dtn ag summit prospects for livestock recovery, december 2012 · market developments & outlook...

Rabobank International

Prospects for Livestock Recovery, December 2012 David Nelson, Global Strategist

DTN Ag Summit

2 Rabobank International Market Developments & Outlook

Key Points of Delta for Animal Protein Key Drivers for:

Beef Pork Chicken

Presentation Outline


Major Trends in Global Animal Protein Production


… 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/meat demand growing

Higher GDP growth Higher protein consumption Higher grain demand

Country 2011 GDP Growth Rate

2012 Forecast GDP Growth

Rate

2013 Forecast GDP Growth

Rate Population

China 9.20% 8.00% 8.40% 1,331,460,000

India 7.13% 6.14% 6.30% 1,155,348,000

Indonesia 6.46% 6.00% 6.35% 229,965,000


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

The disconnect is that demand growth for meat protein is coming mostly from grain deficit regions – will the demand be served by imports of grain or animal protein?

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

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

Argentina Brazil

China India

Iran Mexico

Russia South Africa

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

United States EU-27 Japan


World GDP growth continues to outpace animal protein production growth – so demand is outstripping supply which leads to high meat prices.

Animal protein production is adapting to structurally higher and more volatile grain prices. Given the lag factor caused by animal life-cycles, this process will take time.

The shorter life cycle for poultry, in addition to feed conversion advantages, provides a relative advantage to other proteins.

Especially that from developing markets

Sources: World Bank for GDP data and forecast, USDA for meat production, Rabobank for meat production forecast

Meat Production < GDP = Higher Meat Prices

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2006 2007 2008 2009 2010 2011 2012 (f)

GDP Total meat Beef Pork Broiler


U.S. wage costs have barely budged over the last decade, while costs for Brazil are up 70% and up over 350% in China.

The relative disadvantage of US based production is diminishing.

Brazil, China and US Real Wage Index

Source: IBGE, BLS, Bloomberg, 2012

Labor:US improving relative cost competitiveness

100

150

200

250

300

350

400

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

China Brazil US


It’s not just about feed costs and conversions anymore

Source: Bloomberg, 2012

But big swings in currency affect competitiveness

-15%

-10%

-5%

0%

5%

10%

15%

20%

1/8/

2015

1/29

/201

5

2/19

/201

5

3/12

/201

5

4/2/

2015

4/23

/201

5

5/14

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5

6/4/

2015

6/25

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5

7/16

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5

8/6/

2015

8/27

/201

5

9/17

/201

5

10/8

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5

10/2

9/20

15

11/1

9/20

15

12/1

0/20

15

12/3

1/20

15

1/21

/201

6

2/11

/201

6

3/3/

2016

3/24

/201

6

4/14

/201

6

5/5/

2016

Euro/USD BRL/USD RUB/USD


YUM!®

China and India QSR outlets1

QSR growth in developing markets, particularly in China and India

  QSR penetration in India is currently much lower than in China, but with high growth potential

  QSR chains underestimated supply chain challenges. Will they pay for security? Other 20%?

  Hard to assemble land, labor costs rising, bio-security big issue

  Poultry companies need boots on the ground to understand local dynamics

(TH Units)

Key elements affecting poultry markets

Source: Company filings, Annual Reports and Investor Presentations 1. 2011 figures represent the latest available data reported 2.  McDonald’s figures estimated based on historical performance and

guidance from available press releases

4,190

1,400 318 67

9,000

4,150

900

10,000

-

2,000

4,000

6,000

8,000

10,000

12,000

2011 2020F 2011 2020F 2011 2015F 2011 2020F

305 271 484

1

2,000

500

1,000

300

-

500

1,000

1,500

2,000

2,500

YUM!® 2011 2020F 2011 2020F 2011 2020F 2011 2015F


Indian QSR Outlets

Source: Industry estimates, 2012

Units Units

Bigger potential, but from smaller base in India

Source: Industry estimates, 2012

0

100

200

300

400

500

600

700

800

900

2012 2015 (planned)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

China India

India vs. China QSR Outlets


Global Perspectives

Beef


US: Overall production to decline, likely high single digits Key swing factors include: rain imports (Mexico) weights dairy

EU: Policy will shift and reduce production in coming years

Brazil: Still increasing production but not expanding the herd

Australia: Modest growth

India: Big growth to continue, but will eventually slow

Beef summary


Protein production is not keeping up with global GDP growth. This is good for pricing and the industry.

