the outlook for food & ag: a global and local...

The Outlook for Food & Ag: A Global and Local Perspective

Agricultural Personnel Management Association 33rd Annual APMA Forum

Vernon Crowder Senior Vice President, Agricultural Economist Food & Agribusiness Research and Advisory Rabobank, N.A.

7 February 2013

2 Rabobank International Market Developments & Outlook

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Global Sector-Specialist Bankers

Animal Protein

Beverages

Crop Inputs

Dairy

Grains & Oilseeds

Sugar

Value Added Processing

blank Rabobank, N.A.


Mission

To provide thought leadership on the global F&A

sector to create a unique competitive advantage

that positions Rabobank as the world’s leading

F&A bank.


4 Rabobank International Market Developments & Outlook 4

FAR Global

A worldwide network of research professionals enthusiastic about F&A!

Over 80 people

in 13 different

countries

9 key global sectors

−Animal Protein

−Grains & Oilseeds

−Farm Inputs

−Sugar

−Dairy

−Beverages

−Clean Tech

−Food Processing



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Corn Price per Unit Average Corn Price

What Happened to Prices

Rabobank, N.A.

Farm Liquidity

Rabobank, N.A. blank


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 feed 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

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But corn hit $8.00 in 2012, no longer $2.50; THREE BIG CHANGES

The Basics Have Remained The Same

Agricultural land (1,000 ha) Global population (in millions)

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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.

Unfortunately, productivity from yield improvement is decelerating.

The world has changed from one of structural surplus to structural deficits.



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.

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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Population Growth Engines

Source: IMF, Rabobank

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Billion USD

Brazil China Germany India Japan United Kingdom United States



… 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% 7.80% 8.20% 1,331,460,000

India 6.80% 4.90% 6.00% 1,155,348,000

Indonesia 6.50% 6.00% 6.30% 229,965,000



Income growth is fastest in countries with large populations, this is driving demand growth

BUT WHICH MOSTLY ARE IN GRAIN DEFICIT REGIONS

Source: USDA, 2011

Poultry Consumption Developing Markets Developed Markets

Most Of Which Will Come From Developing Markets

Source: USDA, 2011

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Argentina Brazil

China India

Iran Mexico

Russia South Africa

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United States EU-27 Japan



Developed Economies Have More Inelastic Demand For Meat

Tight conditions in raw grain supplies eventually leads to meat rationing through higher prices in developing countries



KFC is adding almost one new store per day in China. MCD also growing rapidly.

Suppliers are struggling to keep up.

+ hard to secure an assemblage of land

+ labor costs are rising rapidly, labor availability in decline

+ biosecurity a huge challenge (disease, antibiotics)

+ these chains only use about 20% of the bird

KFC and McDonald’s Restaurants in China

Source: Company data, Bloomberg, Reuters, 2011

The Struggle For Supply Growth In China

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Even with only 2% pork

production growth, China

could be importing 25

MM MT of corn per year by

2015 due to industrialization

China’s corn balance sheet

Source: MOA, USDA, FAPRI, Rabobank estimates

China Consumption To Continue Driving Commodity Prices

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1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Actual EstimateMT

Rabobank estimate



What Does All of This Make Agricultural Markets???

The Dog That Has Finally Caught the Car!



California Agricultural Outlook

Rabobank, N.A.

Total receipts $ 43,500,000,000

Fruits $ 9,249,000,000

Milk $ 7,681,000,000

Nuts $ 6,069,000,000

Vegetables $ 6,018,000,000

Nursery & Floriculture $ 3,687,000,000

Cattle & Calves $ 2,825,000,000

Hay $ 1,735,000,000

Cotton $ 894,000,000

Processing tomatoes $ 887,000,000

Rice $ 774,000,000

2011 USDA/NASS data



Fruits

Crop Value 2011 acreage

2001 to 2011 acreage change

2001 to 2011 price change

All Grapes $3,861,000,000 796,000 -1% +30%

Wine Grapes $2,161,000,000 506,000 +5% +7%

Raisin Grapes $865,000,000 205,000 -13% +118%

Table Grapes $835,000,000 85,000 -3% +33%

Rabobank, N.A.

Total Value $9,249,000,000

Grapes

Rabobank, N.A.


…Other major fruits




Strawberries $1,948,000,000 38,000 +44% +26%

Oranges $656,000,000 180,000 -9% +66%

Avocados $460,000,000 52,200 -12% +105%

Lemons $436,000,000 45,000 -11% +36%

Peaches $289,000,000 47,500 -27% +27%

Cherries $197,250,000 29,000 +31% +91%

Rabobank, N.A. Rabobank, N.A.


Rabobank, N.A.

