issue #2 - 2016 · pdf fileconsumer balance sheets, with the case-shiller ... © 2016...

August 2012

Industry Research Update: Food and Agribusiness 1

Issue #2 - 2016

© 2016 Wells Fargo Bank, N.A. All rights reserved. For public use.

1

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

Jan- 12 Jul- 12 Jan- 13 Jul- 13 Jan- 14 Jul- 14 Jan- 15 Jul- 15 Jan- 16

Y/Y

Change (

%)

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

Source: U.S. Bureau of Labor Statistics

Key Demand Developments:

• Supermarket comparable sales remain in the

0% to 2% range driven by -2.0% to 1.0%

volume growth and 1.0% to 2.0% price.

• Restaurant comparable sales remain in the 1%

to 2% range driven by -2% to 0% volume

growth and 2% to 3% price.

• Growth in housing prices remain a positive to

consumer balance sheets, with the Case-Shiller

20 city index rising +5.4% Y/Y in March.

• The performance of the S&P500 has been

tepid, down -1% YoY for the trailing month, a

slight headwind for the consumer balance

sheet.

• The consumer income statement is also

boosted by job and wage growth as non-farm

payrolls increased by +1.9% Y/Y in April and

average hourly earnings increased +2.6% Y/Y.

• Gas prices continue to be a tailwind for the

consumer; oil futures have hovered around

$45/barrel, down -30% YoY, leaving

consumers with a larger share of monthly

discretionary income.

• The Consumer Confidence Index as measured

by the Conference Board was 92.6 in May, 2.0

points below the May 2015 reading of 94.6.

Consumer and Producer Price Indices

• We maintain a constructive outlook for

volumes given pricing’ at current levels below

3%.

• The Consumer Price Index (CPI) for food

away from home increased +2.7% in April

Y/Y, which is flat vs. the prior month and

down -20bp vs. the prior year. The food at

home index decreased -0.4% in April Y/Y,

which is up +20bp vs. the prior month and

down -180bp vs. the prior year.

• The Producer Price Index (PPI All Food)

decreased -2.5% in April Y/Y, which is up

+40bp vs. the prior month and up +130bp

vs. the prior year.

Industry Research Update

Food and Agribusiness

Price & Food Cost Developments

August 2012

2


-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16

Volume Price

Source: Nielsen AOC+C

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16

Volume Price


-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16

Volume Price


-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16

Volume Price


-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16

Volume Price


Grocery Department Trends: Perimeter categories continue to show volume momentum; while center of the store volumes remain weak.

Dry Grocery Frozen Foods

Alcoholic Beverage

Fresh Meat

• Dry Grocery 1Q16 price/mix increased +1.5% YoY, a

decrease of -90bp vs 4Q15. Dry Grocery volumes

decreased -0.2% YoY, a decrease of -10bp vs. 4Q15.

• Dairy 1Q16 price/mix decreased -0.3% YoY, an increase of

+10bp vs 4Q15. Dairy volumes decreased -0.6% YoY, a

decrease of -70bp vs. 4Q15.

• Fresh Produce 1Q16 price/mix increased +3.2% YoY, an

increase of +70bp vs 4Q15. Fresh Produce volumes

increased +1.0% YoY, a decrease of -190bp vs. 4Q15.

Dairy

Fresh Produce

• Frozen Food 1Q16 price/mix increased +0.8% YoY, a

decrease of -70bp vs 4Q15. Frozen Food volumes


• Fresh Meat 1Q16 price/mix decreased -1.7% YoY, a

decrease of -140bp vs. 4Q15. Fresh Meat volumes


• Alcoholic Beverage 1Q16 price/mix increased +0.8% YoY, a

decrease of -40bp vs 4Q15. Alcoholic Beverage volumes

increased +4.3% YoY, an increase of +50bp vs. 4Q15.

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16

Volume Price


August 2012

3


Economics: Domestic food demand is poised for growth but remains handicapped by the strong dollar.

Billions of Miles Driven

Trade Weighted Dollar vs. Ag Index

Net Export as % of Production

Net Trade Balance

• The March 2016 voluntary quits as a percentage of

employment of 1.88% increased +13bp vs the Mar15

reading of 1.75%. The 15 yr trend line is approaching pre-

recessionary levels.

• The April 2016 weekly average earnings are growing

+2.6% YoY on a nominal basis; when deflated by food &

beverage CPI the Apr16 average wages of $690/week

increased +1.5% vs. Apr15. The pre-recession inflation

adjusted peak was $703/week in December of 2006.

• The February 2016 monthly average miles driven of 232

billion increased +5.5% vs. Feb15 as gas prices and better

employment continue to provide tailwinds.

