Ceva Seminar Bangkok€¦ · Market Developments & Outlook Rabobank International While pork is the...
Transcript of Ceva Seminar Bangkok€¦ · Market Developments & Outlook Rabobank International While pork is the...
Outlook on Global Feed Prices and
and Consequences for Livestock
Industry
Jeroen Leffelaar, Global Co-Head Animal Protein
Ceva Seminar Bangkok
March 2013
2 Rabobank International Market Developments & Outlook
I. Drivers of demand for Livestock
II. Supply of Agri Commodities versus Demand
III. Impact of Some ‘Other’ Issues
Presentation Outline
3 Rabobank International Market Developments & Outlook
Poultry is expected to become the number 1 species around 2020
Source: Rabobank, FAO, FAPRI, OECD
Global meat market expected to grow some 40% in
the next 20 years
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
1980 1990 2000 2010 2020 2030
Sheepmeat Poultry Pork Beef
+ 32%
+ 33%
+ 24%
+ 19%
+ 16%
35%
37%
23% 21%
36%
39%
23%
40%
32%
Global meat market 1980-2030
4 Rabobank International Market Developments & Outlook
… and are all in the “sweet spot” where consumer demand for animal protein grows at an accelerating pace – with GDP between $3-5000 per year.
While economic growth in Asia may be slowing, it is at very high levels of absolute growth.
Asia is also a grain deficit region – they will need to import grain, or animal protein
China, India and Indonesia alone represent 40% of world population
Source: Bloomberg, IMF, CIA, 2012
GDP growth is accelerating meat demand
Higher GDP growth Higher protein consumption Higher grain demand
Country 2011 GDP
Growth Rate
2012 Forecast GDP Growth
Rate
2013 Forecast GDP Growth
Rate
Population
China 9.20% 8.00% 8.40% 1,331,460,000
India 7.13% 6.14% 6.30% 1,155,348,000
Indonesia 6.46% 6.00% 6.35% 229,965,000
5 Rabobank International Market Developments & Outlook
China, India and Indonesia consume over 5 bln meals every day
Source: Rabobank, FAO, FAPRI, OECD
70% of global growth will be generated in Asia
Market growth estimate in key meat market 2010- 2020
-5,000
-
5,000
10,000
15,000
20,000
25,000
Poultry Beef Pork
1,000 tonnes
6 Rabobank International Market Developments & Outlook
While pork is the predominant meat in China (over 60% of meat consumption) poultry is growing more rapidly (about 3.5%/year compared to about 2% for pork).
China produces about 85% as much chicken as the US – so if consumption rises toward US per capita levels, the world would need to increase chicken production by 50%
Source: USDA, 2012
Per Capita Chicken Consumption – room for growth in China and India
KG/year
0
10
20
30
40
50
60
Brazil United States Argentina EU-27 Japan China India
7 Rabobank International Market Developments & Outlook
QSR growth in developing markets, particularly in China and India
Key elements affecting poultry markets
QSR penetration in India is currently much lower than in China, but with high growth potential
QSR chains underestimated supply chain challenges. Will they pay for security?
Hard to assemble land, labor costs rising, bio-security big issue
Poultry companies need boots on the ground to understand local dynamics
YUM!®
China and India QSR outlets1
(TH Units)
Source: Company filings, Annual Reports and Investor Presentations 1. 2011 figures represent the latest available data reported 2. McDonald’s figures estimated based on historical performance and guidance from available press releases
4,190
1,400 318 67
9,000
4,150
900
10,000
-
2,000
4,000
6,000
8,000
10,000
12,000
2011 2020F 2011 2020F 2011 2015F 2011 2020F
305 271 484
1
2,000
500
1,000
300
-
500
1,000
1,500
2,000
2,500
YUM!®
2011 2020F 2011 2020F 2011 2020F
8 Rabobank International Market Developments & Outlook
A growing white collar working class, increasing disposable income, higher protein consumption and increasing number of single person households in urban areas are the main drivers for eating away from home
China observed an explosive growth of QSRs in the last decade. India is just developing and may experience strong growth in the next decade
Indian QSR Outlets
Source: Industry estimates, 2012
Units Units
Bigger potential, but from smaller base in India
Source: Industry estimates, 2012
0
100
200
300
400
500
600
700
800
900
2012 2015 (planned)
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
China India
India vs. China QSR Outlets
9 Rabobank International Market Developments & Outlook
Supply of Agri Commodities versus Demand
10 Rabobank International Market Developments & Outlook
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 animal life-cycles, this process will take time.
