Food Markets Wheat & Maize Outlook THIRTEENTH SESSION OF THE AMIS GLOBAL FOOD MARKET INFORMATION GROUP FAO Headquarters, Rome 3-4 May 2018 Presentation Outline I. Macro conditions & food markets II. Market Outlook for wheat and maize 1
World economy in 2018 to grow even faster than in 2017, but! The global economic upswing that began around mid-2016 has become broader and stronger World economy to grow at 3.9% this year and next Advanced economies to grow by 2.5% this year while emerging market and developing economies grow by 4.9% But the prospect of trade restrictions and counterrestrictions threatens to undermine confidence and derail global growth prematurely Source: World Economic Outlook, IMF April 2018 The IMF s sub-indices of food and agricultural raw materials rose 4.1 percent and 6.0 percent between Aug. 2017 to Feb. 2018, respectively, mostly reflecting diminishing excess supply Commodity prices, notably of oil and natural gas, have risen since last year, but the medium-term outlook remains subdued not so sure! Commodity and oil prices Deflated using US consumer price index; index, 2014 = 100 Oil prices (not shown) continue to rise, hitting near 4-year highs recently Source: World Economic Outlook, IMF April 2018 2
VIX - CBOE Volatility (fear) Index Exchange rate uncertainty Weaker or stronger US dollar? AMIS Countries' Currencies Against US Dollar AMIS April 2018 Monthly Annual Currency Countries Average Change Change Argentina ARS 20.2 0.2% -31.7% Australia AUD 1.3-0.7% 2.2% Brazil BRL 3.4-3.6% -8.3% Canada CAD 1.3 1.7% 5.4% China CNY 6.3 0.4% 8.7% Egypt EGP 17.6-0.2% 2.3% EU EUR 0.8-0.3% 12.9% India INR 65.5-0.7% -1.5% Indonesia IDR 13,791.9-0.3% -3.7% Japan JPY 107.3-1.2% 2.5% Kazakhstan KZT 325.2-1.4% -4.1% Rep. Korea KRW 1,067.4 0.2% 5.8% Mexico MXN 18.3 1.3% 2.2% Nigeria NGN 305.2 0.8% 0.5% Philippines PHP 52.1 0.1% -4.5% Russian Fed. RUB 60.5-6.0% -7.2% Saudi Arabia SAR 3.8 0.0% 0.0% South Africa ZAR 12.0-1.8% 10.4% Thailand THB 31.3 0.0% 9.2% Turkey TRY 4.1-4.5% -11.3% UK GBP 0.7 1.0% 10.4% Ukraine UAH 26.1 0.7% 2.6% Viet Nam VND 22,786.5 0.0% -0.5% Jan 1980 = 100 128 126 124 122 120 118 116 114 112 Nominal Broad Dollar Index Apr 2017- Apr 2018 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Source: AMIS Market Monitor, May 2018 Mar-18 Apr-18 3
Food prices higher than last year FAO Food Price Index averaged 176.6 points in 2017, 8.2% above the 2016 average and the highest since 2014. Only sugar prices fell in 2017 while dairy and meat prices rose sharply. Prices of cereals and vegetable oils also rose. The index is up 3% (5 points) since the start of 2018, supported by firmer prices of cereals (up 12%) and dairy products (up 11%). In April, the Index averaged 173.5 points, unchanged m/m but up 2.7% from April 2017 Source: FAO www.fao.org/worldfoodsituation/ Prices remain well below their peaks Food Prices Indices April 2018 March 2018 m/m Jan Apr 2018 Jan Apr 2017 Change: Jan Apr '18 over Jan Apr '17 % % FAO Food Price Index 174 173 0.2 172 173 0.6 Cereals 168 166 1.7 163 148 9.3 Oils 155 157 1.4 158 173 9.7 Sugar 177 186 4.8 189 267 41.3 Meat 169 171 0.9 169 164 3.4 Dairy 204 197 3.4 193 190 1.5 Food Prices Indices Peak values April 2018 Source: FAO Change: April 2018 over peak values % FAO Food Price Index Feb 2011 240 174 28 Cereals June 2008 268 168 37 Oils Feb 2011 287 155 46 Sugar Jan 2011 420 177 58 Meat Aug 2014 212 169 20 Dairy Feb 2014 275 204 26 4
Market outlook Crop Monitor - Wheat (as of late April 2018) Generally good conditions in the northern hemisphere In the US, conditions continue to deteriorate in the southern Great Plains due to prolonged drought Exceptional conditions in the eastern parts of EU and southern Russia, owing to favourable temperatures and soil moisture 5