• The May 2016 trade weighted dollar index value of 117 vs.

bulk commodity dollar index value of 106 represent a wider

gap when compared to the May 2015 values of 111 and 105

respectively.

• The YTD 2016 net trade balance of -$3.6 billion is on pace to

be the largest full year trade deficit since pre 2007. The 2015

trade deficit was -$1.5 billion largely driven by imports from

countries other than China/HK.

• The pork and broiler markets face a stronger headwind from

dollar strengthening as net exports comprise 19.2% and

16.6% percent of total production vs. -1.7% for beef.

Voluntary Quits as % of Employment

Weekly Earnings Rates

200

210

220

230

240

250

260

270

280

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

Source: Federal Highway Admin

1.0%

2.0%

3.0%

Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15

Source: BLS, Wells Fargo

$650

$700

$750

$800

$850

$900

Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16

Weekly wages Food Inflation adjusted

Source: BLS, Wells Fargo

90

95

100

105

110

115

120

125

Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16

Jan 2014 = 100 Ag Bulk Commodities Trade Weighted

Source: USDA, Federal Reserve and Wells Fargo

2.6 6.5

9.1

13.8 16.1

22.0 22.7 21.6

16.3

3.6

(6.1)

10.3 3.9

5.2

7.1

0.5

(1.1)(4.3)

(17.8)

(7.2)

-$20

-$15

-$10

-$5

$0

$5

$10

$15

$20

$25

$30

2007 2008 2009 2010 2011 2012 2013 2014 2015 Jan - Mar

2016

BillionsROW China/HK

Source: USDA, Wells Fargo

-5%

0%

5%

10%

15%

20%

25%

2012 2013 2014 2015 2016

Broiler Beef Pork

Source: USDA, Wells Fargo

August 2012

4


Labor Energy

Grain Protein

Rising Deflationary

Flat Deflationary

Commodities

Flat

Food Company Margin Heat Map YoY

Price vs. Volume

Constructive

Commodity Price Y/Y M/M

Corn $3.74 -0.0% +2.9%

Wheat $4.75 -5.2% +1.7%

Soybeans $9.66 -0.5% +8.1%

Broilers $0.88 -15.6% +2.6%

Cattle $1.20 -20.2% -11.9%

Hogs $0.79 +2.2% +3.1%

Milk $13.54 -6.4% -5.1%

Shrimp $4.27 -0.2% 0.0%

Salmon $3.65 +1.9% +4.4%

Nat. Gas $7.03 -11.8% +0.3%

Electricity $10.13 -1.8% -0.3%

Heating Oil $2.06 -25.4% +5.5%

Rest. Labor $12.78 +3.3% +0.4%

Sup. Labor $12.95 +1.6% -1.0%

Food Labor $16.35 +4.0% +0.4%

*Monthly average corn, wheat, soybeans in $/bu; broiler, shrimp in $/lb; catt le, hogs, milk in,

$/cwt; salmon, cod in $/kg; gas in $/Mct; oil in $/gal; elec tric ity in $/kWh; labor in $/hr

Key Commodity Heat Map

Source: USDA; BLS; IMF; IntraFish

Key Input Developments:

• Economics: Domestic food demand is poised for

growth but remains handicapped by the strong

dollar.

• Corn, Wheat & Soy Prices: 2015 prices reflected

deflationary pressures, 2016 forecasts anticipate

flattish prices in corn and wheat and modest

inflation in soy.

• Chicken: Prices remain below 2015 levels as grain

prices remain in check, exports are lower and

supplies are ample but tightening.

• Beef: Prices have become deflationary YoY as we

begin to lap the supply driven price spikes of

2014/15 and supplies rebuild to 2013 levels.

• Pork: Prices remain near 2015 levels anchored by

improved production, higher inventories and lower

grain prices.

• Packer Margin Environment: Chicken ratios are

below 2015 levels, beef ratios are breaking out

above 2015 levels, and pork ratios have retreated

from 2015 highs.

• Seafood: Shrimp prices have returned to 2015

levels as imports have decreased; salmon prices

have returned to 2015 levels after a slow start to

2016.

• Dairy: Increasing global milk supplies and the

continued softening of US exports point to prices

remaining below 2015 levels

• Specialty Crops: Focusing on tree nuts this

month; growers anticipate improved yields in 2016

while keeping an eye on opportunities to improve

both foreign and domestic shipments.

• Forestry Products: Housing starts and remodels

continue on an upward trend supporting demand

for framing lumber and structural panels

• Crop Inputs: Fertilizer prices remain under

pressure with higher than expected imports.

