Ingredients for success Global Market Outlook - ADPI
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47 27th April 2015 Tim Hunt Global Dairy Strategist Food & Agribusiness Research Rabobank International New York Global Market Outlook Not out of the woods yet
Transcript of Ingredients for success Global Market Outlook - ADPI
47
27th April 2015 Tim HuntGlobal Dairy StrategistFood & Agribusiness ResearchRabobank InternationalNew York
Ingredients for success
Why Dairy Ingredient Strategies are Becoming so
Important
xxx
Global Market Outlook
Not out of the woods yet
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Food & Agribusiness Research and AdvisoryA global network of research professionals – supporting knowledge based banking
Over 70 analysts
in 14 different
countries
Focus areas:
−Dairy
−Grains & Oilseeds
−Animal Protein
−Beverages
−Farm Inputs
−Food Retail
−Sugar & Sweeteners
−Fruits & Vegetables
Christchurch
New Delhi
Mexico City
New York
Sao PauloSydney
Singapore
Hong Kong
Mumbai
Melbourne
Utrecht
Shanghai
Beijing
Santiago de Chile Buenos Aires
LondonFresno
ChicagoSt Louis
Tanzania
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Market status - why are prices so low
12 month outlook – the slow recovery
Section 1
Section 2
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-
1,000
2,000
3,000
4,000
5,000
6,000
USD
/T
Commodity Export Prices WMP prices (f.o.b Oceania)
Source: USDA, Rabobank
The 2013 price rally was differentWe meet at interesting times….
ADPI 2011
ADPI 2012
ADPI 2013
ADPI 2014ADPI 2010
ADPI 2015
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-4%
-2%
0%
2%
4%
6%
Jan
Apr
Jul
Oct
Jan
Apr
Jul
Oct
Jan
Apr
Jul
Oct
Jan
Apr
Jul
Oct
Jan
Apr
Jul
Oct
Jan
Apr
Jul
Oct
Jan
Apr
Jul
Oct
Jan
2008 2009 2010 2011 2012 2013 2014 2015
Gro
wth
on
sam
e m
on
th o
f p
rio
r y
ear
Milk production growth of Big 7 exporters combined
Source: Rabobank
Milk production is falling in surplus regions
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-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2013 2014 2015
Growth in German Household consumption
Liquid milk Cheese
But we don’t need much more milk in surplus regions
Source: Nielsen data, Rabobank analysis
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China is long on milk, and slashing imports
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Russia has enforced its trade ban with vigor
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FLASHBACK: Who was squeezed out by China and Russia in 2013?
Source: GTIS and Rabobank Analysis
-500k
+3 mill
Change in Imports 2012 vs. 2013 MT LME
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Look who’s back!YOY Change in Trade Volumes Jan/Feb 2015 vs Jan/Feb 2014
Import change in LME terms Q4 yoy
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-1,500,000
-1,000,000
-500,000
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1
2006 2007 2008 2009 2010 2011 2012 2013 20142015
Tho
usa
nd
to
nn
es M
EQ
% m
on
thly
ch
ange
YO
Y
Qly change in dairy export volumes for 'Big 6'
Volume growth on 12 months prior
Note: Includes NZ, EU, USA, Australia, Argentina, Brazil. Source: Rabobank, National statistical agencies
But vigorous buying from 2nd tier importers was not enough to offset weak buying from China/Russia
Global trade has been contracting since Q4
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Rising USD has lowered the market clearing price
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
Change of currency value of major dairy exporters and importers v USD
(21th April 2015 v 2013 average)
Source: OANDA, Rabobank analysisNote:* USD Broad index inverted
Exporters in
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Market status - why are prices so low
12 month outlook – the slow recovery
Section 1
Section 2
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Farmgate milk prices are well down on their peaks
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
US
cents
/litre
Farmgate milk prices (USD equivalent) - select regions
Australia (Murray Goulburn) NZ (Fonterra)Brazil (Sao Paulo average) Netherlands (RFC)China US (all milk)
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Milk production growth will remain weak through 2015
Source: RabobankNote: includes EU 27, USA, NZ, Australia, Brazil, Argentina, and Uruguay
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
Jan
Apr
Jul
Oct
Jan
Apr
Jul
Oct
Jan
Apr
Jul
Oct
Jan
Apr
Jul
Oct
Jan
Apr
Jul
Oct
Jan
Apr
Jul
Oct
Jan
Apr
Jul
Oct
Jan
Apr
Jul
Oct
2008 2009 2010 2011 2012 2013 2014 2015