Land that has been in beef pasture is finding higher and better use

Sources: World Bank for GDP data and forecast, USDA for meat production, Rabobank for meat production forecast

World Beef Production

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2006 2007 2008 2009 2010 2011 (f) 2012 (f)

GDP Total meat Beef


2007 2008 2009 2010 2011 2012 2013f

United States

12,097 12,163 11,891 12,047 11,997 11,469 10,500

Brazil 9,303 9,024 8,935 9,115 9,030 9,644 10,000

EU-‐27 8,188 8,090 7,700 7,900 7,800 7,500 7,300

India 2,413 2,552 2,514 2,842 3,170 3,505 4150

Argen?na 3,300 3,150 3,380 2,620 2,530 2,580 2700

Australia 2,172 2,159 2,129 2,087 2,150 2,200 2280

World 58,438 58,382 57,182 57,117 56,888 57,001 56500

The big picture is that land used for beef pasture is finding higher and better uses. This is dairy and many countries. In Brazil pasture land continues to shift toward crop production.

Beef Production, 1,000 mt

Source: USDA, Rabobank forecasts, 2012, 2013

World beef output stagnant at best


Beef

United States


2010 2011 2012 2013 YoY % change

Q1 6,248 6,411 6,283 6,075 -3.3%

Q2 6,547 6,559 6,475 6,255 -3.4%

Q3 6,768 6,735 6,584 6,220 -4.5%

Q4 6,741 6,490 6,245 5,970 -4.4%

Total 26,304 26,195 25,587 24,630 -4.2%

Swing factors for 2013:

Rain Weights

Mexican imports

Heifer retention

USDA forecasting 3.9% decline in US beef production for 2013. Rabobank believes it could be closer to 10%.

Key issue is moisture

US Beef Production, million lbs

Source: USDA, 2012

US beef production to fall 3-9% in 2013


Western Kansas Steer Price

Source: USDA, Rabobank forecast, 2012

Rabobank Steer Price Forecast

USD/cwt

80 85 90 95

100 105 110 115 120 125 130 135 140 145 150

5 YR AVG 2011 2012 PROJ. 2013 Proj.


In the US, beef demand has declined

Consumers paying up for beef, but in less quantity

Source: Bloomberg, Rabobank, 2012

US beef demand curve has shifted in

00 01

02

03 04 05 06

07 08

09

10

11

12

13

110

120

130

140

150

160

170

180

190

200

210

75 80 85 90 95 100

Ch

oic

e b

eef

cuto

ut

pri

ce,

US

cen

ts/

lb

US beef consumption per capita, lbs


“If it rains”


Beta-agonists have contributed to increased slaughter weights over the last year.

Overall beef production is only down 2% YOY.

Average Steer Carcass Weight

Source: USDA, 2012

Heavier weights have helped maintain production

Lbs

790

800

810

820

830

840

850

860

870

880

890 1/7/2016

1/21/2016

2/4/2016

2/18/2016

3/3/2016

3/17/2016

3/31/2016

4/14/2016

4/28/2016

5/12/2016

5/26/2016

6/9/2016

6/23/2016

7/7/2016

7/21/2016

8/4/2016

8/18/2016

9/1/2016

9/15/2016

9/29/2016

10/13/2016

10/27/2016

11/10/2016

11/24/2016

12/8/2016

12/22/2016

WEEK 5 Yr Avg 2011 2012


Liquidation likely to be less than expected as cow-calf margins remain strongest segment in beef supply chain.