Planting season nearing completion for corn and

40% complete for soybeans

• Energy & Labor: Global oil price declines have

kept energy prices near multi-year lows, while we

observe gains in wage inflation across restaurant,

supermarket, and food manufacturing labor.

August 2012

5


$3.50

$4.50

$5.50

$6.50

$7.50

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

2014 2015 2016 Futures

Source: FactSet

$/B

ushel

$3.00

$3.50

$4.00

$4.50

$5.00

$5.50


2014 2015 2016 Futures

Source: FactSet

$/B

ushel

$7.00

$8.50

$10.00

$11.50

$13.00

$14.50

$16.00


2014 2015 2016 Futures

Source: FactSet

$/Bushel

Soft Commodities Prices: 2015 prices reflected deflationary pressures, 2016 forecasts anticipate flattish price levels in corn and wheat and modest inflation in soy.

• The April monthly average corn price of

$3.74/bu increased +2.9% vs. the prior

month and was unchanged vs. the prior

year period.

• The WASDE’s (World Agricultural

Supply and Demand Estimates) median

average farm price projection for

2016/17 is $3.35/bu, down -6.9% from

$3.60/bu in 2015/16. This is the first

projection of the 2016/2017 harvest

year.

• WASDE forecasts global corn production

to be 1,011 million tons in 2016/17

which is up +4.4% vs. 2015/16.

• The April monthly average wheat price

of $4.75/bu increased +1.7% vs. the

prior month and decreased -5.2% vs.

the prior year period.

• The WASDE U.S. median average farm

price forecast for 2016/17 is $4.10/bu,

down -16.3% from $4.90/bu in

2015/16. This is the first projection of

the 2016/2017 harvest year.

• WASDE forecasts global wheat

production to be 727 million tons for

2016/17, which is down -0.9% vs.

2015/16.

Wheat

Corn

Soybeans

• The April monthly average soybean

price of $9.66/bu increased +8.1% vs.

the prior month and decreased -0.5%

vs. the prior year period.

• The WASDE U.S. median average farm

price forecast for 2016/17 is $9.10/bu,

up +2.8% from $8.85bu in 2015/16.

This is the first projection of the

2016/2017 harvest year.

• WASDE forecasts global soybean

production at 324 million tons for

2016/17, which is up +2.6% vs.

2015/16.

August 2012

6


Soft Commodities Fundamentals: Initial 16/17 forecasts point to ample corn and wheat supplies but lower yields tighten soy supplies.

• The May WASDE report for the

2016/17 corn harvest year forecasts

yield per acre to decline -0.2% YoY and

total supply to increase +5.8% YoY.

Ending stocks are expected to be up

+19.4% YoY and stocks to use up

+2.0% YoY.

• The May WASDE report is the first

report for the 2016/2017 harvest year

and thus the month to month

comparisons will continue in the next

issue.

Wheat

Corn

Soybeans

• The May WASDE report for the

2016/17 wheat harvest year forecasts

yield per acre to increase +7.1% YoY

and total supply to increase +6.2%

YoY. Ending stocks are expected to be

up +5.2% YoY and stocks to use down

-0.7% YoY.

• The May WASDE report is the first

report for the 2016/2017 harvest year

and thus the month to month

comparisons will continue in the next

issue.

• The May WASDE report for the 2016/17

soybean harvest year forecasts yield per

acre to decrease -2.7% YoY and total

supply to increase +1.9% YoY. Ending

stocks are expected to be down -23.8%

YoY and stocks to use down -3.0% YoY.

• The May WASDE report is the first report

for the 2016/2017 harvest year and thus

the month to month comparisons will

continue in the next issue.