Gro
wth
on
sam
e m
on
th o
f p
rio
r y
ear
Milk production growth of Big 7 exporters combined
Actual Recorded
Growth
Source: Rabobank
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On the demand side, economy will provide modest support
-6
-4
-2
0
2
4
6
8
10
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015f
2016f
Pe
rce
nt g
row
th
World GDP Growth (IMF)
Developing economies
Source: International Monetary Fund (Apr
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On the demand side, economy will provide modest support
-6
-4
-2
0
2
4
6
8
10
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015f
2016f
Pe
rce
nt g
row
th
World GDP Growth (IMF)
Advanced economies Developing economies
Source: International Monetary Fund (Apr
64
On the demand side, economy will provide modest support
-6
-4
-2
0
2
4
6
8
10
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015f
2016f
Pe
rce
nt g
row
th
World GDP Growth (IMF)
World Advanced economies Developing economies
Source: International Monetary Fund (Apr
65
On the demand side, economy will provide modest support
-6
-4
-2
0
2
4
6
8
10
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015f
2016f
Pe
rce
nt g
row
th
World GDP Growth (IMF)
World Advanced economies Developing economies World 20yr av
Source: International Monetary Fund (Apr
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Other factors will also support improved consumption growth of the course of the year
Lower retail gas prices Lower retail dairy prices
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In China itself: rebalancing will take time
Consumption will rise only slowly in 2015 (circa 1.5%)
Economy will not accelerate
UHT and IMF markets are maturing
Though discounting and launch of lower end products will help boost sales
Production will take time to rein in in 2015 (circa 5%)
Large farm investments coming online
Milk prices not falling fast enough to push out enough smaller farmers
Excess stock remains
Imports to be down 50% YOY in 1H, and down marginally in 2H
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In H1 2015, exportable supply will contract
-8
-6
-4
-2
0
2
4
6
H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1f H2f H1f
2010 2011 2012 2013 2014 2015 2016
Millio
n l
itres L
ME
Growth in Chinese and Russian Imports
vs. Growth in 'Big 7' Exportable Surplus
(yoy)
Big 7
Source: Rabobank
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But import demand from China and Russia will outstrip the contraction in exportable supply
-8
-6
-4
-2
0
2
4
6
H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1f H2f H1f
2010 2011 2012 2013 2014 2015 2016
Millio
n l
itres L
ME
Growth in Chinese and Russian Imports
vs. Growth in 'Big 7' Exportable Surplus
(yoy)
Russian Imports Chinese Imports Big 7
Source: Rabobank
Other importers will struggle to make up the difference, keeping
market loose in 1H
Only a gradual tightening in 2H
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Rabobank dairy price forecasts: FOB Oceania
Source: Rabobank and USDA
WMP prices fob Oceania: Historic and Rabo forecasts
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1,000
2,000
3,000
4,000
5,000
6,000
Jan-0
7
Jul-
07
Jan-0
8
Jul-
08
Jan-0
9
Jul-
09
Jan-1
0
Jul-
10
Jan-1
1
Jul-
11
Jan-1
2
Jul-
12
Jan-1
3
Jul-
13
Jan-1
4
Jul-
14
Jan-1
5
Jul-
15
Jan-1
6
USD
/MT
WMP Rabobank Forecast
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Upside and downside dairy price risks exist
1. Weather and disease
2. We have overestimated Chinese stocks
3. Exceptional buying from 2nd tier importers is sustained
1. US supply momentum continues in 2H
2. EU production recovers quickly after quota removal
3. USD continues to rapidly appreciate
Upside Risk
Downside Risk
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Summary
Why are prices so low
Milk production in export regions has finally slowed
But demand remains weak in surplus regions
And international trade is contracting (driven by China and Russia)
While stronger USD is lowering the market clearing price
International prices to slowly rebuild in 2H
Supply growth will remain weak
Economic growth, low oil prices, and some price relief to support demand
Stronger buying elsewhere will help offset the weakness of China and Russia
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Contact details
Tim HuntGlobal Dairy StrategistFood & Agribusiness Research and [email protected]
Tom BaileyDairy AnalystFood & Agribusiness Research and [email protected]
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