Poor 12/13 corn crop means increase in corn cut for silage, making feed availability better than consensus expectation.

However, very little expansion is expected longer term as domestic consumption stagnates and volatile input prices favor proteins with shorter life cycles.

Beef Cow Slaughter

Source: USDA, 2012

The US situation: reduced beef cow slaughter…

1,000 head

45

55

65

75

85

95

105

115

1/8/

2016

1/22

/201

6

2/5/

2016

2/19

/201

6

3/4/

2016

3/18

/201

6

4/1/

2016

4/15

/201

6

4/29

/201

6

5/13

/201

6

5/27

/201

6

6/10

/201

6

6/24

/201

6

7/8/

2016

7/22

/201

6

8/5/

2016

8/19

/201

6

9/2/

2016

9/16

/201

6

9/30

/201

6

10/1

4/20

16

10/2

8/20

16

11/1

1/20

16

11/2

5/20

16

12/9

/201

6

12/2

3/20

16

5 yr avg 2011 2012


Mexican Imports As A Percent of U.S. COF

Source: USDA, 2012

Mexico an important source of US feeder cattle

0%

2%

4%

6%

8%

10%

12%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011


Mexican Feeder Exports as a Percentage of Mexican Beef Cows

Source: USDA, 2012

…but imports have been unsustainable

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

0%

5%

10%

15%

20%

25%

Feeder Exports as a Percentage of Mexican Beef Cows Beef Cows


Mexican Feeder Cattle Imports

Source: USDA, 2012

Import decline to reduce US supplies by 2+%

Head

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

1 1 9 1 1 9 1 1 1 1 9 1 9 1 1 1 1 1 9 2 0 2 2 2 0 2 2 2 2


Beef

Europe


Dairy based beef to grow at the expense of ‘quality beef supply

EU dairy quota abolition 2015

  Dairy production and dairy based beef to grow in countries currently restricted by dairy quota  Ireland,  Denmark,  the Netherlands,  Germany,  Belgium,  some regions in France

  ‘Quality’ Beef production to relocate to southern Europe

  Wildcards are:  Global dairy price 2015 which might delay

grow dairy production  Competition for land  Impact CAP 2014-2020

Beef: Dairy quota abolition to relocate beef production, impact on volume limited


Beef

Brazil


Exports growing at an annual rate of 6% (average) in the period

Per capita consumption slowing down and increasing at an annual rate of 1%

Where could we be wrong?

Upside -Exports may acelerate if part of the projected corn supply surplus is directed to poultry production

-Further acceleration of per capita consumption growth

Downside

-Deceleration of the world economic growth

-Disease outbreak/trade barriers

-Civil war in Mena

- Population growing at a lower rate

Brazilian beef exports are expected to take off in the coming years

Source: UBABEF, Informa Economics, Raboban estimates

Brazilian Beef Opportunities

Beef domestic consumption and exports

[mn t.]

2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003

Consumption

Exports Forecast


These obstacles are placed in several forms

Threats

Source: ABIEC, ABIPECS, UBABEF, Icone, USDA

Techinical Barriers

 No recognition of the “regionalisation” principle (South Korea, Indonesia, Mexico, Canada, Japan & The US)

 Russia

 EU – Lista Trace

 Ractopamine, Ivermectine (China, EU, The US etc)

Tax barriers

 Multilateral vs. Bilateral trade agreements

World beef imports

EU-27

United States 13%

Mexico 4%

Korea, South 6%

Vietnam 5%

Japan

11% Others

Saudi Arabia 3%

Egypt 3%

Canada 4%

Russia Venezuela

3%

World pork exports

Others

Ukraine 2%

Hong Kong

China

Australia 3%

Russia Canada

3%

The US

6% Korea, South

9%

Mexico 10%

Japan

19%

Brazil does not access 39% and 47% of the total beef and pork international market, respectively.

Allowed

Not allowed


Heifer retention from 2008-9 is resulting in larger calf crops and increased beef production for Brazil. This helps with capacity utilization. The outlook for the Brazilian beef industry is favorable for the next several years – especially with the recent devaluation of the Real relative to the US$.