Source: USDA WASDE

2014/2015 2015/2016E 2015/2016P 2016/2017P M/M Change Y/Y Change

April May Forecast Forecast

Area Planted (mm) 90.6 88.0 88.0 93.6 6.4% 6.4%

Area Harvested 83.1 80.7 80.7 85.9 6.4% 6.4%

Yield per Harvested Acre (bu) 171 168.4 168.4 168 -0.2% -0.2%

Beginning Stocks (mm bu) 1,232 1,731 1,731 1,803 4.2% 4.2%

Production 14,216 13,601 13,601 14,430 6.1% 6.1%

Imports 32 55 50 40 -20.0% -27.3%

Total Supply 15,479 15,387 15,382 16,273 5.8% 5.8%

Exports 1,864 1,725 1,650 1,900 15.2% 10.1%

Total Use 13,748 13,585 13,545 14,120 4.2% 3.9%

Ending Stocks 1,731 1,803 1,837 2,153 17.2% 19.4%

Stocks to Use (%) 12.6% 13.3% 13.6% 15.2% 1.7% 2.0%



Area Planted (mm) 56.8 54.6 54.6 49.6 -9.2% -9.2%

Area Harvested 46.4 47.1 47.1 42.8 -9.1% -9.1%

Yield per Harvested Acre (bu) 43.7 43.6 43.6 46.7 7.1% 7.1%

Beginning Stocks (mm bu) 590 752 752 978 30.1% 30.1%

Production 2,026 2,052 2,052 1,998 -2.6% -2.6%

Imports 149 120 120 130 8.3% 8.3%

Total Supply 2,766 2,924 2,924 3,106 6.2% 6.2%

Exports 854 780 775 875 12.9% 12.2%

Total Use 2,013 1,946 1,948 2,077 6.6% 6.7%

Ending Stocks 753 978 976 1,029 5.4% 5.2%

Stocks to Use (%) 37.4% 50.3% 50.1% 49.5% -0.6% -0.7%



Area Planted (mm) 83.3 82.7 82.7 82.2 -0.6% -0.6%

Area Harvested 82.6 81.8 81.8 81.4 -0.5% -0.5%

Yield per Harvested Acre (bu) 47.5 48.0 48.0 46.7 -2.7% -2.7%

Beginning Stocks (mm bu) 92 191 191 400 109.4% 109.4%

Production 3,927 3,929 3,929 3,800 -3.3% -3.3%

Imports 33 30 30 30 0.0% 0.0%

Total Supply 4,052 4,150 4,150 4,230 1.9% 1.9%

Crushings 1,875 1,880 1,870 1,915 2.4% 1.9%

Exports 1,843 1,740 1,705 1,885 10.6% 8.3%

Total Use 3,861 3,705 3,705 3,925 5.9% 5.9%

Ending Stocks 191 400 445 305 -31.5% -23.8%

Stocks to Use (%) 4.9% 10.8% 12.0% 7.8% -4.2% -3.0%

August 2012

7


$0.60

$0.80

$1.00

$1.20

$1.40

$1.60

$1.80

$2.00


$/lb

2014 2015 2016

Source: USDA

$0.60

$0.75

$0.90

$1.05

$1.20

$1.35

$1.50


$/lb

2014 2015 2016

Source: USDA

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

500

550

600

650

700

750

800

850

900

Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16

Chicken (Million Pounds) Y/Y Change (%)

Source: USDA

-6%

-4%

-2%

0%

2%

4%

6%

180

185

190

195

200

205

210

215

Jan-13 Sep-13 May-14 Jan-15 Sep-15

Egg Sets ( In million) Y/Y% Change

Source: USDA

$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30


$/lb

2014 2015 2016

Source: USDA

450

500

550

600

650

700


million lbs

2014 2015 2016

Source: USDA

Chicken: Prices remain below 2015 levels as grain prices remain in check, exports are lower and supplies are ample but tightening.

Whole Broiler Prices Cold Storage Inventories

Broiler Exports

Egg Sets

• The April USDA broiler price of $0.884/lb increased +2.6%

vs. the prior month and decreased -15.6% vs. Apr15.

• The WASDE U.S. median average price forecast for 2016 is

$0.880/lb, down -2.8% from $0.905/lb in 2015. The prior

projection for 2016 was $0.860/lb. Total 2016 production is

estimated to be 41.04mm lbs., up +2.5% vs. 2015.

• The April average breast price of $1.166/lb increased

+16.3% vs. the prior month and decreased -20.4% vs.

Apr15. The April average thigh price of $0.967/lb increased

+25.1% vs. the prior month and decreased -8.1% vs.

Apr15.

• Fundamentals: Cold storage increased +6.4% in April Y/Y,

which is down -520bp vs. the prior month. Egg sets decreased

-0.6% in April Y/Y, which is down -200bp vs. the prior month.

Exports decreased -10.2% in March Y/Y, which is down

-1790bp vs. the prior month.

• The April combined regional large egg price of $0.66/dozen

decreased -32.5% vs. the prior month and decreased -42.2%

vs. Apr15. The April price is -75% lower than the short-supply

driven peak price of $2.67 in Aug15.