2011 production

2001 to 2011 production change


2001 to 2011 herd change

41,462,000,000 lbs +25% +32% +14%

•Despite growth and higher milk prices,

expensive feed is hurting margins

•However, world demand is relatively

strong and growing

Milk

Total Value $7,681,000,000



Tree Nuts




All Nuts $6,069,000,000 1,162,000 +43% N/A

Almonds $3,867,000,000 760,000 +39% +111%

Walnuts $1,323,000,000 245,000 +20% +156%

Pistachios $879,000,000 153,000 +96% +96%


//upload.wikimedia.org/wikipedia/commons/1/17/Almondtrees.jpg


Vegetables

Rabobank, N.A.




All Vegetables* $6,018,000,000 800,000 -24% N/A

Lettuce $1,513,000,000 209,000 -1% -14%

Broccoli $684,000,000 126,000 +3% +32%

Carrots $670,000,000 67,000 -7% +93%

Fresh Tomatoes $378,000,000 35,500 -13% +22%

Rabobank, N.A.

*Does not include processing tomatoes


Nursery, Greenhouse & Floriculture

Crop Value 2001 to 2011 change in value

Total $3,687,000,000 +19%

Nursery Products $2,676,000,000 +28%

Flowers and Foliage $1,011,000,000 +1%

Cut Flowers $278,000,000 -5%

Potted Flowering plants $243,000,000 +19%

Bedding/garden plants $247,000,000 -18%

Foliage for indoors $110,000,000 -2%



Rabobank, N.A.

Herd Inventory

2001 to 2011 inventory change

2001 to 2011 price received change

Cattle & Calves 5,350,000 +1% +59%

•California cattle industry highly influenced by dairy industry

• 73% of CA cow/heifer herd (weighing 500 lbs or more) is from dairies, 59%

20 years ago

• Beef cow sector hurt by drought, high feed costs

• Expect high beef prices as US tries to rebuild cattle stocks

Cattle & Calves

Total Value $2,825,000,000



Hay




All Hay $1,735,000,000 1,390,000 -11% +94%

Alfalfa $1,439,000,000 880,000 -13% +99%

Other hay $296,000,000 510,000 -7% +72%

Rabobank, N.A.

•Acreage is competing with other high value crops

•Dairies are the largest user of alfalfa hay

•However, hay exports are still very strong (doubled over

last 15 years)



Cotton

•CA produces 92% of US pima (which is 60% of state’s cotton) •There will be significant downward pressure on US acreage due to competition from alternative crops, such as corn and soybeans.

Rabobank, N.A.




All Cotton $893,952,000 456,000 -47% N/A

Pima $614,000,000 273,000 +14% +92%

Upland $296,000,000 182,000 -71% +160%



Processing tomatoes

Rabobank, N.A.




Processing tomatoes $887,000,000 255,000 -1% +29%


//upload.wikimedia.org/wikipedia/commons/b/b4/ARS_Ohio_processing_tomato.jpg


Rice

•CA produces primarily Calrose medium grain rice (about 80% of production), with the rest short grain and organics •California’s rice varieties have fared better than the larger Southern US rice industry in recent years •High input cost and volatile world markets remain a challenge

Rabobank, N.A.




All Rice $774,000,000 585,000 +24% +201%



Water: Tapping Out

Permanent plantings are fastest growing CA crop sector

Water has become more difficult to obtain

Requires more reliance on water markets

Long term solutions will require significant investment

Strained water supplies are exposing permanent planting sector to shortages



California Farmland Values Rise at More Modest Pace


California Farmland values have appreciated at much lower rate compared to Midwest.

Few properties have been changing hands, but when they do it is well capitalized operators buying

The majority of interest is in permanent crops such as pistachios, almonds, walnuts, mandarins, grapes, and ground suitable for these purposes

Most of the land appreciation will likely happen in the San Joaquin Valley, but could slow in coming years

Land values will be highly influenced by profitability of specific sectors


Confidence:

The feeling just before you completely understand the situation

• 2012 a good case for new normal

• Has enough rationing happened?

• Which sectors will be rationed?

• How will China respond to 2012 market conditions?

• How will competition for acres shape up in 2013?

• Reverse grain flow

• What will drive speculators back into the markets?


“The financial link in the

global food chain”™

Contact Details

Rabobank N.A. Vernon Crowder Senior Vice President, Agricultural Economist Food & Agribusiness Research and Advisory [email protected]

DISCLAIMER Professional advice is recommended for all financial and strategic decisions. However, this information is not professional advice and has not been prepared to be used as the

basis for, and should not be used as the basis for, any such decisions. This information is general in nature only and does not take into account an individual’s personal

circumstances. No representation is made that any forecast or projected information is correct or will eventuate. Although reasonable efforts have been taken to ensure the

accuracy of the contents of this publication, no warranty is given in regard to the total accuracy of the printed contents. The persons involved in the preparation and

distribution of this information and their related persons disclaim all liability for any loss or damage suffered due to any use of or reliance on the information.

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