Brazilian Slaughter by Gender

Source: Informa – FNP, 2012

Percent Million head

Brazilian Cattle

Source: Informa – FNP, 2012

47% 46%

46%

49%

51%

49%

46% 46%

48%

50%

53%

54%

54%

51%

49%

51%

54%

54%

52%

50%

40%

42%

44%

46%

48%

50%

52%

54%

56%

Female Male

Brazilian Calf Crop

44.26 44.14

44.97

47.09

46.53

43.98 44.29

46.47

47.02

47.4


After several years of drought impacted production, volume in Australia is starting to rise in 2012 – and should continue to increase for the next several years – weather permitting.

Australian Cattle and Beef

Source: MLA, 2012

Note: Beef Production in carcass weight equivalent, exports in shipped weight

Australia

Cattle herd in 1,000 head, beef in 1,000 metric tonnes

0

500

1,000

1,500

2,000

2,500

3,000

25,000

26,000

27,000

28,000

29,000

30,000

31,000

32,000

2008

2009

2010

2011

e

2012

f

2013

f

2014

f

2015

f

2016

f

Beef production (RHS) Beef exports (RHS) Cattle herd (LHS)


Beef

India


Allanasons; 50%

MK Overseas;

8%

Fair exports;

8%

Hind Agro; 6%

Al-kabeer; 7%

Mirha; 7%

Others; 15%

India has become a much bigger player in global protein markets as an exporter of buffalo meat from their dairy industry.

The price is competitive relative to beef from Australia and New Zealand – but is not a comparable product.

We believe exports will continue to be strong for the next several years, then slow and potentially move toward net liquidtation.

Exporters of this product are quite consolidated.

Source: USDA, Rabobank, 2012 Source: UN Comtrade, 2011

Source: USDA, 2012 Source: Rabobank estimates, 2012

Landed Price of Beef Imports in Malaysia Indian Buffalo Supply and Slaughter

Indian Bovine Meat Production and Consumption Key Indian Exporters

Indian Beef

$0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 $3.50 $4.00 $4.50 $5.00

India Australia New Zealand

US

D/

kg

0

1,000

2,000

3,000

4,000

0

10,000

20,000

30,000

40,000

50,000

2011 2012 2013 2014 2015 2016

Th

ou

san

d t

on

ne

tho

usa

nd

hd

Exports (RHS) Slaughtered (LHS) New Born (LHS)

0 500

1,000 1,500 2,000 2,500 3,000 3,500 4,000

tho

usa

nd

to

nn

e

Production Consumption


Global Perspectives

Hogs and Pork


Liquidation in Europe

China?

US situation

Key points of Delta in Pork Markets


Hog production economics have been poor for four years in a row.

A ban on sow crates comes into effect in 2013 which is exacerbating liquidation.

EU Average Pig Price

Source: Rabobank, 2012

Prices in Europe reflecting liquidation

EUR/kg

1.2

1.3

1.4

1.5

1.6

1.7

1.8

1.9

2

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

2010 2011 2012


Higher animal welfare and environmental costs will add further to the disadvantage of animal protein production in Europe.

Requiring non-GMO soybean meal adds at least $60/ton to cost.

EU policy measures threatening competitiveness

Source: Rabobank

Key Pork Industry Issues: Europe

Pork cost price increases due to policy measures for selected EU countries (in EUR cent per kg cwe)

0

5

10

15

20

25

2007 2013 2007 2013 2007 2013 2007 2013 2007 2013 2007 2013

Environment Production rights Animal Welfare Public health Spatial Planning

NL PL ES DK FR DE


China Hog Raising Profitability

Source: Soozhu, 2012

Despite poor profitability, China not liquidating

Yuan/head


Animal protein production is economically disadvantaged in China.

China has been competitive in labor intensive industries. Ag is land intensive. China is land disadvantaged.