Boneless Skinless Breast Prices

Boneless Skinless Thigh Prices

August 2012

8


-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%


% C

hg Y

oY

2014 2015 2016

Source: USDA

$1.00

$1.10

$1.20

$1.30

$1.40

$1.50

$1.60

$1.70

$1.80


$/lb

2014 2015 2016 Futures

Source: FactSet

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

1,600

1,800

2,000

2,200

2,400


Pounds (

000s)

Baseline Slaughter Incremental Weight Y/Y Change (%)

Source: USDA

150

170

190

210

230

250

270


mill

ion lbs

2014 2015 2016

Source: USDA

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

300

350

400

450

500

550


Beef (million pounds) Y/Y Change (%)

Source: USDA

180

195

210

225

240

255

270


$/c

wt

2014 2015 2016

Source: USDA

Beef: Prices have become deflationary YoY as we begin to lap the supply driven price spikes of 2014/15 and supplies rebuild to 2013 levels.

Cut Out Values

Cold Storage Inventories

Live Cattle Prices

Monthly Cattle Processing

Beef and Veal Exports

Heifer Slaughter

• The April cattle price of $1.20/lb decreased -11.9% vs.

the prior month and decreased -20.2% vs. Apr15.

• The WASDE U.S. median average price forecast for 2016

is $126.5/cwt, down -14.6% from $148.12/cwt in 2015.

The prior projection for 2016 was $134.0/cwt. Total 2016

production is estimated to be 24.8mm lbs., up +4.7% vs.

2015.

• The April average cut-out value decreased -2.6% vs. the

prior month and decreased -15.0% vs. Apr15.

• Fundamentals: Cold storage decreased -2.7% in April Y/Y,

which is down -250bp vs. the prior month. Heifer slaughter

numbers decreased -1.1% in March Y/Y, which is up +40bp

vs. the prior month. Exports increased +0.9% in March Y/Y,

which is up +410bp vs. the prior month. Cattle head

processed increased +6.5% in March Y/Y which is up

+100bp vs. the prior month. Slaughter weight data indicates

that heavier weights contributed to +6.9% of total slaughter

volume, which increased +190bp vs. the prior year period.

August 2012

9


$0.50

$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40


$/lb

2014 2015 2016 Futures

Source: FactSet

-20.0%

-10.0%

0.0%

10.0%

20.0%

1,500

1,700

1,900

2,100

2,300


Pounds (000s)

Baseline Slaughter Incremental Weight Y/Y Change (%)

Source: USDA

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%


% C

hg Y

oY

2014 2015 2016

Source: USDA

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

300

350

400

450

500

550

600

650

700

750


Pork (million pounds) Y/Y Change (%)

Source: USDA

250

300

350

400

450

500

550

600


million lbs

2014 2015 2016

Source: USDA

50

60

70

80

90

100

110

120

130

140


$/c

wt

2014 2015 2016

Source: USDA

Pork: Prices remain near 2015 levels anchored by improved production, higher inventories and lower grain prices.

Cut Out Values

Cold Storage Inventories

Live Hog Prices

Pork Exports

Monthly Processing

Sow Slaughter (3 Month Rolling Average)

• The April average Hog price of $0.79/lb increased +3.1%

vs. the prior month and +2.2% vs. Apr15.


$47.0/cwt, down -6.4% from $50.2/cwt in 2015. The prior

projection for 2016 was $47.0/cwt. Total 2016 production is

estimated to be 25.0mm lbs., up +1.9% vs. 2015.

• The April average cut-out value increased +3.7% vs. the

prior month and +16.4% vs. Apr15.

• Fundamentals: Cold storage decreased -8.1% in April Y/Y,

which is up +20bp vs. the prior month. Sow slaughter

increased +3.0% in March Y/Y, which is up +290bp vs.

the prior month. Exports increased +2.9% in March Y/Y,

which is up +40bp vs. the prior month. Hogs processed

increased +2.0% in March Y/Y which is down -190bp vs.

the prior month. Slaughter weight data indicates that

heavier weights contributed to +3.8% of total slaughter

volume, which is down -40bp vs. the prior year period.

August 2012

10


0.80

0.90

1.00

1.10

1.20

1.30

1.40


1st

QRatio

3rd

Q

2014 2015 2016

Source: USDA

1.40

1.50

1.60

1.70

1.80

1.90


1st

QRatio

3rd

Q

2014 2015 2016

Source: USDA

5.0

10.0

15.0

20.0

25.0


1st

Q

R

atio

3rd

Q

2014 2015 2016

Source: USDA

Packer Margin Environment: Chicken ratios are below 2015 levels, beef ratios are breaking out above 2015 levels, and pork ratios have retreated from 2015 highs.

• The April USDA monthly average

chicken breast price to feed cost ratio

of 14.4 increased +1.5 vs. the prior

month and decreased -4.3 vs. the prior

year period.

