Food and Beverage · • Through three rate cuts, the Fed has shown that it will do what i t ......

August 2012

Industry Research Update: Food and Agribusiness 1

November 2019

© 2019 Wells Fargo Bank, N.A. All rights reserved. Member FDIC. For public use.1

Key Demand Developments

• Recessionary fears have faded considerably, as the Federal Reservecompleted its third cut to the federal funds rate and the yield curveconcerns are alleviated.

• Through three rate cuts, the Fed has shown that it will do what ittakes to offset headwinds from slower global economic growth andcontinued uncertainty with U.S. trade policy.

• Wells Fargo economists are maintaining caution in forecasting modestgrowth in Q4, expecting GDP to rise at just 1.2% annual rate.Declines in business investment and inventories remain a concern,but improving homebuilding numbers are gaining momentum. RealGDP is expected to track at 2.3% for the calendar year.

• On the global front, recent data from key international economiesshow additional softening. Trade dispute issues are working throughthe global supply chains. Central banks are restarting quantitativeeasing, and cutting rates to encourage economic growth. The Bankof Canada hinted at rate cuts, resulting in Wells Fargo expecting a 25bp cut in December. The Brexit process continues to unfold, andeven with a mid-December election, is likely to result in less-than-direct path forward.

• Look for monthly updates on Wells Fargo Economics:https://www.wellsfargo.com/com/insights/economics/monthly-outlook

Consumer and Producer Price Indices

The overall CPI for U.S. Food and Beverage is trending positively for the ninth straight quarter with a 2.0% Y/Y increase for the most recent data release in October 19. CPI for Food Away from Home increased 3.3% Y/Y, and CPI Food at Home increased 1.1% Y/Y, for October. Corroborated by the Nielsen data, U.S. consumers continue to pay more for food and beverage both at-home and outside the home.

Industry Update

Food and Agribusiness

Price and Food Inflation Developments

Food Retail Sales• According to Nielsen, quarterly U.S. Food Retail sales growth in dollar volume continues to be positive for the 6th quarter in a row. For

Q3, sales grew at 1.8% Y/Y vs. 2.0% one year ago. Sales growth has been steady since Q4 2017, when at 0.0%, growth transitionedfrom negative to positive.

• Interestingly, unit sales continue to decline 2.7% Y/Y. Unit growth has been in negative territory since Q4 2015. Price growthcontinues to provide support for overall sales growth, by posting 4.5% Y/Y in Q4 2019, the highest mark in the past 3 years of data.

• Next quarterly data will be reported for the January edition of Farm to Fork.

-8%

-6%

-4%

-2%

0%

2%

4%

6%

Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19

Y/Y

Cha

nge

(%)

CPI Food Away From Home CPI Food At Home PPI All Food

Source: U.S. Bureau of Labor Statistics

https://www.wellsfargo.com/com/insights/economics/monthly-outlook

August 2012

2

© 2019 Wells Fargo Bank, N.A. All rights reserved. Member FDIC. For public use.

Grocery Department Trends: Consumer preferences continue to drive focus on fresh and convenient items, as evidenced by fresh produce and deli volume trends, despite price growth.

Dry Grocery Frozen Foods

Bakery

Deli

• Dry Grocery average unit price increased 2.8% Y/Y, scaling back from over 3.0% Y/Y the previous two quarters, while volume decreased 0.3% Y/Y.

• Dairy volume decreased 1.2% Y/Y, against price increases of 1.2% Y/Y.

• Fresh Produce volume jumped back from Q1’s 6 year low point of 1.5% Y/Y and continues to lead all categories with 4.4% Y/Y, while prices decreased -0.1 % Y/Y.

Dairy

Fresh Produce

• Frozen Food average unit price remains steady at 1.7% Y/Y, while volume increased 0.6 Y/Y%.

• Deli volume continues to rebound with increases of 3.8% Y/Y, even with price increases of 2.3% Y/Y.

• Bakery volume rebounded to 2.8% Y/Y in Q3 after posting -2.3% Y/Y in Q2. Bakery prices are steady with 0.7% Y/Y growth for Q3 2019.

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

4Q15 2Q16 4Q16 2Q17 4Q17 2Q18 4Q18 2Q19

Volume Price

Source: Nielsen AOC+C

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4Q15 2Q16 4Q16 2Q17 4Q17 2Q18 4Q18 2Q19

Volume Price


-4%

-2%

0%

2%

4%

6%

8%

4Q15 2Q16 4Q16 2Q17 4Q17 2Q18 4Q18 2Q19

Volume Price


-1%

0%

1%

2%

3%

4%

5%

6%

7%

4Q15 2Q16 4Q16 2Q17 4Q17 2Q18 4Q18 2Q19

Volume Price


-3%

-2%

-1%

0%

1%

2%

3%

4Q15 2Q16 4Q16 2Q17 4Q17 2Q18 4Q18 2Q19

Volume Price


-12%

-8%

-4%

0%

4%

8%

12%

16%

4Q15 2Q16 4Q16 2Q17 4Q17 2Q18 4Q18 2Q19

Volume Price



August 2012

3


Monthly avg. corn, wheat, soybeans in $/bu; broilers, shrimp in $/lb...; cattle, hogs, milk in $/cwt; salmon in $/kg; gas in $/Mct; oil in $/gal; electricity in $/kWh; labor in $/h

Sources: CME, USDA, Urner Barry, EIA, BLS

• Economics: Wells Fargo Securities forecast for Q4-2019 is anticipation of a relatively weak quarter, with growth of just 1.2%. Wells Fargo Securities still looks for one more 25 bps cut by the Fed, most likely in January 2020. Additionally, the forecast continues to assume the December 15 tariffs on $156B of U.S. imports from China go into effect as scheduled.