Issues:

Safety and security of supply chain Soy deficit, emerging corn deficit Cold chain

Land availability Labor costs and availability rising rapidly Food safety

Protein production in China is very costly


Price of corn: US vs China

USD/bushel

0.00

2.00

4.00

6.00

8.00

10.00

12.00

1/8/

2009

3/

8/20

09

5/8/

2009

7/

8/20

09

9/8/

2009

11

/8/2

009

1/8/

2010

3/

8/20

10

5/8/

2010

7/

8/20

10

9/8/

2010

11

/8/2

010

1/8/

2011

3/

8/20

11

5/8/

2011

7/

8/20

11

9/8/

2011

11

/8/2

011

1/8/

2012

3/

8/20

12

5/8/

2012

7/

8/20

12

9/8/

2012

11

/8/2

012

1/8/

2013

3/

8/20

13

5/8/

2013

7/

8/20

13

9/8/

2013

11

/8/2

013

1/8/

2014

3/

8/20

14

5/8/

2014

7/

8/20

14

9/8/

2014

11

/8/2

014

1/8/

2015

3/

8/20

15

5/8/

2015

7/

8/20

15

9/8/

2015

11

/8/2

015

1/8/

2016

3/

8/20

16

5/8/

2016

7/

8/20

16

9/8/

2016

11

/8/2

016

N. Central IL Corn Dalian spot corn


US Pork Exports

Source: USDA, 2012

Exports more important: Risk and Opportunity

1,000 mt

0%

5%

10%

15%

20%

25%

0

500

1,000

1,500

2,000

2,500

3,000

Exports % of production


For the most recent month, September, exports were down 2% y/y, but up 3% m/m/.

China, -42%

Japan, -44% Taiwan, -19%

Russia, -8%

But,

Mexico, +23% SK, +34.5%

Canada, +10%

2011 US Pork Exports by Destination

Source: USDA, 2012

Key export destinations are grain deficit countries

Japan 29%

Mexico 20%

Canada 10%

South Korea 9%

China 13%

Russia 4%

Hong Kong 3%

Australia 4%

Philippines 2%

Other 8%


2007 2008 2009 2010 2011 2012 2013f

EU-‐27 22,858 22,596 21,300 21,300 22,400 21,900 21,200

United States 9,962 10,599 10,442 10,186 10,332 10,562 10,300

Brazil 2,990 3,015 3,130 3,195 3,227 3,311 3,290

Canada 1,746 1,786 1,789 1,772 1,770 1,775 1,750

Pork Production, 1,000 mt

Source: USDA, Rabobank forecasts, 2012

World pork production to fall in 2013


Futures market providing hedging opportunititees

Risk Management


Producers that took advantage of forward markets were able to lock in strong summer profits, and limit losses into 2013.

1/11/2012


Hog production forward curve – volatile year

USD/head

17.17 18.43

16.99 17.05

(0.69)

(3.95)

(10.00)

(5.00)

0.00

5.00

10.00

15.00

20.00

MAY

12

JUN

12

JUL

12

AU

G 1

2

OCT

12

DEC

12



7/17/2012



USD/head

(55.13)

(42.75)

(33.17)

(20.88)

(14.03) (11.97) (11.12)

(27.78)

(60.00)

(50.00)

(40.00)

(30.00)

(20.00)

(10.00)

0.00

DEC

12

FEB 1

3

APR

13

MAY

13

JUN

13

JUL

13

AU

G 1

3

OCT

13



9/28/2012



USD/head

(43.92)

(29.94)

(12.98)

5.24

11.29 11.55

15.70

5.20

0.47

(50)

(40)

(30)

(20)

(10)

0

10

20

DEC

12

FEB 1

3

APR

13

MAY

13

JUN

13

JUL

13

AU

G 1

3

OCT

13

DEC

13



11/21/2012



USD/head

(18.92)

(5.62)

5.10

18.13

24.03 23.42

27.11

10.75

3.52

(30)

(20)

(10)

0

10

20

30

DEC

12

FEB 1

3

APR

13

MAY

13

JUN

13

JUL

13

AU

G 1

3

OCT

13

DEC

13


Slaughter weights have also declined from a high of near 278 to near 268 in recent weeks.