• The 10 year average ratio of 15.7

places the Apr16 result in the middle

50% of the 2006-2016 monthly results

• The April USDA monthly average beef

cut-out to live cattle ratio of 1.82

increased +0.17 vs. the prior month

and increased +0.11 vs. the prior year

period.


places the Apr16 result in the top 25%

of the 2006-2016 monthly results.

Beef

Chicken

Pork

• The April USDA monthly average pork

cut-out to live hog ratio of 0.99 was

unchanged vs. the prior month and

increased +0.12 vs. the prior year

period.


places the Apr16 result in the middle

50% the 2006-2016 monthly results.

August 2012

11


30

35

40

45

50

55

60

65


mill

ion kg

2014 2015 2016

Source: NOAA

2.5

3.0

3.5

4.0

4.5

5.0

5.5


$/lb

2014 2015 2016

Source: Urner Barry

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5


$/lb

2014 2015 2016

Source: Urner Barry

Seafood: Shrimp prices have returned to 2015 levels as imports have decreased; salmon prices have returned to 2015 levels after a slow start to 2016.

• The April Urner Barry farm-raised white shrimp price of

$4.27/lb was flat vs. the prior month and decreased -0.2%


• The April Urner Barry fresh farmed salmon price of $3.65/lb

increased +4.4% vs. the prior month and increased +1.9%


• The Undercurrent News 2H14 Alaskan Pollock price of

$3050/metric ton increased +3.4% vs. the 1H14 price of

$2950/metric ton. 2015 Prices remained roughly steady with

2H14 pricing. The pollock marker received a modest boost in

2H15 and early 2016 from stronger surimi pricing. Further

price increases are unlikely due to a 7% increase in 2016

catch quotas.

Urner Barry Fresh Farmed Salmon Index

Urner Barry Farm-Raised White Shrimp Index Shrimp Imports – Total Volume

Alaskan Pollock

Salmon Imports – Total Volume

18

20

22

24

26

28

30

32

34

36


mill

ion kg

2014 2015 2016

Source: NOAA

2600

2700

2800

2900

3000

3100

3200

3300

3400

3500

3600


$/M

etr

ic T

on

2012 2013 2014

Source: Undercurrent News

• The March NOAA measure of total US shrimp imports was

40.0mm kg, a decrease of -10.6% vs. the prior month

and a decrease of -13.0% vs. Mar15.

• The March NOAA measure of total US salmon imports was

30.8mm kg, a decrease of -1.4% vs. the prior month and

an increase of +2.2% vs. Mar15.

• 2015 wild Alaskan landings by specie increased +49.5%

vs. 2014 and was slightly above 2013 total landings. The

increase in landings was led by a +98% rise in pink

salmon.

0

200

400

600

800

1,000

1,200

2011 2012 2013 2014 2015YTD

Pink Sockeye Chum Coho Chinook

Source: Urner Barry

Wild Alaskan Landings by Specie

August 2012

12


12

14

16

18

20

22

24

26


2014 2015 2016 Futures

Source: USDA

$/c

wt

12

14

16

18

20

22

24

26


$/c

wt

2014 2015 2016

Source: USDA

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

14,000

14,500

15,000

15,500

16,000

16,500

17,000

17,500

18,000

18,500

19,000

Jan-13 Jun-13 Nov-13 Apr-14 Sep-14 Feb-15 Jul-15 Dec-15

million lbs

Production (mil lbs) Y/Y Change (%)

Source: USDA

1.0

1.4

1.8

2.2

2.6


$/lb

2014 2015 2016

Source: USDA

1.0

1.5

2.0

2.5

3.0


$/lb

2014 2015 2016

Source: USDA

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

0

2

4

6

8

10

12

14

16

1Q

13

2Q

13

3Q

13

4Q

13

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16F

2Q

16F

3Q

16F

4Q

16F

Bn lbs

milk

equiv

ale

nt

Skim solids Milkfat Y/Y Change (%)

Source: USDA

Dairy: Increasing global milk supplies and the continued soft US exports point to prices remaining below 2015 levels. Class I Milk

American Cheese, 40lb. block

Milk Production

Dairy Exports

• The May USDA class I milk price of $13.70/cwt decreased

-0.3% vs. the prior month and decreased -13.5% vs. May15.

The April average class III milk price of $13.63/cwt decreased

-0.8% vs. the prior month and decreased -13.8% vs. Apr15.


$14.85/cwt, down -13.2% from $17.08/cwt in 2015. The prior

projection for 2016 was $15.25/cwt. Total 2016 production is

estimated to be 212.4bn lbs., up +1.8% vs. 2015.

• The April USDA average cheese price of $1.42/lb decreased -4.6% vs. the prior month and -10.7% vs. Apr15.