• Grains: USDA’s corn and wheat production estimates lowered in November. Projected ending stocks reduced for corn and wheat, raised for soybeans. Corn and soybean prices rose in October on lower-than-expected Sep. 1 stocks estimates and wintry weather. Wheat futures were supported by higher corn prices and S. Hemisphere dryness.

• Chicken: China lifts ban on U.S. poultry imports. Global chicken production in 2020 is forecasted by USDA FAS to grow 4%, surpassing global pork production. Sluggish domestic demand and large supplies weigh on chicken product prices in October.

• Beef: Tyson officials announce reopening of Holcomb processing plant in early December. Global beef production estimated by USDA to grow 1% in 2020. Live cattle futures are in a strong upward price trend on lower impacts from the Tyson plant fire and robust demand.

• Pork: Global pork production in 2020 is forecasted down 10% by the USDA FAS due to the impacts of African Swine Fever (ASF). U.S. pork export volume in September was 8% higher Y/Y. Asian countries, such China and Hong Kong, remain strong drivers of growth.

• Seafood: Alaska pollock harvest in 2020 for combined U.S. and Russia, is projected at 3.44 million MT, down slightly from 2019 harvest levels. The 2020 Pacific Cod quota for the U.S. and Canada is expected to decline 14% Y/Y. Atlantic cod quota for 2020 is projected at 1.13 million MT, near previous year levels. The 2019 Alaska salmon harvest finished at 203.6 million fish, nearly double the 2018 harvest.

• Dairy: Cheddar Cheese block prices averaged $2.07/lb. in October, the highest price since 2014. The U.S. placed a new, additional 25% tariff on many dairy products imported from the EU beginning in October. U.S. dairy export volume in September was up 2% Y/Y on strong exports of nonfat dry milk (NDM) and skim milk powder (SMP).

• Specialty and Non-Grain Crops: Coffee futures continue the low-price trends; however, they have rebounded to break-even prices for South American farmers, near $1.08 per pound. In the U.S. coffee continues to grow in the away-from-home market segment.

• Nuts: Shipments for the first three months of the season now tally 609.4 MM pounds, and have improved 6.9% or nearly 40 MM pounds ahead of last year. Good demand and confident sellers have made for a firm market.

• Wine: October brought a wrap to the California wine grape harvest. While most varietals were picked, a few areas had extended their harvest into November. All-in-all, most growers are reporting that the crop was a little heavy.

• Fruit Crops: With U.S. growing seasons wrapping up for fresh fruit, the import season has started with fruit coming from Central and South America. Ocean transportation costs are rising as the United Nations International Maritime Organization instituted a new limit on Sulphur content in fuel used for international shipping.

• Vegetable Crops: In California, fall vegetables that include lettuce, squash, leeks, eggplant, and various peppers continued their harvest. Olives are also wrapping up harvest with some pruning taking place across growing regions. Processing tomatoes have finished their season with paste exports shrinking 5% in volume and 24% in value. Pricing in both the frozen and canned vegetable sectors was stable.

• Forest Products: Lumber prices eased in October on soft demand. Panel prices were essentially unchanged as output cuts offset slow sales. Oct. housing starts rose 9% Y/Y.

• Crop Inputs: Ammonia prices increased in October as producers raised offers. Slow demand pressured urea and potash. DAP was unchanged, but likely to be lower in Nov. despite output cuts. Fuel prices were down 8-9% Y/Y.

• Energy and Labor: Brent crude oil spot prices averaged $63 per barrel (b) in September, up $4/b from August and down $16/b from the September 2018 average. Brent spot prices $7/b after attacks on major Saudi Arabian oil infrastructure disrupted the country’s crude oil production.

Price vs. Volume Grain Protein Energy LaborMixed Mixed Mixed Mixed Inflationary

Food Company Margin Heat Map Y/Y

Commodity Price* Y/Y M/MCorn $3.90 +5.8% +7.9% HRW Wheat $4.18 -18.6% +6.4% Soybeans $9.25 +7.7% +5.7% Broilers $0.77 -7.5% -4.9%Cattle $1.10 -3.0% +10.0% Hogs $0.65 +5.8% +1.8% Class III Milk $18.72 +20.5% +2.2% Shrimp $4.07 +0.3% -1.1%Salmon $4.65 -17.6% -8.6%Natural Gas $8.41 -3.2% -0.5%Electricity $11.03 +0.5% +1.3% Heating Oil $2.89 -11.7% +0.8% Restaurant Labor $14.65 +4.3% +0.2% Supermarket Labor $14.00 +2.4% +0.9% Food Labor $18.28 +3.3% +0.1%

Key Commodity Heat Map

*All prices for October except natural gas (August), electricity (July), heating oil (September) and supermarket labor (September)

August 2012

4


Economics: Wells Fargo Securities forecast for Q4-2019 is anticipation of a relatively weak quarter, with growth of just 1.2%. Wells Fargo Securities still looks for one more 25 bps cut by the Fed, most likely in January 2020.

Miles Driven (Billion)

Trade Weighted Dollar vs. Ag Index

Net Exports as % of Production

Net Trade Balance

• Voluntary quits as a percent of employment for September was 2.4%, and remained flat M/M and Y/Y.

• Weekly average earnings for October were up 2.7% Y/Y on a nominal basis; when deflated by the food and beverage CPI, the average wage of $827/week was up 1.0% Y/Y because of continued labor shortages.

• Miles driven of 288 billion for most current data in August were up 0.7% Y/Y.

• The trade-weighted dollar index of 118.9 for September was up 0.2%, while the bulk commodity dollar index declined 0.3%.