Feeder pig prices are in single digits in some cases – back near 1998 lows.

Sow Prices

Source: Bloomberg, 2012

US cents/lb USD/head

Signs of modest liquidation, then optimism

Source: USDA, 2012

Note: Feeder pig = 10-12 lb early weaned pig

0

10

20

30

40

50

60

70

01/0

7/16

02/0

7/16

03/0

7/16

04/0

7/16

05/0

7/16

06/0

7/16

07/0

7/16

08/0

7/16

09/0

7/16

10/0

7/16

0

10

20

30

40

50

60

70 1/

7/20

16

2/7/

2016

3/7/

2016

4/7/

2016

5/7/

2016

6/7/

2016

7/7/

2016

8/7/

2016

9/7/

2016

10/7

/201

6

Feeder Pig Prices


US Pork Demand Curve


US pork demand curve stable

00 01

02

03

04

05 06 07 08

09

10

11

12

13

50

55

60

65

70

75

80

85

90

95

100

58 59 60 61 62 63 64 65 66 67 68

Po

rk c

uto

ut

pri

ce,

US

cen

ts/

lb

US pork consumption per capita, lbs


Take advantage of hedging opportunities Others are doing so

Europe and China will be major swing factors in 2013

US No supply elasticity Hold your breath on SA crop production Some benefit from reduced competition from beef

US Pork Situation Summary


The End


The end slide


United States

Chicken


US: Production cuts, but modest, probably 1.5 – 2.0%

prices are better

buy rather than grow fewer long-term fixed price contracts

Brazil: Continued growth, but with higher costs

only low single digit expansion

out of soybeans, but plenty of corn

EU: Continued slow growth in production and consumption

Chicken summary


We expect RTC broiler production to fall by 1% in 2012 and at least another 1.5% in 2013.

This has put the industry on more solid ground for pricing and profitability than compared to the downturns in 2008/9 and 2011.

Weights also remain flat to down from year-ago levels.

US Pullet Placements

Source: USDA, 2012

Thousand head/month YoY % Change

Little sign of expansion – cuts?

Source: USDA, 2012

5,500

6,000

6,500

7,000

7,500

8,000

8,500

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

thou

sand

US Pullet Placements

2010 2011 2012

-15%

-10%

-5%

0%

5%

10%

15%

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

YoY ∆ US Pullet Placements

2010 2011 2012


Note: Model excludes basis – 80 cents/bu basis adds 2.5 cents/lb to cost

Industry practice of offering fixed price long term contracts

US Broiler Production Margin – Spot Market Feed Costs


Much of the industry has been profitable recently

US cents/lb

-15

-10

-5

0

5

10

15

20

25

30

35

10/1

5/10

12/1

5/10

02/1

5/11

04/1

5/11

06/1

5/11

08/1

5/11

10/1

5/11

12/1

5/11

02/1

5/12

04/1

5/12

06/1

5/12

08/1

5/12

10/1

5/12

12/1

5/12

02/1

5/13

04/1

5/13

06/1

5/13

08/1

5/13

10/1

5/13

12/1

5/13

02/1

5/14

04/1

5/14

06/1

5/14

08/1

5/14

10/1

5/14

12/1

5/14

02/1

5/15

04/1

5/15

06/1

5/15

08/1

5/15

10/1

5/15

12/1

5/15

02/1

5/16

04/1

5/16

06/1

5/16

08/1

5/16

10/1

5/16

US¢/

lb


As higher corn and soybean meal costs roll through, industry profitability will be challenged through the winter when prices seasonally decline.

Given improved pricing due to supply discipline, however, some producers may even be profitable in Q4

EMI Broiler Profitability Forecast

Source: EMI, Analytics, 2012

Q42012 and Q12013 will be difficult


Composite price =

50% leg quarters 20% B/S breast

12% wings

Whole birds Georgia dock: LY $0.87, TY $0.95.

