Agricultural trade outlook

32
Agricultural trade outlook Huw McKay Senior international economist November 2007 DISCLAIMER CropLife Australia’s 2007 Perspective Conference aimed to provide general information on issues relevant to the agricultural chemical industry. CropLife Australia took all care to ensure that the views conveyed during the course of the conference were accurate and up to date. However, CropLife Australia makes no representations, warranties or assurances (express or implied) as to the accuracy, currency or completeness of such information. CropLife Australia shall not be liable for any damage or injury that may arise from the use or reliance upon information provided at the Conference. We would encourage you to make your own enquiries and take independent advice tailored to your specific circumstances prior to making any decisions.

Transcript of Agricultural trade outlook

Page 1: Agricultural trade outlook

Agricultural trade outlookHuw McKaySenior international economist

November 2007

DISCLAIMERCropLife Australia’s 2007 Perspective Conference aimed to provide general information on issues relevant to the agricultural chemical industry. CropLife Australia took all care to ensure that the views conveyed during the course of the conference were accurate and up to date. However, CropLife Australia makes no representations, warranties or assurances (express or implied) as to the accuracy, currency or completeness of such information. CropLife Australia shall not be liable for any damage or injury that may arise from the use or reliance upon information provided at the Conference. We would encourage you to make your own enquiries and take independent advice tailored to your specific circumstances prior to making any decisions.

Page 2: Agricultural trade outlook

The agenda

• World growth outlook: emerging world will be resilient

• Macro fundamentals: agriculture demand and supply• China: net opportunity from diet mega-trends• Why FTAs might actually achieve something• Rural commodity prices and the Australian dollar

Page 3: Agricultural trade outlook

Farm commodity prices hitting highs

60

80

100

120

140

160

180

Sep-84 Sep-88 Sep-92 Sep-96 Sep-00 Sep-04

index

60

80

100

120

140

160

180

index

AUDUSD

Sources: Bloomberg, ABS, USDA, Westpac Economics

Page 4: Agricultural trade outlook

World growth far more upbeat

0

1

2

3

4

5

6

1982 1986 1990 1994 1998 2002 2006

%

0

1

2

3

4

5

6

forecasts in early 2006

actual

Sources: Westpac EconomicsWestpac forecasts

Page 5: Agricultural trade outlook

The IMF world growth forecast: July 2007

4.2

4.4

4.6

4.8

5.0

5.2

5.4

Apr 2007forecast

US China Otheradvanced

Otheremerging

Jul 2007forecast

ppt

4.9%

= 5.2%

– 0.04+0.19

Sources: IMF, Westpac EconomicsCalendar year 2007

+0.09

+0.06

Page 6: Agricultural trade outlook

The IMF world growth forecast: Oct 2007

4.2

4.4

4.6

4.8

5.0

5.2

5.4

Jul 2007forecast

US China Otheradvanced

Otheremerging

Oct 2007forecast

ppt

5.2% = 4.75%

– 0.18–0.08

Sources: IMF, Westpac Economics.Calendar year 2008.

– 0.14 – 0.05

Page 7: Agricultural trade outlook

China: de-coupling from what?

6

8

10

12

14

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

%yr

0

1

2

3

4

5

6%yr

China (lhs)OECD (rhs)US (rhs)

Sources: OECD, CEIC

forecast

Page 8: Agricultural trade outlook

Caterpillar: year to 2007Q3 sales revenues

-12

43

23

35

-20

-10

0

10

20

30

40

50

North America EAME Latin America Asia-Pacific

%

Sources: Westpac, Caterpillar

Page 9: Agricultural trade outlook

The world scaled by land area

Source: Worldmapper

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The world scaled by biocapacity (soil fertility)

Source: Worldmapper

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The world scaled by water resources

Source: Worldmapper

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The world scaled by water use

Source: Worldmapper

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The world scaled by meat production

Source: Worldmapper

Page 14: Agricultural trade outlook

Cereal exports

Source: Worldmapper

Page 15: Agricultural trade outlook

Urbanisation in Asia

0

20

40

60

80

100

China India Indonesia0

100

200

300

400

5002010 2015 20202025 2030

mns of internal migrants*

Sources: Westpac, UN

mns of internal migrants^

*five years ended

t̂otal 2000 to 2030

420

320

95

Page 16: Agricultural trade outlook

China’s overall diet is cereal & veg heavy

0

50

100

150

200

250

300

350

China Australia USA

kg per capita

CerealsStarchy rootsFruitVegetablesMeatDairy

Sources: ABARE, Westpac Economics

Page 17: Agricultural trade outlook

Chinese urban diets more balanced

0

50

100

150

200

250

300

350

Rural Urban

kg per capita

CerealsStarchy rootsFruitVegetablesMeatDairy

Sources: ABARE, Westpac Economics

Page 18: Agricultural trade outlook

Basic resources: deep fundamentals

Global normBrazilChinaIndiaIndonesiaJapanRussiaUnited States

arable land per capita

Source: Westpac, UN, CIA, OECD, World Bank. Indices: global norm = 100.

water resources per capita

rainfallper capita

Page 19: Agricultural trade outlook

China is labour rich but land poor

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

Argenti

naAus

tralia

Canad

a

Brazil

EU

Russia

China

India

USA

Africa

billion

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4billion

population

arable land (ha)

Sources: USDA, Westpac Economics

China is also facing deteriorating land and water quality and availability.

