11% 42% 41% 6% 2030 2013 4.3 4.6 2030: 2013: 0.02 0.02 Africa Asia Middle East Oceania AUSTRALIA EXPORT (In mt) 25 VIETNAM 4% 1% 95% 2030 2013 2.7 3.7 2030: 2013: 0.00 0.00 20 15 10 5 CHINA 6% 16% 9% 69% 2030 2013 121.7 136.6 2030: 2013: 133.12 120.66 2007 2009 2011 2013 Indonesia Korea Vietnam China Japan Others Asia Other Global JAPAN 54% 22% 24% 2030 2013 6.4 6.4 2030: 2013: 1.16 0.83 Australia Canada Source: USDA Foreign Agricultural Services, ABARES and ANZ Analysis Note 1: As of 2012 US Other Note 2: OECD forecast till 2022 is extrapolated for 2030 based on 2013 to 2022 data
INCREASING COMPETITION FROM BLACK SEA TO POSE CHALLENGE IN LONG TERM > 14 INCREASING BLACK SEA WHEAT PRODUCTION (In mt) COUPLED WITH SEA FREIGHT ADVANTAGE TO MIDDLE EAST 1,2 (In USD/T) 120 33 35 37 96 72 22 23 48 24 1996 1999 2002 2005 2008 2011 2014 Kazakhstan Russia Ukraine RESULTING IN THE REGION BECOMING A KEY EXPORT MARKET FOR BLACK SEA 100% 45 Ukraine North Russia Western Australia South Australia Eastern Australia INCREASING SHARE OF BLACK SEA WHEAT EXPORT IS DRIVEN BY YIELD GROWTH (In mt) 30% 80% 60% 40% 20% Indonesia Korea Vietnam China Japan Australia Canada US Other 36 24% 27 18% 18 12% 9 6% 1996 1999 2002 2005 2008 2011 2014 Ukraine Russia Kazakhstan Australia % (Global Export) (RHS) Black Sea % ( Global Export) (RHS) Source: USDA Foreign Agricultural Services, ABARES and ANZ Analysis Note 1: As of 2012 Note 3: Freight charges for Iran from respective countries Note 3:OECD forecast till 2022 is extrapolated for 2030 based on 2013 to 2022 data
KEY CHALLENGES TO AUSTRALIAN FARMING > 15 24% AGEING AUSTRALIAN FARMERS 18% 12% 6% 1524 2534 3544 4554 5564 65 + Farmers and Farm Managers Employed Total SMALL FARM SIZES 40 30 20 10 1,200 461 520 341 270 89 133 NSW Vic Qld SA WA Tas NT No. of farms ('000) Avg. Farm Size (ha) LOW TURNOVERS 40% 30% (USD '000) 20% 10% <$50 $50$99 $100$199 $200$499 $500$999 $1,000+ Source: Agricultural Commodities, Australia and ANZ Analysis Note 1: Data include all farming activities and sourced from Agricultural Census for 20112012
KEY CHALLENGES TO AUSTRALIAN FARMING > 16 24% 18% ALONG WITH LESS GOVT. SUPPORT 12% 6% AU BRZ UKR US CAN CHN EU OECD RUS Producer Support (% of sector revenue) 160 LEADING TO LOW RETURNS 140 120 100 80 1999 2001 2003 2005 2007 2009 2011 Index of Prices received Index of Prices paid Impacting competitiveness of Australian Farming Industry Source: Agricultural Commodities, Australia and ANZ Analysis Note 1: Data include all farming activities and sourced from Agricultural Census for 20112012
INFRASTRUCTURE CHALLENGES ACROSS THE SUPPLY CHAIN 17 Farm Production Australian Grain Supply Chain Southern Oscillation Index USA & Canada Grain Supply Chain Cost of Grain Production USD/T 30 20 10 (10) (20) 2008 2009 2010 2011 2012 2013 145 142 143 140 138 136 Ukraine Argentina USA Canada France Australia Receival & Storage 1 16% 29% % of supply chain cost Throughpu t 0.6x Receival Sites: 623 Avg. Dist 2 20km > Australia currently has scattered receival sites with total bulk handling capacity of over 55mt, in addition it has ~15mt onfarm storage capacity Throughput : 67x Receival Sites : 271 Canada Avg. Dist 2 80km Canada > Majority of the storage capacities in US & Canada are onfarm storage units providing farmers the option to store grains in unfavourable marketing conditions Sources: USDA, ABARES, AGEIC * Median cost of wheat supply chain for all states Note 1: Receival and Storage costs based on 3months storage Note 2: Average Farm to Bin distance NOTE: The above table represents the best practices across USA and Canada
LEADING TO HIGH SUPPLY CHAIN COST ~70 USD/TON 18 Australian Grain Supply Chain USA & Canada Grain Supply Chain Transportation 6 27% 39% Axle Load: 1619 ton LPI Index 1 : 3.7 Tracking 2 : 3.8 > Grain transport facility in Australia is deteriorating, with large maintenance investments required, specially into rail infrastructure Axle Load: 23 ton LPI Index 1 : 3.9 Tracking 2 : 4.1 > In USA, train lines can move grain 1,000 km at a cost of USD 10/ton compared to USD 25/ton in Australia for less than 500 km Port Facilities 30% 34% International Shipment 3 : 3.4 Costs 5 : USD 1,020 International Shipments 3 : 3.6 Costs 5 : USD 680 Others 4 8%9% Sea Freight Transit Time: 6 days Western Australia To Indonesia Shipping USD 9/ton > Australia s proximity to Asia, provides it with significant cost advantage in terms of sea freight specially for SouthEast Asia Transit Time Shipping 26 days USD 31/ton USA To Indonesia > Western exports into Asian countries are challenged to a greater extent due the freight disadvantages it has to Australia Note 1: Logistics Performance Index Note 2: Ease of tracking cargo score Note 3: Ease of arranging competitively priced shipments score Note 4: Other charges include GRDC Levy and other levy NOTE: The above table represents the best practices across USA and Canada Note 5: Charge for a 40foot dry container or a semitrailer (total freight including agent fees, port, airport, and other charges). Note 6: Transportation costs based on Rail charges for 200km distance between receival site and port