SSB: LY $1.36, TY $1.48 Tenders: LY $1.40, TY $1.75 Wings: $0.95, TY $1.85.

Leg quarters: LY $0.53, TY $0.52.

Cold storage: total chicken inventory down 14% from year ago levels at the end of July.

Source: USDA, 2012

That was then. This is now.

US cents/lb

30

40

50

60

70

80

90

100 08

/19/

11

10/1

9/11

12/1

9/11

02/1

9/12

04/1

9/12

06/1

9/12

08/1

9/12

10/1

9/12

12/1

9/12

02/1

9/13

04

/19/

13

06/1

9/13

08/1

9/13

10/1

9/13

12/1

9/13

02/1

9/14

04

/19/

14

06/1

9/14

08/1

9/14

10/1

9/14

12/1

9/14

02/1

9/15

04

/19/

15

06/1

9/15

08/1

9/15

10/1

9/15

12/1

9/15

02/1

9/16

04/1

9/16

06/1

9/16

08/1

9/16

Georgia Dock Composite price


US Chicken Demand Curve


Tight supplies, also for competitive meats, should be supportive to pricing

00

01 02

03

04 05

06

07

08 09 10 11

12

13

55

60

65

70

75

80

85

90

95

100

88 90 92 94 96 98 100 102

Geo

rgia

Do

ck p

rice

, U

S c

en

ts/

lb

US chicken consumption per capita, lbs


The CAGR for per capita consumption is likely to decelerate going forward

CAGR 11-22: 1.2%

2011:46 kg/ year

2022:51 kg/ year

Exports are expected to grow by 4% year (average)


Upside

-Exports may acelerate if part of the projected corn supply surplus is directed to poultry production

-Domestic demand continues to expand at the same pace of growth of the past 10 years

Downside

-Deceleration of the world economic growth

-Disease outbreak/trade barriers

-Population growing at a lower rate

Poultry exports are expected to rise faster than domestic consumption


Brazil: Opportunities for poultry

Poultry domestic consumption and exports

[mn t.]

2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002

Consumption

Exports Forecast


Little animal protein growth in Europe, some for poultry

Per

cap

ita c

on

sum

pti

on

(2

01

0)

Consumption growth 2010-2020

0 5

10 15 20 25 30 35 40

-100 100 300 500

Romania

Poland

Italy

UK

France

Spain

EU market growth 2010-2020

Germany

EU market growth 2010-2020

61 Source: Rabobank estimate, Eurostat


Commodity boom years

EU Poultry industry: Lower margins since commodity boom years

62

Pre-crisis level 6.5%

New level 4.5-5%

EBITDA margin trend 2002-2012

Source: Rabobank esitmate based on public available annual accounts


French poultry industry relative expensive in Europe

63

Cost of production of broiler production in the EU


Growing importance of international trade

  Meat trade is growing – parts arbitrage, disconnect between location of grain surplus and meat demand growth.

  Pork has accelerated: EU production declining, China self-sufficiency in grain declining. Brazil big competitor for poultry, beef.

  Need for international marketing approach and production platforms.

  Need to balance ST tactical challenges (trade disputes) with having a LT vision. -

5

10

15

20

25

30

35

China coarse grains imports

MM MT

Key elements affecting poultry markets

Export-import for major poultry-trading countries

-2

0

2

4

6

8

2011 2021F

MM MT Global meat exports

- 5

10 15 20 25 30 35

Poultry Beef Pork

20-yr CAGR: 3.1%

20-yr CAGR: 2.3%

20-yr CAGR: 3.8%

MM MT

Source: OECD-FAO, USDA, Rabobank estimates

5


Key challenges to incremental US corn production

The world can produce more


Incremental corn production is shifting North and West to land that gets less rain and has a shorter growing season. In addition, more corn is following corn, disrupting natural rotation. This reduces yield per acre by at least 15 bushels per acre, or near 10%.