World wheat market at a glance Wheat supply and demand outlook: still large supplies 800 Utilization growth to increase more slowly, on weaker feed use 280 2016/17 estim. f'cast Change: over % World Balance Production 759.6 757.9 746.6-1.5 Supply 995.9 1 015.5 1 023.3 0.8 Trade 176.5 173.6 174.1 0.3 Total utilization 734.5 737.7 743.3 0.8 Food 497.5 503.2 508.2 1.0 Ending stocks 257.6 276.7 279.0 0.8 World stock-to-use ratio (%) 34.9 37.2 36.9 700 600 500 400 08/09 10/11 12/13 Production (left axis) 14/15 235 190 145 100 16/17 18/19 Stocks (right axis) Utilization (left axis) Production declines for the second consecutive season but still above-average Russia down 8.9mt, at 77mt EU down 2mt, at 150mt India down 2.5mt, at 96mt Argentina down 1.4mt, 17.1mt Australia up 2.5mt, at 23.7mt US up 1.1mt, at 48.5mt Record wheat stocks, but! Wheat stocks in China climbing to 115mt in up almost 12% y/y and representing over 40% of the global total. 320 240 percent 40 30 Excluding China, world wheat stocks falling for the seventh consecutive season. Inventories to decline in the EU, Russia and US. Stocks-to-disappearance (major exporters) to fall from 20.9% in to 19.2% in. 160 80 0 2014/15 2015/16 Major exporters 2016/17 China estim. f cast Rest of the world World stocks-to-use ratio Stocks-to-disappearance ratio of major exporters 20 10 0 6
Leading wheat trading counties (July/June) 2014/15 average (1) Top 10 wheat exporters* est. (2) f'cast (3) Change (3) over (1) Change (3) over (2) % % Russian Fed. 28.3 38.0 36.5 29.1 3.9 EU 29.3 22.0 25.7 12.2 16.8 United States 24.4 23.9 24.7 1.0 3.3 Canada 22.0 21.8 22.2 1.0 1.8 Australia 17.8 16.8 16.8 5.8 0.2 Ukraine 16.0 17.4 16.5 3.0 4.9 Argentina 9.5 13.4 11.6 21.9 13.4 Kazakhstan 6.9 7.3 7.3 5.4 0.0 Turkey 4.3 4.5 4.5 5.8 0.0 Mexico 1.1 1.0 1.0 12.9 0.0 * Exports are based on a common July/June marketing season Top 10 wheat importers* 2014/15 average (1) est. (2) f'cast (3) Change (3) over (1) Change (3) over (2) % % Egypt 11.6 12.0 12.5 7.5 4.2 Indonesia 9.7 12.0 12.0 23.8 0.0 Algeria 8.2 8.0 8.1 0.7 1.3 Brazil 6.7 7.2 7.0 5.1 2.8 Bangladesh 5.0 6.2 6.0 19.8 3.2 Japan 5.7 6.0 5.6 1.4 6.4 Philippines 5.3 5.5 5.5 4.0 0.0 EU 5.7 5.5 5.5 3.5 0.0 China 5.2 5.6 5.4 4.4 3.6 Nigeria 4.8 5.1 5.1 6.8 0.0 *Imports are based on a common July/June marketing season Russia number one exporter for the second consecutive season Wheat markets in Indonesia, Bangladesh and Nigeria show strong potential Wheat prices higher than last year IGC Wheat Price Index CBOT wheat futures for September January 2000=100 210 USD per tonne 205 200 195 190 180 2018 185 175 170 2017 165 160 150 J F M A M J J A S O N D 155 S O N D J F M A 2018 values 2017 values Wheat prices remain above last year, largely on concerns about the deteriorating winter wheat conditions in the US and weather worries over spring planting conditions Large export availabilities (Black Sea and the EU) have so far limited the increase 7
Wheat: CME net-length as % of open interest Jan 2014-Apr 2018 Apr 2017-Apr 2018 percent 60 40 20 0-20 -40-60 2014 2015 2016 2017 2018 Commercial Managed money Swap dealers In April managed money reduced its net position in wheat slightly weather played important role in influencing prices and hence positions in recent months Wheat Outlook Supplies cautiously higher in Production to decline but still above average Utilization to reach a new record, with most of the y/y increase in food consumption; feed use to decline Stocks to reach a new record, with higher inventories in China more than offsetting decreases in the EU and the US Trade to remain close to the high level, supported by strong import demand and adequate export supplies another good year for Russia International prices to remain firm and above last year as supplies in major exporters decline 8