• Exports are an important component of protein demand, especially for pork and chicken. USDA forecasts U.S. pork exports up 12% Y/Y in 2019, with next exports projected to represent 20% of production vs. 18% in 2018. Chicken exports are forecast to be nearly unchanged Y/Y, reflecting 16% of production. Beef exports are forecast down 1% Y/Y in 2019, and are expected to be mostly offset by imports.

Voluntary Quits as % of Employment

Weekly Earnings Rates

0.8%

1.2%

1.6%

2.0%

2.4%

2.8%

3.2%

Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Jan-19

Sources: BLS, Wells Fargo

$700

$750

$800

$850

$900

$950

$1,000Weekly Wages Food Inflation Adjusted

Sources: BLS, Wells Fargo

195

210

225

240

255

270

285

300

Source: Federal Highway Administration

95

100

105

110

115

120

125

Ag Bulk Commodities Trade Weighted

Jan 2014 = 100

Sources: USDA-ERS, Federal Reserve, Wells Fargo

9.1 13.8 16.1

22.0 22.7 21.6 16.3 18.4 17.4

5.6 6.7

3.9 5.2

7.1 0.7

(1.1) (4.5)

(17.9)(21.6)(26.0)(22.8)(25.4)

-$28

-$21

-$14

-$7

$0

$7

$14

$21

$28

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019Jan-Sep

China and Hong Kong

Rest of World

Sources: USDA-FAS, Wells Fargo

-6%

-3%

0%

3%

6%

9%

12%

15%

18%

21%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F

Pork Chicken Beef

Sources: USDA-FAS, Wells Fargo

Sources: BLS, Wells FargoFederal Highway Administration

Sources: USDA-ERS, Federal Reserve, Wells FargoUSDA-FAS, Wells Fargo

August 2012

5


Grain Prices: Corn and soybean prices rose in October on lower-than-expected Sep. 1 stocks estimates and wintry weather. Wheat futures were supported by higher corn prices and dryness in the S. Hemisphere.

• Nearby corn futures averaged $3.90 per bushel in October. This was up 29 from September and up 21 cents Y/Y.

• Prices rose in the first half of October after USDA’s Sep. 1 stocks estimate was well below expectations, and cold temperatures and snow delayed harvest and hurt yield potential. Prices moderated in the second half of October and early November on weak exports and better harvest progress.

• USDA projects world corn production down 2% in 2019/20 on decline in the U.S. Total world stocks are projected down 8% to a 5-year low, with stocks outside of China forecast down 7%.

• Nearby Kansas City wheat futures averaged $4.18 per bushel in October. This was up 25 cents from September, but was down 96 cents Y/Y.

• Wheat prices were supported by gains in corn futures, dry conditions for the wheat crops in Australia and Argentina, and solid world demand.

• USDA estimates the world wheat crop up 5% at a record level in 2019/20 on larger production for most major exporters, especially the EU and Ukraine. Global stocks are forecast up 4% Y/Y and also record large, while non-China stocks are projected up 3%.

Wheat

Corn

Soybeans• Nearby soybean futures averaged

$9.25 in October, up 50 cents M/M and the highest since June 2018 when China announced its tariff increase.

• Prices moved higher in the first half of October on USDA’s lower-than-expected Sep. 1 stocks estimate, dry weather in Brazil, and news that China granted tariff exemptions to several soybean importers. Prices later eased as China bought less than expected.

• USDA projects the world soybean crop down 6% in 2019/20, mostly due to a 20% drop in the U.S. World stocks are forecast down 13% Y/Y and the lowest in 4 years, while stocks outside of China are projected to decline 16%.

$3.30

$3.50

$3.70

$3.90

$4.10

$4.30

$4.50

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2017 2018 2019 Futures

Source: CME

$/bu

shel

$3.90

$4.20

$4.50

$4.80

$5.10

$5.40

$5.70


2017 2018 2019 Futures

Source: CME

$/bu

shel

$8.00

$8.40

$8.80

$9.20

$9.60

$10.00

$10.40

$10.80


2017 2018 2019 Futures

Source: CME

$/bu

shel

Source: CME

Source: CME

Source: CME

August 2012

6


Grain Fundamentals: USDA’s corn and wheat production estimates lowered in November. Projected ending stocks reduced for corn and wheat, raised for soybeans. Corn and soybean prices forecast up Y/Y.

• USDA lowered its 2019 U.S. corn crop estimate 118 million bushels to 13.66 billion bushels in November on a reduction in yield to 167.0 bushels.

• Projected 2019/20 ending stocks were trimmed 19 million bushels to 1.91 billion, down from last year’s 2.11 billion, as the smaller crop was mostly offset by smaller usage forecasts. Exports were cut 50 million bushels, while feed/residual usage and ethanol usage both were lowered 25 million.

• USDA raised its 2019/20 farm price forecast 5 cents per bushel to $3.85, up from $3.61 last year.

Wheat

Corn

Soybeans

• USDA revised its 2019 U.S. wheat production estimate down 42 million bushels in November based on a follow-up to its survey for the Sep. 30 Small Grains - 2019 Summary. Harvested acres and production were revised lower, mainly for spring wheat and durum in Montana and North Dakota, where significant acreage was not yet harvested during the initial survey.

• USDA reduced its 2019/20 ending stocks projection 29 million bushels as the smaller crop was partly offset by lower food usage and seed usage.

• USDA’s average farm price forecast was lowered 10 cents per bushel to $4.60.

• USDA’s 2019 U.S. soybean production estimate of 3.55 billion bushels was unchanged from October, but down 20% Y/Y on lower acreage and yields.

• USDA’s 2019/20 ending stocks forecast was raised 15 million bushels to 475 million on a smaller crush forecast.

