March 2016 ANZ GRAINS REPORT THE GRAINS MUSTER
RISING URBANISATION & INCOME LEVELS WILL DRIVE DEMAND FOR DAIRY PRODUCTS IN CHINA The growth predictions and numbers for China look enormous as urbanisation and rising incomes will lift milk demand from 45.9bn litres in 2012 to 74.7b litres in 2030 Source: ANZ Analysis
CHINA S IMPORT DEPENDENCY WILL INCREASE WITH RISING DOMESTIC BEEF DEMAND In 2030, ANZ estimates that 33% (3.3mt) of China beef demand would be sourced from official beef imports, 4% (371kt, 1.4 million head) from live feeder cattle imports & 1% (102kt) from the grey trade China Beef Imports & Consumption In thousand tonnes CWE 12,000 40% 9,000 30% 6,000 20% 3,000 10% - 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 - Official beef imports Imported live cattle beef equivalent Estimated Grey Trade Beef from Chinese cattle Imports as % of consumption (RHS) Source: China National Bureau of Statistics, IMF, ABARES & ANZ Analysis
AUSTRALIA NEEDS TO INCREASE ITS PRODUCTION LEVELS TO MEET THIS INCREASING DEMAND TO MAINTAIN ITS CURRENT MARKET SHARE Increasing domestic milk supply to meet growing demand in Asian markets, will require additional feed grain supplies for increase in cattle herd, which is estimated to increase to 3.8 million head by 2030 to achieve 12bn litres of milk production Australia Dairy Cattle herd & Milk Production Cattle herd is in million head & milk production is in million litres 14,000 12,000 10,000 8,000 6,000 4,000 2,000 2.9 2.9 3.0 3.0 3.1 3.2 3.2 3.3 3.3 3.4 3.4 3.5 3.6 3.6 3.7 3.8-2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Milk production (mil. litres) Dairy Cattle (mil. head) Source: OECD-FAO, USDA, ABARES & ANZ Analysis
INCREASE IN BEEF PRODUCTION NEEDS TO BE SUPPORTED BY ADDITIONAL FEED GRAIN SUPPLIES To export ~2.5 million tonnes of beef by 2030, cattle herd should be increased by ~7.6 million head from the current estimated 25 million in 2015, which will further increase pressure on domestic feed produce Australia Beef Exports & Domestic Consumption In million tonnes CWE 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.9 0.9 1.9 1.9 2.0 2.0 2.0 2.1 2.1 2.1 2.2 2.2 2.3 2.3 2.3 2.4 2.4 2.5 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Source: OECD-FAO, USDA, ABARES & ANZ Analysis Beef Exports Beef Dom. Use
IN THE HIGH CASE, 1.8% CAGR IN DOMESTIC FEED WILL RESULT IN VALUE ADD ~60% AND INCREASED BEEF AND DAIRY EXPORTS OF ~A$32.4BN THROUGH TO 2030 Source: ANZ Analysis
WITH JUST 7% OF THE WORLD S FRESH WATER, 10% OF AGRICULTURAL LAND VERSUS NEARLY 20% OF WORLD POPULATION WHAT ROLE WILL CHINA PLAY? Domestic meat production caters to around 99% of demand and it has increased over the past decade at a CAGR of 2.8%, thus driving feed demand for domestic production China Net Trade in Animal Protein Beef, Pork, Poultry & Milk powder 1.0 Net Exports 0.5 In Million tonnes - (0.5) (1.0) Net Imports (1.5) (2.0) '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16f Beef Pork Poultry Milk Powder Source: USDA & ANZ Analysis
CHINA S SUPPORT PRICE MECHANISM INCREASED DOMESTIC CORN PRICE, WHICH FORCED FEED MANUFACTURERS TO SWITCH TO LOW COST IMPORTS LIKE BARLEY & SORGHUM While Corn is the largest feed grain ingredient used in China, with an estimated share of 63% since 2005/06, high domestic prices led to increased imports of cheaper substitutes like Barley and Sorghum in the recent past China Net Trade in Grains Wheat, Barley, Corn, Rice & Other 20 Net Exports 10 In Million tonnes - (10) (20) Net Imports (30) '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16f Barley Wheat Corn Rice Other Source: USDA & ANZ Analysis
EXPANSION OF THE OILSEED CRUSHING SECTOR, GROWTH IN FEED SECTOR & LIMITED DOMESTIC PRODUCTION LED TO HIGH OILSEED IMPORTS Oilseed imports, dominated by Soybean, had more than tripled over the past decade. Oilseed acreage is increasingly shifting towards grain crops which have support price mechanisms China Net Trade in Oilseeds Cottonseed, Peanut, Rapeseed, Soybean & Sunflower seed 5 (15) In Million tonnes (35) (55) Net Imports (75) (95) '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16f Cottonseed Peanut Rapeseed Soybean Sunflowerseed Source: USDA & ANZ Analysis
THE FALL IN SUGAR PRODUCTION DUE TO LOW PRICES LED TO SUGAR IMPORTS INCREASING OVER 5 MILLION TONNES Short term outlook for sugar consumption in China is sluggish due to economic slowdown, however over the long term continued urbanisation and investment in food manufacturing will drive the demand China Net Trade in Sugar 1 Net Exports - (1) In Million tonnes (2) (3) (4) Net Imports (5) (6) '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16f Sugar Source: USDA & ANZ Analysis
CAN THE AUSTRALIAN SUPPLY CHAIN SUPPORT SUCH A GROWTH STORY? Australia has invested in total storage capacity of 70mmt, catering for annual production of 44mmt. By comparison, Canada has a storage capacity of 80mmt, for 73mmt crop Source: AEGIC
OUTLOOK FOR INDUSTRY PARTICIPANTS On current forecasts, the minimal outlook for price shocks is likely to see only a slow upward trend in grain prices Wheat prices (US No.1 HRW Wheat) In AUD per MT 359 356 336 314 311 Median: 305 289 288 283 286 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Note: Wheat prices shown in the chart represent No. 1 hard red winter (ordinary protein), Kansas City, MO; Data is originally sourced in USD per bushel and converted to AUD per MT using 1 bushel equal to 0.0272155 Metric ton and respective monthly average AUDUSD exchange rates Source: USDA ERS, Capital IQ & ANZ Analysis
OUTLOOK FOR INDUSTRY PARTICIPANTS Australian grain trading sector is currently at an interesting point on a corporate timeline. With less than a decade since deregulation, the industry will continue to change Source: ABC.net.au, Analysis: Who owns Australia s grain?, 2 nd May 2013
OUTLOOK FOR INDUSTRY PARTICIPANTS Globally, the flow of institutional investment in farming has been largely into row crops, skewed by investments into US and Brazilian soy and wheat crops, while in Australia the focus has been beef Agribusiness Fund Allocation by Sector 11% 10% 3% 9% 20% Global Australia 59% 88% Permament Pastoral Row Infrastructure Permament Pastoral Row Infrastructure Source: Parsonage Lane Advisors
THANK YOU MARK BENNETT MICHAEL WHITEHEAD