Crop Monitor - Maize (as of late April 2018) Harvests begins in southern hemisphere good conditions in Brazil but not in Argentina Sowing is ongoing in northern hemisphere under generally favourable conditions Maize supply and demand outlook: markets a bit tighter Total use up thanks to a projected 2.8% growth in feed use compensating for slower intake for industrial use World maize market at a glance 2016/17 estim. f'cast Change: over % World Balance Production 1 046.6 1 087.8 1 047.3-3.7 Supply 1 283.7 1 330.6 1 301.5-2.2 Trade 139.8 145.5 143.6-1.3 Total utilization 1 039.5 1 067.2 1 072.4 0.5 Food 128.6 130.7 131.5 0.6 Ending stocks 242.8 254.2 226.9-10.7 World stock-to-use ratio (%) 22.7 23.7 20.2 1100 1000 900 800 700 08/09 10/11 12/13 Production (left axis) Utilization (left axis) 260 220 180 140 100 14/15 16/17 18/19 Stocks (right axis) Production is projected down from 2017 record US down 15.6mt, at 355mt Ukraine up 2.9mt, at 27mt Brazil down 10.7mt, at 88.6mt China up 2.1mt, at 218mt EU down 4mt, at 61mt Argentina down 7.5mt, at 42mt South Africa down 3.4mt, at 13.4mt 9
Maize stocks falling from a record level S/U ratio falls more sharply because the biggest declines in stocks are in nonexporting countries (China) Global maize inventories in to fall by almost 11% or 27mt from their all-time high in. This represents the first decline in five years. 300 200 100 percent 26 20 14 China s stocks to decline for the third consecutive season, to 75mt, down 15mt from. Stocks to decline also in Argentina, Brazil and Mexico. 0 2014/15 Major exporters 2015/16 2016/17 China estim. f cast Rest of the world World stocks-to-use ratio Stocks-to-disappearance ratio of major exporters 8 Leading maize trading counties (July/June) Top 10 maize exporters* Top 10 maize importers* 2014/15 average (1) est. (2) f'cast (3) Change (3) over (1) Change (3) over (2) % % United States 50.9 48.3 48.3 5.1 0.0 Brazil 25.3 32.0 32.0 26.3 0.0 Argentina 22.0 27.2 26.0 18.0 4.2 Ukraine 18.8 18.1 19.0 1.2 4.9 Russian Fed. 4.5 5.0 3.0 32.9 40.0 Paraguay 2.5 2.5 2.5 0.6 0.0 South Africa 1.4 2.3 2.2 56.6 4.3 Canada 1.3 1.4 1.6 22.2 14.3 EU 2.4 1.2 1.5 37.8 25.0 Mexico 1.1 1.0 1.0 7.8 0.0 * Exports are based on a common July/June marketing season 2014/15 average (1) est. (2) f'cast (3) Change (3) over (1) Change (3) over (2) % % Mexico 13.7 16.2 16.2 17.9 0.0 EU 13.0 15.8 15.5 19.1 1.9 Japan 15.0 15.2 15.0 0.1 1.4 Korea Rep.Of 9.9 10.0 10.2 2.2 1.7 Egypt 8.8 10.0 10.0 13.2 0.0 Viet Nam 7.6 8.2 8.3 9.3 1.1 China 8.2 9.1 7.8 4.7 14.3 Iran Isl. Rep.Of 6.7 7.5 7.5 12.6 0.0 Colombia 4.7 4.9 4.9 3.7 0.0 Algeria 4.3 4.5 4.6 6.2 2.2 *Imports are based on a common July/June marketing season Maize shipments from the US (largest world exporter) to remain steady China s maize imports to decline 10
Maize prices higher than last year Maize export price (US No.2 yellow, Gulf) USD per tonne 190 CBOT maize futures for September USD per tonne 160 180 170 2018 156 152 160 150 140 130 J F M A M 2017 J J A S O N D 148 144 140 S O N D J F M A 2018 values 2017 values Source: FAO, Food Outlook November 2017 The US maize prices have risen sharply on brisk import demand Expectations of lower plantings in the US and reduced supplies in Argentina underpin the futures Maize: CME net-length as % of open interest Jan 2014-Apr 2018 Apr 2017-Apr 2018 percent 40 20 0-20 -40-60 Commercial Managed money Swap dealers Tightening supply prospects have pushed up managed money from short to long positions. 11
Maize Outlook Supplies getting tighter in Production to decline from last year s record Utilization to expand fastest for feed Stocks to fall significantly with most of the reduction in China and in South America Trade to contract slightly, mostly on prospects for smaller purchases by China and the EU International prices to stay above last year, on reduced overall supplies in several major exporting countries 12