• Exports are projected at 1,775 million bushels, and likely have the widest range of possibilities because of the ongoing U.S./China trade negotiations.

• USDA held its U.S. average farm price forecast at $9.00 per bushel, which would be up 52 cents from 2018/19.

Source: USDA WASDE

Source: USDA WASDE

Source: USDA WASDE

2017/18 2018/19 2019/20F 2019/20F M/M Change Y/Y ChangeOctober November 19/20 Forecast 19/20 Forecast

Acres Planted (mm) 90.2 89.1 89.9 89.9 0.0 0.8Acres Harvested 82.7 81.7 81.8 81.8 0.0 0.1Yield per Harvested Acre (bu) 176.6 176.4 168.4 167.0 -1.4 -9.4

Beginning Stocks (mm bu) 2,293 2,140 2,114 2,114 0 -26Production 14,609 14,420 13,779 13,661 -118 -759Imports 36 28 50 50 0 22Total Supply 16,939 16,588 15,944 15,825 -119 -763

Feed and Residual 5,304 5,618 5,300 5,275 -25 -343Food, Seed & Industrial 7,057 6,791 6,815 6,790 -25 -1Ethanol 5,605 5,376 5,400 5,375 -25 -1Total Domestic 12,361 12,409 12,115 12,065 -50 -344Exports 2,438 2,065 1,900 1,850 -50 -215Total Use 14,798 14,474 14,015 13,915 -100 -559Ending Stocks 2,140 2,114 1,929 1,910 -19 -204

Stocks to Use (%) 14.5% 14.6% 13.8% 13.7% 0.0% -0.9%

Average Farm Price ($/bu) $3.36 $3.61 $3.80 $3.85 $0.05 $0.24


Acres Planted (mm) 46.1 47.8 45.2 45.2 0.0 -2.6Acres Harvested 37.6 39.6 38.1 37.2 -0.9 -2.4Yield per Harvested Acre (bu) 46.4 47.6 51.6 51.7 0.1 4.1

Beginning Stocks (mm bu) 1,181 1,099 1,080 1,080 0 -19Production 1,741 1,885 1,962 1,920 -42 35Imports 158 135 120 120 0 -15Total Supply 3,080 3,119 3,161 3,120 -41 1

Food 964 955 960 955 -5 0Seed 63 59 68 61 -7 2Feed and Residual 47 90 140 140 0 50Total Domestic 1,075 1,103 1,168 1,156 -12 53Exports 906 936 950 950 0 14Total Use 1,981 2,039 2,118 2,106 -12 67Ending Stocks 1,099 1,080 1,043 1,014 -29 -66

Stocks to Use (%) 55.5% 53.0% 49.2% 48.1% -1.1% -4.8%

Average Farm Price ($/bu) $4.72 $5.16 $4.70 $4.60 -$0.10 -$0.56


Acres Planted (mm) 90.2 89.2 76.5 76.5 0.0 -12.7Acres Harvested 89.5 87.6 75.6 75.6 0.0 -12.0Yield per Harvested Acre (bu) 49.3 50.6 46.9 46.9 0.0 -3.7

Beginning Stocks (mm bu) 302 438 913 913 0 475Production 4,412 4,428 3,550 3,550 0 -878Imports 22 14 20 20 0 6Total Supply 4,735 4,880 4,483 4,483 0 -397

Crushings 2,055 2,092 2,120 2,105 -15 13Exports 2,134 1,748 1,775 1,775 0 27Seed 104 89 96 96 0 7Residual 5 39 32 32 0 -7Total Use 4,297 3,967 4,023 4,008 -15 41Ending Stocks 438 913 460 475 15 -438

Stocks to Use (%) 10.2% 23.0% 11.4% 11.9% 0.4% -11.2%

Average Farm Price ($/bu) $9.33 $8.48 $9.00 $9.00 $0.00 $0.52

Source: USDA WASDE

Source: USDA WASDE

Source: USDA WASDE

August 2012

7


Chicken: China lifts ban on U.S. poultry imports. Global chicken production in 2020 is forecasted by USDA FAS to grow 4%, surpassing global pork production. Sluggish domestic demand and large supplies weigh on chicken product prices in October.

$0.85

$0.95

$1.05

$1.15

$1.25

$1.35

$1.45

$1.55

$1.65


$/lb

....

2017 2018 2019

Source: USDA-AMS -20%

-10%

0%

10%

20%

30%

40%

400

500

600

700

800

900

1,000

Jan-15 Jan-16 Jan-17 Jan-18 Jan-19

Million Pounds Y/Y Change (%)

Source: USDA-ERS

500

525

550

575

600

625

650

675


mill

ion

lbs.

2017 2018 2019

Source: USDA-ERS

-4%

-2%

0%

2%

4%

6%

190

200

210

220

230

240


Million Y/Y% Change

Source: USDA-NASS6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5


1st

Q 3

rd Q

R

atio

2017 2018 2019

Sources: USDA-AMS, CME, Calculations by Wells Fargo

Boneless Skinless Breast Prices Chicken Cold Storage Inventories

Egg Prices

Egg Sets

• Lower chicken product prices and higher feed costs squeezed packer margins in October, down 8% M/M and up 1% Y/Y.

• Breast prices remained under $1.00/lb. for the second consecutive month. The average breast price of $0.93/lb. during October was down 2% from September and down 5% from the previous year. Large supplies and sluggish domestic demand continue to weigh on breast prices.

• On November 14th, China announced the lifting of the ban on U.S. poultry imports. The ban had been in place since 2015 when highly pathogenic avian influenza (HPAI) was discovered in the U.S.

• USDA FAS recently released global protein forecasts for 2020. Global chicken production was forecasted to grow 4%. Chicken production is expected to grow to a record 103.5 million tons, surpassing pork production.