Page 20: Agricultural trade outlook

Chinese trade balances by sector

-425

-325

-225

-125

-25

75

175

275

Sep-94 Sep-96 Sep-98 Sep-00 Sep-02 Sep-04 Sep-06

USDmn

-425

-325

-225

-125

-25

75

175

275USDmn

cerealsanimal feedstuffsmeat

Sources: CEIC, Westpac Economics

exports

imports

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FTAs: three balls in the air

• We have a unique opportunity to play Japan against China, China against India, India against Japan.

• Reciprocal interests clearly evident.• Private ownership of resources a stumbling block.• Asian SWFs might go the side route.• Japanese political change not favourable.• Indian democracy too fragmented.• Chinese leadership focussed and pragmatic.

Page 22: Agricultural trade outlook

Farm commodity prices hitting highs

60

80

100

120

140

160

180

Sep-84 Sep-88 Sep-92 Sep-96 Sep-00 Sep-04

index

60

80

100

120

140

160

180

index

AUDUSD

Sources: Bloomberg, ABS, USDA, Westpac Economics

Page 23: Agricultural trade outlook

Long run CBOT wheat prices

150

250

350

450

550

650

750

850

Jun-83 Jun-86 Jun-89 Jun-92 Jun-95 Jun-98 Jun-01 Jun-04 Jun-07

US¢/bu

150

250

350

450

550

650

750

850US¢/bu

CBOT wheat futures

Sources: Factset, Bloomberg Westpac Economics,

May 96

Oct 02Apr 04

Dec 06

Feb 92

Feb 94

Sep 94 Apr 97

Oct 97 Dec 89

Feb 89

Dec 85 Aug 84

Aug 83

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The Australian dollar over the long run

0.5

1.0

1.5

2.0

2.5

1923 1933 1943 1953 1963 1973 1983 1993 2003

USD

50

150

250

350index

AUD/USD (lhs)Westpac metals index, real (rhs)

Sources: RBA, Westpac Economics

Page 25: Agricultural trade outlook

Australian dollar: actual versus fitted

0.40

0.50

0.60

0.70

0.80

0.90

1.00

1.10

Jan-91 Jan-95 Jan-99 Jan-03 Jan-07

USD

0.40

0.50

0.60

0.70

0.80

0.90

1.00

1.10USD

fair value band (Oct point estimate 99¢)

AUD/USD actual

Source: Westpac Economics

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The Australian dollar: USD trend is crucial

70

80

90

100

110

120

130

Jan-93 Jan-97 Jan-01 Jan-05

USDindex

0.45

0.55

0.65

0.75

0.85

0.95USD majors index (lhs)AUD/USD (rhs)

Source: RBA

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Prices will hold a good level

%yr %yr %yr %yrannual averages 2005 2006 2007 2008 2005 2006 2007 2008all commodities 150 188 211 235 33.7 25.7 12.3 11.0crude oil (USD/bbl) NYMEX 57 67 70 81 39.6 17.6 4.0 14.9gold (USD/oz) 448 610 691 770 9.0 36.0 13.4 11.4rural commodities 72 85 109 108 -3.6 18.4 28.0 -0.3wool AUD¢/kg 766 814 956 866 -9.3 6.3 17.4 -9.4wheat USD¢/bu 330 415 616 613 -6.9 25.9 48.5 -0.6sugar USD¢/lb 10 15 10 10 32.4 47.0 -32.1 -0.3cotton USD¢/lb 52 54 59 63 -7.7 4.7 9.0 5.8

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Disclaimer

Westpac Institutional Bank is a division of Westpac Banking Corporation ABN 33 007 457 141. Information current as at date above. This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. Westpac’s financial services guide can be obtained by calling 132 032, visiting www.westpac.com.auor visiting any Westpac Branch. The information may contain material provided directly by third parties, and while such material is published with permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change without notice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac Banking Corporation is regulated for the conduct of investment business in the United Kingdom by the Financial Services Authority. If you wish to be removed from our e-mail, fax or mailing list please send an e-mail to [email protected] or fax us on +61 2 8254 6934 or write to Westpac Economics at Level 2, 275 Kent Street, Sydney NSW 2000. Please state your full name, telephone/fax number and company details on all correspondence. © 2007 Westpac Banking Corporation. Past performance is not a reliable indicator of future performance. The forecasts given in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts.

Page 29: Agricultural trade outlook

US corn used for ethanol production

0

20

40

60

80

1995-96 1998-99 2001-02 2004-05 2007-08

Mt

0

20

40

60

80Mt

Mt used

Sources: ABARE, Westpac Economics

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Estimated cost of fuel production (2005)

equiv. crude pricefeedstock US$/bbl*

USA corn 42-56Canada corn 53EU sugar beet 105Brazil sugar cane 16-38China corn & wheat 65-97India sugar cane 41-37Source: IEA, ABARE*The estimate takes into account the conversion of crude oil into petroleum fuels, refining costs and the different energy content between biofuels and petroleum fuels.

Page 31: Agricultural trade outlook

Ethanol has lost its spread to gasoline

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Sep-05 Jan-06 May-06 Oct-06 Feb-07 Jul-07

US$/gal

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5US$/gal

CBOT ethanol

NYMEX gasoline

Source: Factset, Westpac Economics

Page 32: Agricultural trade outlook

Coarse grains face upside demand

70

90

110

130

150

170

190

210

1980-81 1986-87 1992-93 1998-99 2004-05 2010-11

US$/tonne

0

5

10

15

20

25

30

35

40% consumpt.

stocks (rhs)stocks fcs (rhs)world price (lhs)forecasts (lhs)

ABARE forecasts

Sources: ABARE, Westpac

Economics