REQUIRES INVESTMENT INTO UPGRADING THE FACILITIES 19 2013 Total Grain Exports 30mt Exports by OAE s 15mt 2030 Total Grain Exports 40mt Exports by OAE s 20mt Assuming OAE s account for ~50% of total grain exports from Australia, capex requirements have been derived till 2030 considering a new supply chain is setup to support the OAE s STORAGE RAIL TRACK UPGRADE PORT Capacity 2030 20mt Capacity 2030 1,325 km Capacity 2030 30mt Total Capex 2030 $2.0bn Total Capex 2030 $2.0bn Total Capex 2030 $7.6bn Initial Capex 2014 18 $1.6bn Initial Capex 2014 18 $1.6bn Initial Capex 2014 18 $6.0bn Note 1: Assuming OAE s export 50% of total grain exports from Australia Note 2: OAE s Other Accredited Exporters
WHICH COULD LEAD TO POTENTIAL COST REDUCTION ACROSS SUPPLY CHAIN 20 CAPEX TIMELINE (In USD bn) Total Capex Required till 2030: USD 11.6 bn 2014 $1.7 2015 $1.9 2016 $1.9 2017 $1.9 2018 $1.9 2019 $0.2 2020 $0.2 2021 $0.2 2022 $0.2 2023 $0.2 2024 $0.2 2025 $0.2 2026 $0.2 2027 $0.2 2028 $0.2 2029 $0.2 2030 $0.2 BENEFITS OF PARALLEL SUPPLY CHAIN COST ANALYSIS Current Scenario AUSTRALIA WHEAT SUPPLY CHAIN USD/TON Parallel Supply Chain OAE s Wheat Supply Chain USD/ton 19.7 23.0 21.8 5.6 13.7 18.4 12.4 5.6 20.0 COST BREAKUP Total Cost: USD 70/ton COST BREAKUP 28% 33% 31% 8% 27% 37% 25% 11% Receival & Storage Transportation Port Facilities Others Benefit > USD 20/ton benefit arising from the OAE s moving to a parallel supply chain > OAE s can save ~29% of their current supply chain costs driven by operational efficiencies and reduced charges Note 1: Assuming storage time of 3 months and rail network being used to transport to port at a distance of 200km Note 2: Other charges include GRDC Levy, End Point Royalties, and other levy
UPGRADING CURRENT INFRASTRUCTURE 21 > Australia s current supply chain infrastructure requires substantial upgrading and maintenance in order to compete with other grain exporters supplying into Asia (USA, Canada, etc.) > Investments are required into developing efficient storage capacities, upgrading existing grain rail lines and capacities at port level (storage and loading) in order to make the system more efficient IMPROVING THE EXISTING GRAIN SUPPLY CHAIN GRAIN STORAGE > Grain storage facilities/receival bins are currently scattered across Australia (~623 receival bins) with average distance between a grain farm and bin in Australia is ~20km compared to ~80km in Canada. In WA ~40% of the sites handle ~80% of grain, thereby leading to inefficiency for other sites due to under utilisation GRAIN RAIL NETWORK > Axle loads (currently ~17 ton) and low siding, limits the rail length and load carrying capacity. Upgradation of axle loads to 2023 ton and increasing siding could further increase load capacity per train from ~2,000 to 10,000 ton GRAIN ROAD INFRASTRUCTURE > Truck capacities also require investments, as ageing of current fleet along with limited capacities compared to new models restrict the movement of grains and increase costs GRAIN PORT FACILITY > Loading capacities for port terminals can vary from ~600 ton/hr to 5,000 ton/hr in Australia, leading to congestion in ports with low capacities as trucks/trains have to wait for longer time
AUSTRALIA WELL REPRESENTED BY SCALE COMPARISON > 22 Total AUM by Target Geography (Percent) Total AUM by Target Geography (USD) Global 19% North America 35% Global, $5,200 North America, $9,450 Asia 3% Asia, $900 Africa 9% Africa, $2,295 Eastern EU/Black Sea 10% Australia 12% South America 12% Eastern EU/Black Sea, $2,815 Australia, $3,245 South America, $3,360
ROW CROPS REMAIN THE MAJOR FOCUS > 23 Total AUM by Crop Type Total AUM by Crop Type Infrastruct ure 11% Permanent 10% Pastoral $5,455 Infrastruct ure $3,060 Permanent $2,790 Pastoral 20% Row 59% Row $15,960
ACCESSIBILITY OF MEDIUM SIZED FUNDS > 24 30 Size of Major Agri Funds % of Total Assets by Fund Size 25 $1000m+ 42% Up to $50m 2% $51 $199m 9% 20 15 10 5 0 Up to $50m $51 $199m $200 $499m $500 999 $1000m+ $500 999 18% $200 $499m 29%
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