• The USDA large, regional shell egg price dropped to an average price of $0.67 cents/dozen in October, down 29% M/M and down 39% Y/Y. Egg prices are expected to remain volatile on short-term supply issues and holiday demand.

• Chicken Packer Margins: Please note change in WF calculation which lowered the overall ratio value. New packer margin ratio assumes: 15% whole birds and 85% bird parts, and 3 to 1 corn to soymeal feed volume ratio.

Chicken Packer Margins

Broiler Exports

30

60

90

120

150

180

210

240


cent

s/do

z

2017 2018 2019

Source: USDA-AMS

Sources: USDA-AMS, CME, ERS, Calculations by Wells Fargo

August 2012

8


Beef: Tyson officials announce reopening of Holcomb processing plant in early December. Global beef production estimated by USDA to grow 1% in 2020.Live cattle futures are in a strong upward price trend on lower impacts from the Tyson plant fire and robust demand.

Cut Out Values

Packer Margins

Live Cattle Prices

Beef and Veal Exports

Cold Storage Inventories

Monthly Cattle Processing

• Nearby live cattle futures averaged $1.10 /lb.... in October, up 10% M/M and down 3% Y/Y. Early September saw the bottom of futures prices from the Tyson plant fire impacts. Futures prices have been in a strong upward trend on lower impacts from the Tyson plant fire and robust demand.

• The beef cutout value averaged $217/cwt. in October, down 2% from September and 5% higher Y/Y.

• The October cutout / live cattle ratio was squeezed lower on higher live cattle prices and a lower cutout value. However, margins are still historically high. Packer margins in October, down 11% M/M and up 8% Y/Y.

• Tyson officials announced on November 18th that the Holcomb, KS processing plant will reopen the first week of December.

• USDA FAS recently released global protein forecasts for 2020. Global beef and veal production is forecasted to grow 1%. Growth in Brazil, the U.S. and Argentina expected to offset production declines in China, Australia and the EU.

• Beef and veal export volume in September slowed in pace, down 3% M/M and down 3% Y/Y. September export volume to key markets: Japan (-15%), South Korea (+11%), and Mexico (-16%).

$0.95

$1.00

$1.05

$1.10

$1.15

$1.20

$1.25

$1.30

$1.35


$/lb

....

2017 2018 2019 Futures

Source: CME

185

195

205

215

225

235

245

255


$/cw

t

2017 2018 2019


-10%

0%

10%

20%

30%

40%

50%

250

300

350

400

450

500

550

600



Source: USDA-NASS

195

210

225

240

255

270

285

300


mill

ion

lbs.

.

2017 2018 2019

Source: USDA-ERS

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

1.35

1.50

1.65

1.80

1.95

2.10

2.25

2.40

2.55


mill

ion

lbs.

.

Baseline Slaughter Incremental WeightY/Y Change (%)

Source: USDA-ERS

1.50

1.60

1.70

1.80

1.90

2.00

2.10

2.20

2.30


1st

Q 3r

d Q

R

atio

2017 2018 2019

Sources: USDA-AMS, CME

Source: USDA-ERS, NASSSources: USDA-AMS, CME

August 2012

9


Pork: Global pork production in 2020 is forecasted down 10% by the USDA FAS due to the impacts of African Swine Fever (ASF). JBS and Tyson announced plans to prohibit ractopamine in purchased hogs. U.S. pork export volume in September was 8% higher Y/Y.

Cut Out Values

Packer Margins

Lean Hog Prices

Cold Storage Inventories

Pork Exports

Monthly Processing

• Lean hog futures averaged $0.65/lb. in October, up 2% from September and 6% higher Y/Y.

• The pork cutout value in October averaged $76/cwt., up 8% M/M and down 3% Y/Y. Large domestic supplies of pork are impacting cutout prices.

• Packer margins improved in October on a higher cutout value. Packer margins were up 6% from August and down 8% Y/Y.

• USDA FAS recently released global protein forecasts for 2020. Global pork production is forecasted down 10% due to the impacts from African Swine Fever (ASF).

• Two major industry packers, JBS and Tyson, announced plans to prohibit ractopamine in purchased hogs. Growing global demand for ractopamine-free hogs, especially in China, is likely driving this decision.

• U.S. pork export volume in September was up 8% Y/Y and down 9% M/M. Asian countries such China (+294%) and Hong Kong (+59%) remain strong drivers of growth. Export volume slipped slightly to the largest trade partner, Mexico (-4%).

$0.50

$0.60

$0.70

$0.80

$0.90

$1.00


$/lb

....

2017 2018 2019 Futures

Source: CME

60

70

80

90

100

110


$/cw

t

2017 2018 2019


-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

300

350

400

450

500

550

600

650

700

750



Source: USDA-NASS

360

390

420

450

480

510

540

570


mill

ion

lbs.

.

2017 2018 2019

Source: USDA-ERS

-12%

-6%

0%

6%

12%

18%

24%

1.4

1.6

1.8

2.0

2.2

2.4

2.6


mill

ion

lbs.

.

Baseline Slaughter Incremental WeightY/Y Change (%)

Source: USDA-ERS

0.95

1.00

1.05

1.10

1.15

1.20

1.25

1.30

1.35


1st

Q

Rat

io 3

rd Q

2017 2018 2019


Sources: USDA-AMS, NASS, ERS, CME

August 2012

10


Alaskan Pollock Prices Scallop and Lobster Prices

Atlantic Salmon Imports

Shrimp ImportsUrner Barry Farm-Raised White Shrimp Index

Urner Barry Fresh Farmed Salmon Index

75

100

125

150

175


mill

ion

lbs.