The shorter life cycle for poultry, in addition to feed conversion advantages, provides a relative advantage to other proteins.
Especially that from developing markets
Sources: World Bank for GDP data and forecast, USDA for meat production, Rabobank for meat production forecast
Meat Production < GDP = Higher Meat Prices
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
2006 2007 2008 2009 2010 2011 2012 (f)
GDP Total meat Beef Pork Broiler
11 Rabobank International Market Developments & Outlook
Income growth is fastest in countries with large populations, this is driving demand growth.
The disconnect is that demand growth for meat protein is coming mostly from grain deficit regions – will the demand be served by imports of grain or animal protein?
Which are mostly in grain deficit regions
Source: USDA, 2011
Poultry Consumption Developing Markets Developed Markets
Strong demand for poultry from developing markets
Source: USDA, 2011
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
Argentina Brazil
China India
Iran Mexico
Russia South Africa
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
United States EU-27 Japan
12 Rabobank International Market Developments & Outlook
Production growth lags the strong rise in consumption
Agri commodities: the fundamentals are changing for the worse
Agricultural land (1,000 ha) Global population (in millions)
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
Total population Rural population
Urban population
0.50
0.75
1.00
1.25
1.50
4,200
4,300
4,400
4,500
4,600
4,700
4,800
4,900
5,000
1960 1970 1980 1990 2000 2007
Agricultural land area
Agricultural land area per capita
Source: FAO Stat Source: FAO Stat, Rabobank
For many decades productivity gains outpaced demand growth. But things have changed
Now due to GDP growth in the developing world, demand is accelerating as well as the impact of biofuels
Unfortunately, productivity from yield improvement is decelerating
The world has changed from one of structural surplus to structural deficits
13 Rabobank International Market Developments & Outlook
US corn used for ethanol has increased by roughly 100MMT 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 satisfy biodiesel demand.
US Corn Used For Ethanol as a % of Global Grain Production
Source: USDA, 2012
Corn for ethanol/US has been 1/3rd of global grain demand since 2005
0%
1%
2%
3%
4%
5%
6%
7%
14 Rabobank International Market Developments & Outlook
Incremental corn production is shifting North and West to land that gets less rain and has a shorter growing season.
In addition, more corn is following corn, disrupting natural rotation. This reduces yield per acre by at least 15 bushels per acre, or near 10%.
Also, weeds and insects are becoming increasingly resistant to genetically modified traits, increasing costs and reducing yields.
U.S. Corn - Geographic Distribution of Corn Acres
Source: USDA, 2012
US corn planting is shifting to less fertile land
0%
2%
4%
6%
8%
10%
12%
14%
16%
44%
45%
46%
47%
48%
49%
50%
51%
% of Harvested Acres In Plains States
% of Harvested Acres In Corn Belt States
High Yielding States Plains States
15 Rabobank International Market Developments & Outlook
Production setbacks in recent years have pushed global inventory levels to historic lows, increasing the reliance on a return to favorable growing conditions
Such dependence leaves prices exposed to short term volatility
Longer term volatility is also on the rise as the world’s incremental demand growth has to be met by less reliable production regions
Global Grains & Oilseeds Production vs. Price
Source: Cargill
Volatility is rising
(Production of grain, rice, major oilseeds, PO, FSHM vs. corn/soybean/wheat futures price index)
16 Rabobank International Market Developments & Outlook
Expectations for strong US corn price declines should be tempered as we expect China to continue its ‘buy the dip’ procurement as demonstrated in 2011 and 2012
Despite slowing economic growth, we expect China’s domestic corn production unable to meet growing demand
North Central Illinois Corn
Source: Bloomberg, 2012
The China “Put”
US Dollars per bushel
5.00
5.50
6.00
6.50
7.00
7.50
8.00
Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12
China buys China buys
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Structurally, demand is growing faster than supply
The world has shifted from an era of structural surplus to structural shortage
Since the millenium production exceeded demand in only five of the thirteen years
World Grain Stocks to Use Ratio
Source: USDA, 2012
Stocks dwindling as supply fails to keep up with demand
0%
5%
10%
15%
20%
25%
30%
35%
40%
60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
World World - China
18.5%
14.7%
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What is the market telling us?
Brazil will grow more, but...
