Click here to add image Global Trends and Swing Factors And their impact on the agricultural complex
Introduction I'm speaking today and tomorrow in Iowa for the IA Farm Bureau and I followed Sterling Liddell who gave a long range outlook. Super presentation. He has all the flamboyant showmanship of an economist, but still strangely likable. John Phipps Agricultural Columnist 2
Food & Agribusiness Research and Advisory A global team of analysts supporting knowledge based banking Team of 80+ analysts Specialist teams Grains & oilseeds Dairy Animal protein Retail Beverages Ag inputs Sugar London Fresno Chicago St Loius Utrecht Beijing New York New Dehli Shanghai Hong Kong Mexico City Mumbai Singapore Santiago Sao Paulo Buenos Aires Sydney Melbourne Christchurch
Macro Conditions Click here to add image
Recipe for our Economic Perfect Storm: Lower Interest Rates
Labor: west improving relative cost competitiveness Brazil, China and US Real Wage Index U.S. wage costs have barely budged over the last decade, while costs for Brazil are up 70% and up over 350% in China. This changes the relative competitive landscape dramatically especially when we think about whether China wil l import grain or meat. Higher mean higher costs but also more protein consumption. Source: IBGE, BLS, Bloomberg, 202 Market Developments & Outlook 6 Rabobank International
Cost of capital: Big advantage vs. Brazil other developing economies Sovereign Debt Interest Rates - US and Brazil Source: Bloomberg, 202 Market Developments & Outlook 7 Rabobank International
Systemic Random Risk Risk 8
0 5 2 5 4 5 6 5 8 5 0 6 2 6 4 6 6 8 6 0 7 2 7 4 7 6 7 8 7 0 8 2 8 4 8 6 8 8 0 2 4 6 8 0 2 0 2 4 0 2 6 0 2 8 0 2 0 2 D u /B rs la o h e What Happened to Prices $6.00 $5.00 $4.00 $3.00 $2.00 $.00 $0.00 Corn Price per Unit Source: USD, Rabobank 0 Average Corn Price
Demand Shifts Lead To Volatility Rabobank International
Understanding The Drivers: Click here to add image
Ethanol Reversing Grain Flows US corn used for ethanol has increased by roughly 00MMT since 2005, while world grain demand has risen by about 300MMT. Biodiesel is a factor as well. World demand for vegetable oil is growing by about 5 million tons per year. About 2 of that, or 40%, has been going to feed biodiesel demand.
Ethanol The Marginal Buyer Ethanol daily bid prices leading the market Source: Rabobank
Understanding The Drivers: Follow The Leader Click here to add image
Meat Production < GDP = Higher Meat Prices Especially that from developing markets World GDP growth continues to outpace animal protein production growth so demand is outstripping supply which leads to high meat prices. Animal protein production is adapting to structurally higher and more volatile grain prices. Given the lag factor caused by anima l life-cycles, this process will take time. The shorter life cycle for poultry, in Sources: World Bank for GDP data and forecast, USDA for meat production, Rabobank for meat production addition to forecast feed 6 conversion Market Developments & Outlook Rabobank International advantages,
The Struggle For Supply Growth In China KFC and McDonald s Restaurants in China KFC is adding almost one new store per day in China. MCD also growing rapidly. Suppliers are struggling to keep up. + hard to secure an assemblage of land + labor costs are rising rapidly, labor availability in decline + biosecurity a huge Source: Company data, Bloomberg, Reuters, 20
Industrialization Production Driving Demand If industrial hog production grows from 55% to 60%, and modified from % to 2%, deficit expected to be 23 MMT by 205 China Hog Production Assuming 0 bu. of corn per pig Source: MOA, Rabobank, 202
Soybean Imports
Grain Not Keeping Up With Structural Demand Growth World Grain Stocks to Use Ratio Despite a recovery of 60MMT of grain producti on from the FSU last year, the world grain still declined slightly. Structurally, demand is growing faster than supply. Source: USDA, 202
Certainly We Have Tried To Over Produce Click here to add image
Understanding The Drivers: Changes In Supply Sources Click here to add image
Global Soybean Production 23
Infrastructure Challenges
Investment in storage infrastructure has not matched the growth of corn and soybean production [Million Metric Tons] /03/3 /03/3 CAGR: 6% 4 54 55 44 /03/3 /03/3 23 23 5 0/03/3 /03/3 CAGR: 4% /03/3 /03/3 /03/3 /03/3 /03/3 /03/3 /03/3 /03/3 /03/3 /03/3 /03/3 /03/3 /03/3 / 03/ 3 / 03/ 3 / 03/ 3 / 03/ 3 / 03/ 3 / 03/ 3 / 03/ 3 / 03/ 3 / 03/ 3 / 03/ 3 / 03/ 3 / 03/ 3 / 03/ 3 Source: Rabobank. Data from CONAB:202.
Supply For Global Wheat Trade Is Shifting 26
Incremental Production Moving to More Volatile Environments
Outlook: What Does All of This Make Agriculture in 203??? The Dog That Has Finally Caught the Car!
Impacting US Farmers and Their Suppliers Higher Prices Do Not Guarantee A Profit
Confidence: The feeling just before you completely understand the situation Macro economy remains highly volatile New trends of changing labor rates and historically low cost of capital for developed economies New demand sources continue to grow Developing economies demand more protein Food delivery systems force changes Although reduced from past years, inelastic demand from bio fuels remains a key Supply will attempt to keep up As crop production spreads across the globe, weather will introduce additional volatility 30
Land Values
Livestock Turn To Wheat Surge in export interest in wheat matches US livestock move to wheat 32
In 203 Corn Continues To Expand Wheat is expected to gain acreage in 203/4 while cotton is expected to decline, with corn and soybeans stable YOY 0 8 6 4 2 0-2 -4-6 -8 0/0 0/ Corn /2 Soybeans Cotton 2/3 3/4(f) Wheat Source: USDA, Rabobank 33
Western Corn Belt: Still Little Room For Error Click here to add image
Yield New Source of Pivotal point in the future Uncertainty Population/ Acre 35,000 Yield/ Acre 0 70 30,000 50 25,000 20,000 5,000 30 Weighted Plant Population/ Acre Actual Yield 0 Expected yied based on PPA Yield at 88 0-year ave weight/ plant Max Capacity 0 70 Linear (Actual Yield) 50 03(f)2 204(f) 205(f) 206(f) 207(f) 8 8 0 2 3 4 5 6 7 8 20 20 20 203 204 205 206 207 208 20 20 20 20 0,000
Conclusions Current situation Milk production in export regions is low but increasing Supply side stocks have started to rise International market prices continue to gradually move upwards Steeper recovery so far prevented by softer demand growth/forward coverage US drought induced price premiums have now been eradicated Next 2 months Prices will slowly be squeezed up by falling supply as margins turn negative However, the pace and vigour of the move has now been tempered US wholesale prices to move up in tandem with the international market
This time government supports are less impactful
All Wheat Accumulated Exports BY Week
Corn Accumulated Exports By Week