.

2017 2018 2019

Source: NOAA

48

52

56

60

64

68

72


mill

ion

lbs.

.

2017 2018 2019

Source: NOAA

56789

10111213141516

Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19

$

Scallops (US Natural, 10/20 ct)Live Lobster (1 1/4 lb)

Source: Urner Barry0.60

0.80

1.00

1.20

1.40

1.60

1.80

Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19

$/lb

....

Single Freeze Alaskan Minced

Source: Urner Barry

4.40

4.80

5.20

5.60

6.00

6.40

6.80

7.20


$/lb

....

2017 2018 2019

Source: Urner Barry

3.50

3.75

4.00

4.25

4.50

4.75

5.00


$/lb

....

2017 2018 2019

Source: Urner Barry

Seafood: Alaska pollock harvest in 2020 for combined U.S. and Russia, is projected at 3.44 million MT, down slightly from 2019 harvest levels. The 2020 Pacific Cod quota for the U.S. and Canada is expected to decline 14% Y/Y. Atlantic cod quota for 2020 is projected at 1.13 million MT, near previous year levels.

• The UB farm-raised white shrimp index in October was $4.07/lb., down 1% from September and unchanged Y/Y. Shrimp imports in September totaled 141MM lbs.., down 9% M/M and 1% lower Y/Y. YTD imports of 1,094MM lbs.. are 1% higher Y/Y.

• The UB fresh-farmed salmon index averaged in October at $4.65/lb., 9% lower M/M and 18% lower Y/Y. Salmon imports in September were 67MM lbs.., up 4% M/M and up 14% Y/Y. YTD imports of 573MM lbs.. are up 7% Y/Y.

• Alaskan pollock 2020 harvests for the U.S. and Russia, combined, are project at 3.442 million MT, down slightly from the projected 3.451 million metric tons in 2019.

• A 14% Y/Y decline in the 2020 Pacific Cod quota in the U.S. and Canada offsets an increase from Russia for a 5% Y/Y overall decline.

• Atlantic cod quota for 2020 is projected at 1.13 million MT, almost exactly on par with projected landings for 2019.

• The 2019 Alaska salmon harvest finished at 203.6 million fish, nearly double the 114 million landed in 2018. Sockeye catch came in at 55.3 million, up from 49.9 million in 2018. Pink landings nearly tripled at 126 million, compared to 40.6 million in 2018.

Source: Urner Barry Source: Urner Barry, NOAA

August 2012

11


2.00

2.10

2.20

2.30

2.40

2.50

2.60

2.70


$/lb

....

2017 2018 2019

Source: USDA-AMS

Dairy: Cheddar cheese block prices averaged $2.07/lb. in October, the highest price since 2014. The U.S. placed a new, additional 25% tariff on many dairy products imported from the EU beginning in October. U.S. dairy export volume in September was up 2% Y/Y on strong exports of nonfat dry milk (NDM) and skim milk powder (SMP).

Class I Milk

Cheddar Cheese, 40-lb. block

Milk Production

Dairy Product Exports

• The USDA Class I milk price increased for the seventh consecutive month. Class I milk averaged $18.14/cwt. for November, up 2% M/M and 17% higher Y/Y.

• The Class III milk price averaged $18.72/cwt. during October, up 2% M/M and up 21% Y/Y.

• Cheddar cheese block prices moved higher in October for the tenth straight month. Block prices averaged $2.07/lb. in October, up 2% M/M and up 30% Y/Y. The October average block price is the highest since 2014.

• The dairy herd in September was down 0.6% Y/Y and milk per cow increased 1.8% Y/Y. U.S. milk production in September was 17.6 billion lbs.., up 1.3% Y/Y.

• U.S. dairy exports by volume in September was up 3.6% from August and 2% higher Y/Y. September saw strong exports of nonfat dry milk (NDM) and skim milk powder(SMP) to Mexico and South America.

• Grade AA butter prices averaged $2.11/lb. in October, down 3% M/M and 7% lower Y/Y. Global butter prices for the EU and Oceana are below U.S. prices, eroding U.S. trade advantage.

Class III Milk

Butter Prices, Grade AA

13

14

15

16

17

18

19


$/cw

t

2017 2018 2019

Source: USDA-AMS

13141516171819202122


2017 2018 2019 Futures


$/cw

t

1.20

1.35

1.50

1.65

1.80

1.95

2.10

2.25


$/lb

...

2017 2018 2019

Source: USDA-AMS

-1%

0%

1%

2%

3%

4%

15

16

17

18

19

20


billi

on lb

s.


Source: USDA-NASS

300

350

400

450

500

550


mill

ion

lbs.

2017 2018 2019

Source: USDA-FAS

Sources: USDA-AMS, FAS, NASS, CME

August 2012

12


0.80

0.90

1.00

1.10

1.20

1.30

1.40

1.50


$/lb

...

2017 2018 2019

Source: ICE

1,800

1,950

2,100

2,250

2,400

2,550

2,700

2,850


$/M

T

2017 2018 2019

Source: ICE

0.90

1.05

1.20

1.35

1.50

1.65

1.80

1.95


$/lb

...

2017 2018 2019

Source: ICE

0.55

0.60

0.65

0.70

0.75

0.80

0.85

0.90

0.95


$/lb

...

2017 2018 2019

Source: ICE

10

12

14

16

18

20

22


c/lb

.

2017 2018 2019

Source: ICE

24

25

26

27

28

29

30

31


c/lb

.

2017 2018 2019

Source: ICE

Specialty and Non-Grain Crops: Coffee futures continue the low-price trends; however, they have rebounded to break-even prices for South American farmers, near $1.08 per pound. In the U.S. coffee continues to grow in the away-from-home market segment.

