Post on 20-Apr-2018
Some fundamentals
•Keynes: “Better to be roughly right than precisely wrong”
•Add up the whole picture…and watch what drives variables that matter
•Net trade, Powder stocks drive values
•No magical “equilibrium”
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Projected Commodity values
Our approach
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Import demand growth?
Historical balance
Milk growth
Projected trade balance
Market tension
Product mix
Domestic use
Export availability
Trade dataProduction data &
balance sheetsHistorical
Projected
Market tension
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Market tension index (MTI) was set at 100 on 1 July 2012
China’s bubble deflating
EU slowed (avoid fines)
Russian embargo
EU output sped up
EU & NZ slowed
How did we get here?
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Domestic cheese markets grew
2.7% p.a.
Smaller marketsChina (1.9)Russia (2.4)
Balance went into stocks!!
What happened in 2016?
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Not much!
•Mostly in balance
• Late false flurry
•More SMP into sheds
•“Other” helped
Where from here?
What HASN’T changed
•Market is highly sensitive
•Short term change?–Weather
–Buyer sentiment
–Gov’t policy
•Commodity-exposed players are fragile–NZ, Aust, Argentina
• Long-term demand is sound … but conditional
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What HAS changed
•Key markets are smaller
•EU unshackled
•Oil is cheap
•Global demand is more cautious
Hot items
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…the strength of impact* .. and their likely timing (months)
now 6-12 mths 18mths 24mths ongoing
How fast will EU’s milk recover?
The use of intervention stocks?
Expanding US milk supply
How will NZ milk rebound?
Will China’s imports gap grow?
Is an El Niño on the way?
Can the oil market recover?
Will low prices spur demand?
Can fat markets stay hot?
EU: bigger + rebounding
Back in growth
•Settled at new norm?–Steady milk prices
–Good farm margins
• 2017 increase - 0-0.5%
•Cheese: key to stability
•But…more intervention–Where does it end up?
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NZ: weather + confidence
Cautious recovery
•Weather drives the outlook
• Improved confidence ~$6/kgms–Balance sheets still damaged
–Investor anxiety remains?
•El Nino back on the radar
•We expect 3% growth PY2018
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US outlook
The juggernaut rolls on!
•Growth steadily improving–Margins supportive
–Exceeding plant capacities
• Increasing trade influence–Cheese, SMP
–US$ direction?
•Mexican risk?
•Cheese market still robust
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China
Good and bad
•Consumer spending weak
•Weak growth in powders
• Local supply fragile
•Strong for cheese (QSR), IMF (O/S brands)
•Milk normalising
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Outlook: Highlights
Big uncertainties remain
•EU powder stocks– build & release
•EU farm resilience H2-2017
•Oceania weather
•Conflict + oil recovery?
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Outlook: Long-term?
•Demand growth is faster–In theory!
•Ongoing value growth (at 2-3%)
•Supply constraints?–EU (volatility, community)
–NZ (land, environment, systems)
•Supply gap = 7bn litres
•Domestic demand will remain crucial
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Thank you
steve@freshagenda.com.au
+613 84140904
www.freshagenda.com.au
@freshagenda2013