• Fundamentals: Milk production increased +1.8% in March

Y/Y, which was down -270bp vs. the prior month. The

milk cow herd size increased +0.2% in March vs. the

prior year period. Total milkfat and skim solid exports are

expected to decrease -13.6% in 2Q16 Y/Y, which is down

-1000bp vs. the prior quarter.

• April average USDA Grade AA butter prices of $2.06/lb

increased +4.9% vs. the prior month and increased

+14.6% vs. Apr15.

Class III Milk

Butter Prices Grade AA

August 2012

13


$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

$/Pound

Source: USDA

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

$/Pound

Source: USDA

2,500

2,900

3,300

3,700

4,100

400

600

800

1,000

1,200

'03 '05 '07 '09 '11 '13Pounds

million lbs

Millions Pounds Yield Per Acre

Source: USDA

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

$1.60

$1.80

$2.00

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

$/Pound

Source: USDA

1,000

1,400

1,800

2,200

2,600

3,000

400

800

1,200

1,600

2,000

2,400

'03 '05 '07 '09 '11 '13

Pounds

million lbs


Source: USDA

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

50

150

250

350

450

550

650

'03 '05 '07 '09 '11 '13 '15

Pounds

million lbs


Source: USDA

Specialty Crops: Focusing on tree nuts this month; growers anticipate improved yields in 2016 while keeping an eye on opportunities to improve both foreign and domestic shipments.

Almond Prices Pistachio Prices

Walnut Acres & Yield

Pistachio Acres & Yield

• The 2014 USDA average grower price for almonds of

$3.19/lb decreased -0.6% vs. the 2013 average price of

$3.21/lb.

• The 2014 total annual almond production of 1,870 million

pounds decreased -7.0% vs. the 2013 annual production of

2,010 million pounds. The 2014 average yield per acre of

2,150 pounds decreased -9.3% vs. the 2013 average of

2,370 pounds.

• The 2014 USDA average grower price for walnuts of


$1.86/lb.

• The 2014 USDA average grower price for pistachios of


$3.48/lb.

• The 2014 total annual pistachio production of 280mm

pounds decreased -46.1% vs. the 2013 production of

519mm pounds. The 2014 average yield per acre of 1,232

pounds decreased -47.6% vs. the 2013 average of 2,352

pounds.

• The 2014 total annual walnut production of 1140mm pounds

increased +15.8% vs. the 2013 production of 984mm

pounds. The 2014 average yield per acre of 3,940 pounds

increased +11.9% vs. the 2013 average of 3,520 pounds.

Almond Acres & Yield

Walnut Prices

August 2012

14


$300

$320

$340

$360

$380

$400

$420


$/T

housand S

q F

t

2014 2015 2016

Source: Random Lengths

0%

2%

4%

6%

8%

10%

12%

175

195

215

235

255

275

295

315

1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16

$ B

illions

$ Billions Spent Y/Y Change (%)

Source: jchs.harvard.edu

-40%

-20%

0%

20%

40%

60%

700

800

900

1,000

1,100

1,200

1,300

Jan-13 Jun-13 Nov-13 Apr-14 Sep-14 Feb-15 Jul-15 Dec-15

Thousand U

nits

New Units Y/Y Change (%)

Source: US Fed

$200

$250

$300

$350

$400

$450


$/T

housand S

q F

t

2014 2015 2016

Source: Random Lengths

Forestry Products: Housing starts and remodels continue on an upward trend supporting demand for framing lumber and structural panels Framing Lumber Index U.S. Housing Starts

Repair & Remodel Expenditures (LTM total)

• The April Framing Lumber Composite Index of

$347/thousand sq ft increased +4.8% vs. the month prior

and +4.8% vs. the prior year period.

• The April Structural Panel Composite Index of

$358/thousand sq ft increased +1.7% vs. the prior month

and decreased -1.6% vs. the prior year period.

• The March U.S. Housing Starts of 1.09 million units decreased

-8.8% vs. the prior month and increased +14.2% vs. the prior

year period.

• The 1Q16 LTM repair and remodel total expenditure of

$294.9Bn increased +3.3% vs. the prior quarter and +4.7%


Structural Panel Index

August 2012

15


300

350

400

450

500

550

600


$/S

T

2014 2015 2016

Source: FactSet

60

70

80

90

100

110

120


$/S

T

2014 2015 2016

Source: FactSet

200

250

300

350

400

450

500

550

600

650


$/S

T

2014 2015 2016

Source: FactSet

Crop Inputs: Fertilizer prices remain under pressure with higher than expected imports. Planting season nearing completion for corn and 40% complete for soybeans.