Sugar, #11 (U.S.)

Cocoa

Cotton

Orange JuiceSugar, #16 (World)

Coffee

• Nearby #11 sugar futures averaged $0.12/lb. during October, which was up 12% from September and down 6% from October 2018.

• According to the International Cocoa Organization, October saw the spread between the New York and London cocoa futures prices reduced drastically. This was fueled by a near-trifold year-on-year increase in the volume of certified cocoa stocks from 7,632 tonnes to 22,184 tonnes on ICE US Futures, whereas they remained nearly stable on ICE Europe Futures.

• The November USDA WASDE report lowered estimates on 2019/20 U.S. cotton production and ending stocks due to a smaller crop in the Southwest.

• Orange juice futures have continued to fall in October as the recovery of the Florida orange crop has applied downward pressure on futures contracts. Additionally, rising prices of orange juice found in supermarkets can actually depress futures prices because higher retail prices typically lower consumer demand for the product.

Source: ICE

August 2012

13


120

140

160

180

200

220

240

260

Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul

mill

ion

lbs.

2017/18 2018/19 2019/20

Source: Almond Board of California

0

1

2

3

4

5

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

mill

ion

tons

Grape Crush Trends, 2009 - 2018

Raisin Table Red White

Specialty Crops – Tree Nuts and Wine: Tree nut harvest has completed in California. Both shipment volume and prices appear stable and/or rising for almonds, pistachios, and walnuts. Wine harvest has also completed with most producers limiting intake to their contracted quantities.

Almond Shipments

Walnut Shipments Bearing Acres

• Almond handlers shipped an all-time monthly record 265.5MM pounds of almonds in October, surpassing the previous monthly record of 247.1MM set last October by 7.4%.

• Almond shipments for the first three months of the season now tally 609.4 MM pounds, and have improved 6.9% or nearly 40 MM pounds ahead of last year

• October walnut shipments have shipped 96MM pounds in the first two months of the season. Shipments are up 3.5%, Y/Y.

• Pecans have experienced demand from the holiday and gift market, while the commercial and domestic has softened. Manufacturers are waiting to buy to see if price declines before they bring in product.

• The 2019/20 Pistachio crop has started the crop year with shipment volume down 7.3%, Y/Y. Chinese shipments are down 77%, which is the largest change in export shipment volumes.

• With Iran's pistachio crop recovering from last year's production issues, some volume is expected to shift' however, the U.S. off-year means less nuts produced and demand is still expected.

Pistachio Shipments

2018 Grape Crush Results • With harvest coming to a close, most growers noted the crop

came in heavier than expected; without homes for fruit, spot market prices fell to low levels.

• Growers without contracts experienced a tough year; some growers left fruit on the vine because they did not have contracts for the fruit.

• Most growers and wineries planned for the market dynamics and current excess supply conditions. Large wineries reported that they were only taking contracted amounts of fruit.

• Some wineries are looking for opportunities to start new programs with the current market conditions; while a risk, this could be favorable based on the state of the market.Source: USDA-NASS

0

200

400

600

800

1,000

1,200

1,400

2005 2008 2011 2014 2017

1,00

0 ac

res

Almonds Walnuts Pistachios

Source: USDA-NASS

0

20

40

60

80

100

120

140

Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug

mill

ion

lbs.

2017/18 2018/19 2019/20

Source: Administrative Committee for Pistachios

0

20

40

60

80

100

120

Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug

1,00

0 to

ns

2017/18 2018/19 2019/20

Source: California Walnut Board

Source: Almond Board of California, California Walnut Board, Admin. Committee for Pistachios, USDA-NASS

August 2012

14


Framing Lumber Index U.S. Housing Starts

Repair & Remodel Expenditures (LTM total)

• The Framing Lumber Composite Index averaged $360/thousand board feet in October, which was down 2% from September and down 2% Y/Y. Soft demand and new sawmill capacity that came online in Texas and Alabama pressured prices in early October, although improving sales helped prices rebound later in the month.

• The Structural Panel Composite Index of $338/thousand board feet for October was essentially unchanged from September, but was down 19% Y/Y. Panel prices eased along with lumber prices during the first half of the month on sluggish demand, but production cutbacks in the Southeast were supportive toward the end of the month.

• U.S. housing starts of 1.31 million units in October were up 9% Y/Y. Single-family homes, which account for about 70% of total housing starts, increased 8% Y/Y while multi-family units were up 9%.

• The Joint Center for Housing Studies (JCHS) at Harvard University estimated LTM repair and remodel expenditures for 3Q’19 at $326 billion, up 1.5% from the previous quarter and up 6% Y/Y. JCHS expects Y/Y growth in repair and remodel expenditures to slow in 4Q’19 and well into 2020 due to weakness in existing home sales and new construction, along with slowdowns in other indicators of home improvement spending.

Structural Panel Index

Forest Products: Lumber prices eased in October on soft demand early in the month, but panel prices were essentially unchanged M/M as production cuts offset slow sales. October housing starts were up 9% Y/Y.

$320

$360

$400

$440

$480

$520

$560

$600


$/1,

000

boar

d fe

et

2017 2018 2019

Source: Random Lengths

$320

$360

$400

$440

$480

$520

$560

$600


$/1,

000

boar

d fe

et

2017 2018 2019

Source: Random Lengths

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

195

210

225

240

255

270

285

300

315

330

1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 1Q18 1Q19

billi

on $

Billion $ Y/Y Change (%)

Source: Harvard Joint Center for Housing Studies

-20%

-10%

0%

10%

20%

30%

40%

800

900

1,000

1,100

1,200

1,300

1,400

1,500


1,00

0 un

its

New Units Y/Y Change (%)

Source: U.S. Fed

Source: Random LengthsSource: U.S. Fed, Harvard Joint Center for Housing Studies

August 2012

15


Crop Inputs: Fertilizer prices during October were down 7-29% Y/Y. Ammonia prices increased from September as producers raised offers, while urea and potash were pressured by slow demand. DAP was unchanged, but likely to be lower in November despite production cuts. Fuel prices are down 8-9% Y/Y.Ammonia DAP

Urea Potash

• Ammonia prices in the Corn Belt averaged $386/ton in Oct. This was down 15% Y/Y, but up 6% from Sep. as two large suppliers raised spot prices and fill prices early in the month.