China will have to pay more
Inherent limitations on planted area expansion
Source: Conab, Bloomberg
Higher prices are not stimulating supply response
Brazil soybean and corn planted area, million hectares
12.9 13.8 15.2 14.7
23.5 24.2
25.0 27.3
36.4
38.0 40.2
42.1
0
5
10
15
20
25
30
35
40
45
09/10 10/11 11/12 12/13f
Corn Soybeans
October Mato Grosso prices:
45.21 BRL/60kg 20.81 BRL/60kg
42.07 BRL/60kg 24.13 BRL/60kg
71.25 BRL/60kg 25.09 BRL/60kg
Soybeans = Corn =
19 Rabobank International Market Developments & Outlook
This is the key fundamental contributor to the increase in crop price volatility
Planted area not rising much in FSU either. Planted area to Russia, Ukraine, Kazakhstan peaked at 99 M hectares, troughed at 66, but has only recovered to 72
… but due to unreliable weather, production is volatile
Source: USDA, 2012
Russia/Ukraine has become THE incremental grain producer
Black Sea share of world exports
0%
10%
20%
30%
40%
50%
60%
Barley exports Wheat exports
20 Rabobank International Market Developments & Outlook
What about the “other” issues
21 Rabobank International Market Developments & Outlook
GMO crops main impact has been to reduce pesticide use, not boost yields – though reduced insect damage helps
Investment in genetic productivity fell as the world was managing surpluses in the 1980s and 1990s
New land coming into production is less fertile.
Corn on corn.
Nature finds a way: weeds and insects are evolving faster than expected
This is the big change, productivity now no longer is increasing faster than demand
While most yield improvements are decelerating
Source: USDA Source: USDA
Source: USDA Source: USDA
World corn yield % change, 5 yr moving avg World wheat yield % change, 5 yr moving avg
World soybean yield % change, 5 yr moving avg World rice yield % change, 5 yr moving avg
Demand is accelerating while productivity growth is in decline
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3%
4%
5%
6%
7%1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
0%
1%
1%
2%
2%
3%
3%
4%
4%
5%
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
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It’s not just about feed costs and conversions anymore
Source: Bloomberg, 2012
Big swings in currency affect competitiveness
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13
Euro/USD BRL/USD RUB/USD
23 Rabobank International Market Developments & Outlook
… and to price volatility
Source: Bloomberg, 2012
An increase of managed money adds to prices…
Managed money net long in 1,000 contracts
200
250
300
350
400
450
500
550
600
0
200
400
600
800
1,000
1,200
1,400
Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12
Managed money net long (LHS) S&P GSCI ag index spot (RHS)
24 Rabobank International Market Developments & Outlook
Animal protein production is economically disadvantaged in China
China has been competitive in labor intensive industries. Ag is land intensive. China is land disadvantaged.
Issues:
Safety and security of supply chain
Soy deficit, emerging corn deficit
Cold chain
Land availability
Labor costs and availability rising rapidly
Food safety
Protein production in China is very costly
Source: Bloomberg, Rabobank, 2012
Price of corn: US vs China
USD/bushel
0.00
2.00
4.00
6.00
8.00
10.00
12.00
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
N. Central IL Corn Dalian spot corn
25 Rabobank International Market Developments & Outlook
The US protein market has matured, like Europe
Animal protein companies are increasingly relying on exports for carcass valuation
The good news is that the US is a grain surplus country and a low cost animal protein producer
From a cost point of view China would be better off by importing meat instead of corn. This doesn’t match China’s political ambitions
US per Capita Annual Meat Consumption
Source: USDA, 2012
Demand matured in the US and other developed markets – exports increasingly important
Lbs cwe for pork and beef, lbs rtc for chicken
98 96 98 94 95 94 95 94 90 88 86 82 79 76
66 65 67 67 66 65 64 66 64 65 61 59 59 59
90 89 94 95 98 100 101 99
97 93 96 98
93 91
253 250 258
256 260 259 260 259
252 245 243
239 231
225
0
50
100
150
200
250
300
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
Beef Pork Broiler
26 Rabobank International Market Developments & Outlook
Key takeaways
The outlook for global poultry industry is somewhat improving though fragile and
dependent on risks related to feed costs and supply discipline. Pricing power of
poultry should strengthen thanks to high prices for competing meats (pork & beef)
Like previous years, the outlook for the agri commodity complex is clouded. There
is no material decline in demand, current low inventory levels leave prices exposed
to high volatility and the risk of further production issues. Prices are highly
sensitive to weather developments, government intervention and macro
uncertainty
Since the millenium, the production of grains and oilseeds outpaced demand only
five times reducing global stock levels to the absolute minimum. To rebuild global
inventories we need multi-season surpluses and strong production in regions as
South America and Black Sea Region
We expect a some decline in corn, wheat and soybean prices in 2H 2013 on the
back of record production. Adverse weather conditions could up volatility and
readjust this forecast