Urea Potash and Phosphate

DAP Ammonia

• The April average urea index price of $236.5/ST decreased

-7.3% vs. the prior month and decreased -15.8% vs. the

prior year period.

• The April average DAP index price of $375.0/ST decreased

-3.8% vs. the prior month and decreased -26.8% vs. the

prior year period.

• The April average potash and phosphate index price of

$73.0/ST increased +1.7% vs. the prior month and

decreased -18.4% vs. the prior year period.

• The April average ammonia index price of $285.0/ST was

flat vs. the prior month and decreased -35.8% vs. the

prior year period.

150

200

250

300

350

400

450


$/S

T

2014 2015 2016

Source: FactSet

$1.80

$2.20

$2.60

$3.00

$3.40

$3.80

$4.20


$\G

allon

2014 2015 2016

Source: EIA

Diesel Fuel Prices

$1.60

$2.00

$2.40

$2.80

$3.20

$3.60

$4.00


$\G

allon

2014 2015 2016

Source: EIA

Gasoline Prices

• The April average diesel fuel price of $2.15/gal increased

+3.0% vs. the prior month and decreased -22.6% vs. the

prior year period.

• The April average regular grade gasoline price of $2.11/gal

increased +7.3% vs. the prior month and decreased -14.4%


August 2012

16


$6.50

$7.00

$7.50

$8.00

$8.50

$9.00

$9.50

$10.00

$10.50


$/t

cf

2014 2015 2016

Source: EIA

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16

Y/Y Change %

Source: BLS

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%


Y/Y Change %

Source: BLS

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%


Y/Y Change % 3 Month Avg

Source: BLS

9.8

10.0

10.2

10.4

10.6

10.8

11.0

11.2

11.4


cents

/kw

h

2014 2015 2016

Source: BLS

$1.80

$2.10

$2.40

$2.70

$3.00

$3.30

$3.60

$3.90

$4.20


$\G

allon

2014 2015 2016

Source: EIA

Energy and Labor: Global oil price declines have kept energy prices near multi-year lows, while we observe gains in wage inflation across restaurant, supermarket, and food manufacturing labor.

Natural Gas Retail Prices Restaurant Hourly Earnings

Heating Oil Retail Prices Supermarket Hourly Earnings (3 Month Rolling Average)

Commercial Electricity Prices Food Manufacturing Hourly Earnings

• The April average natural gas price of $7.03/Mcf

increased +0.3% vs. the prior month and decreased

-11.8% vs. the prior year period.

• The April average heating oil price of $2.06/gal increased

+5.5% vs. the prior month and decreased -25.4% vs. the

prior year period.

• The April average electricity price of $0.1013/kWh

decreased -0.3% vs. the prior month and decreased

-1.8% vs. the prior year period.

• The restaurant labor index increased +3.3% Y/Y in April,

which was up +20bp vs. the prior month and down -10bp


• The supermarket labor index increased +2.3% Y/Y in

March, which was up +10bp vs. the prior month and up

+100bp vs. the prior year period.

• The food manufacturing labor index increased +4.0% Y/Y

in April, which was up +20bp vs. the prior month and up

+240bp vs. the prior year period.

August 2012

17


Colin Guheen, CFA Packaged Food, Restaurant and Food Retail Industry Risk Consultant [email protected] 212-214-3524

Food & Agribusiness Industry Advisors

General disclosures The 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.

Christopher Innes, CFA Packaged Food, Restaurant and Food Retail Industry Risk Analyst [email protected] 212-214-7823 Michael Swanson, Ph.D. Chief Agriculture Economist [email protected] 612-667-5136 Denise Cahill Industry Advisors Group Manager [email protected] 559-622-3012 Karol Aure-Flynn Specialty Crops Analyst, Analyst Team Lead [email protected] 559-622-3045 Chris Eggerman Sector Analyst [email protected] 913-234-7702 Courtney Schmidt Sector Analyst [email protected] 361-574-5207

Kevin Bergquist Forest Products Sector Manager [email protected] 503-886-4148 David Branch Specialty and Non-Grain Crop Sector Manager [email protected] 704-410-8997 Scott Etzel Protein - Seafood Sector Manager [email protected] 503-886-4164 Rob Fox Dairy Sector Manager [email protected] 312-845-9743 Tim Luginsland Grain & Oilseed Sector Manager [email protected] 913-234-2921 Lee Ann Pearce Specialty and Non-Grain Crop Sector Manager [email protected] Matt Stommes Protein - Poultry & Beef Sector Manager [email protected] 612-316-3724 Lon Swanson Crop Inputs/Feed Sector Manager [email protected] 913-234-2922

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