• Urea prices in the Corn Belt averaged $279/ton in October, which was down 20% Y/Y and down 3% M/M on soft world demand and concern about U.S. fall application being light.

• DAP prices in the Corn Belt averaged $321/ton in October, unchanged M/M but down 29% Y/Y. Weaker prices in late Oct. due to large imports suggest the Nov. average will be lower.

• Potash prices in the Corn Belt averaged $288/ton in October, down 2% M/M as slow demand made it tough for producers to hold prices. Some producers have announced production cuts.

Diesel Fuel Prices Gasoline Prices

• The U.S. on-highway diesel price averaged $3.05/gallon in October. This was up 4 cents (1%) from September despite lower crude oil futures, but was down 31 cents (9%) Y/Y.

• Retail U.S. gasoline prices averaged $2.63/gallon during October, up 3 cents (1%) from September but down 23 cents (8%) Y/Y.

280

320

360

400

440

480

520

560


$/to

n

2017 2018 2019

Source: Green Markets

200

225

250

275

300

325

350

375

400


$/to

n

2017 2018 2019


300

325

350

375

400

425

450

475


$/to

n

2017 2018 2019


240

255

270

285

300

315

330


$/to

n2017 2018 2019


$2.40

$2.60

$2.80

$3.00

$3.20

$3.40

$3.60


$/ga

llon

2017 2018 2019

Source: EIA$2.10

$2.30

$2.50

$2.70

$2.90

$3.10


$/ga

llon

2017 2018 2019

Source: EIA

August 2012

16


10.0

10.2

10.4

10.6

10.8

11.0

11.2


cent

s/kW

h

2017 2018 2019

Source: EIA

Supermarket Hourly Earnings

0%

1%

2%

3%

4%

5%

6%

12.00

12.50

13.00

13.50

14.00

14.50

15.00


$/Hour Y/Y Change %

Source: BLS

$7.00

$7.50

$8.00

$8.50

$9.00

$9.50


$/M

cf

2017 2018 2019

Source: EIA

Energy and Labor: The spike in crude oil prices following the September attacks in Saudi Arabia led to a small U.S. average gasoline price increase, which lasted only a short while as crude oil prices fell to pre-disruption level.

Natural Gas Retail Prices Restaurant Hourly Earnings

Heating Oil Retail Prices

Commercial Electricity Prices Food Manufacturing Hourly Earnings

• The U.S. average retail price for natural gas of $8.41/Mcf in August was flat M/M, and down 3% Y/Y. The next data update will be in December.

• The U.S. average heating oil retail price of $2.89/gallon during September was up 1% from August and down 12% Y/Y.

• The U.S. average retail price for commercial electricity was 11.03 cents/kWh in July, which was up 1% from June and up 1% Y/Y.

• The restaurant labor index for October was $14.65/hour. This was up 0.2% from September and up 4.3% Y/Y.

• The supermarket labor index during September was $14.00/hour, down 0.1% from August and up 2.4% Y/Y.

• The food manufacturing labor index of $18.28/hour during October was up 0.1% from September, and up 3.3% Y/Y.

$2.00

$2.25

$2.50

$2.75

$3.00

$3.25

$3.50


$/ga

llon

2017 2018 2019

Source: EIA -6%

-4%

-2%

0%

2%

4%

6%

8%

11.00

11.50

12.00

12.50

13.00

13.50

14.00

14.50


$/Hour Y/Y Change %

Source: BLS

0%

1%

2%

3%

4%

5%

6%

13

14

15

16

17

18

19


$/Hour Y/Y Change %

Source: BLS

Source: EIA Source: BLS

August 2012

17


Food and Agribusiness Industry Advisors

General disclosuresThe views expressed are intended for Wells Fargo customers only. They present the opinions of the authors on prospective trends and related matters in food and agribusiness as of this date, and do not necessarily reflect the views of Wells Fargo & Co., its affiliates and subsidiaries. Opinions expressed are based on diverse sources that we believe to be reliable, though the information is not guaranteed and is subject to change without notice. This is not an offer to sell or the solicitation to buy or sell any security or foreign exchange product.

Karol Aure-FlynnSector Analyst Team LeadSector Coverage: Packaged Foods, Ag [email protected]

Chris EggermanSector Analyst: Grains, Crop Inputs, Forest [email protected]

Lakiesha McCainProject [email protected]

Brad RubinSector Analyst: Specialty [email protected]

Courtney SchmidtSector Analyst: Protein, [email protected]

Michael Swanson, Ph.D.Chief Agriculture [email protected]

Lee Ann PearceFAIA ManagerSector Coverage: Tree Nuts, Vineyards, Wineries, Spices, Cocoa, [email protected]

Kevin BergquistSector Manager: Forest Products, Poultry, [email protected]

Matt DusiSector Manager: Fruits, Vegetables, [email protected]

Scott EtzelSector Manager: Dairy, Seafood, [email protected]

Tim LuginslandSector Manager: Grains, Oilseeds, [email protected]

Lon SwansonSector Manager: Crop Inputs/Feed, Beef, [email protected]

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