Also, weeds and insects are becoming increasingly resistant to genetically modified traits, increasing costs and reducing yields.

U.S. Corn - Geographic Distribution of Corn Acres

Source: USDA, 2012

Factors

US corn planting is shifting to less fertile land

0%

2%

4%

6%

8%

10%

12%

14%

16%

44%

45%

46%

47%

48%

49%

50%

51%

% of Harvested Acres In Plains States

% of Harvested Acres In Corn Belt States

High Yielding States Plains States


Source: USDA, 2012

US corn yield improvements are decelerating

Bushels / acre

60

80

100

120

140

160

180

1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012(f) 40yr Trend 20yr Trend 10yr Trend Actual Yield


Iowa State estimates than yields for corn following corn (no rotation) are 15 bushels lower

Corn on Corn Planting in Iowa and Illinois, 2011

Source: USDA, USGS, Rabobank, 2012

United States


US Corn Cost of Production

Source: USDA, Rabobank, 2012

The price/cost relationship

0

100

200

300

400

500

600

700

2005 2006 2007 2008 2009 2010 2011 2012f 2013f

USD

/acr

e

Other Seed Fertilizer & Chemicals Fuel, lube, and electricity Land Rental Equivalent

Rabobank International

Brazil Logistics: Improving prospects


We can further abstract these routes in 3 major groups:

Overview

Grains’ Export Logistics Overview

84%

Group 02

Group 01

13%

Group 03

3%

Share of soybean exports 2011

Group 1: Traditional exporting routes; Exports most of the grain produced in the

Brazilian center-south.

Group 2: MATOPIBA´s exporting routes; Has become increasingly important over

the past decade.

Group 3: New riverway-based routes; New (under development) routes that will

attend for grain comming from N. MT

Source: Rabobank

Projected export corridor

4 1

3

5

6

7

e1 e2

8

2

Export corridor

Group 2

Group 3

Group 1


Growth Forecast

Grains’ Export Logistics

Source: Rabobank

Projected export corridor

4 1

3

5

6

7

e1 e2

8

2

Export corridor

Group 2

Group 1

Group 3

Soybeans [million metric tons]

Corn [million metric tons]


Exports are expect to increase by a CAGR of 4% until 2022

Well above the 0.9% seen during the last 10 years

Consumption should remain growing at around 2% per year


Upside

-Exports may acelerate if part of the projected corn supply surplus is directed to pork production -Demand grows much more than expected

Downside

-Deceleration of the world economic growth -Disease outbreak/trade barriers

-China does not allow more plants to export -Sales to Japan and South Korea do not take off

Pork consumption will stil be by far the main destination of the production in Brazil


Brazil Opportunities

Pork domestic consumption and exports

[mn t.]

4,5

4,0

3,5

3,0

2,5

2,0

1,5

1,0

0,5

0,0 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002

Consumption

Exports Forecast


Feeder Pig Price

Source: USDA, 2012

Note: Feeder pig = 10-12 lb early weaned pig

Signs of liquidation, then optimism

USD/head

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

01/0

7/16

01/2

1/16

02/0

4/16

02/1

8/16

03/0

3/16

03/1

7/16

03/3

1/16

04/1

4/16

04/2

8/16

05/1

2/16

05/2

6/16

06/0

9/16

06/2

3/16

07/0

7/16

07/2

1/16

08/0

4/16

08/1

8/16

09/0

1/16

09/1

5/16

09/2

9/16

10/1

3/16



US Hog Production Futures Curve


Producers at market are looking at large losses

USD/head

(33.43)

(19.54)

(5.76)

12.30

18.43 19.02

23.21

8.31

2.87

(40)

(30)

(20)

(10)

0

10

20

30

DEC

12

FEB 1

3

APR

13

MAY

13

JUN

13

JUL

13

AU

G 1

3

OCT

13

DEC

13


Source: USDA, 2012

dtn ag summit prospects for livestock recovery, december 2012 · market developments & outlook...

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