food and beverage · 2019. 5. 1. · • the october 2017 monthly average miles driven of 275...

August 2012

Industry Research Update: Food and Agribusiness 1

February 2018

© 2018 Wells Fargo Bank, N.A. All rights reserved. For public use.1

Key Demand Developments• Growth in housing prices remain a positive to

consumer balance sheets, with the Case-Shiller 20 city index rising +6.4% Y/Y in November.

• The performance of the S&P 500 was up +23.8% YoY through January, a tailwind for the consumer balance sheet.

• Mixed signals for consumer income statement as the U.S. Bureau of Labor Statistics reported November non-farm employment quits of 1.8% (not seasonally adjusted) while average hourly earnings increased +2.8% Y/Y for December 2017.

• Gas prices are a tailwind for the consumer; oil futures have hovered above $60/barrel, up +21% YoY. Average prices remain -13% below the 5 year average.

• The Dec Consumer Confidence Index as measured by the Conference Board now stands at 122.1 (1985=100), down from 128.6 in Nov.

Consumer and Producer Price Indices• We maintain a constructive outlook for volumes

with pricing levels inching above 3%. The spread between restaurant and food retail pricing has narrowed -360bp from Aug’16 highs and continues to drop.

• Restaurant pricing measured by the CPI Food Away From Home index (CPI-FAFH) increased +2.53% in December Y/Y, which is up +90bp vs. the prior month.

• Food Retail pricing measured by the CPI Food at Home index increased +1.28% in December Y/Y, which is up +18bp vs. the prior month.

• The Producer Price Index (PPI All Food) increased +3.4% in December Y/Y, but was down -110bp vs. the prior month.

Industry Update

Food and Agribusiness

Price and Food Inflation Developments

-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 Jul- 16 Jan- 17 Jul- 17

Y/Y

Cha

nge

(%)

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

Source: U.S. Bureau of Labor Statistics

Supermarket Sales

• According to Nielsen, digitally enabled strategy will dominate the innovation amongst suppliers across categories in 2018, including grocery. Look for a continuation of the trends of health and wellness, convenience, and clean labeling.

August 2012

2

© 2018 Wells Fargo Bank, N.A. All rights reserved. For public use.

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17

Volume Price

Source: Nielsen AOC+C

-6%

-4%

-2%

0%

2%

4%

6%

8%

1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17

Volume Price


Grocery Department Trends: Perimeter-winning themes continue in 3Q17 as the Deli category posts strong volume gains; Dairy volumes lag as the input pricing cycle begins to impact retail.Dry Grocery Frozen Foods

Bakery

Deli

• Dry Grocery 3Q17 price/mix increased +1.8% YoY, an increase of +50bp vs. 2Q17. Dry Grocery volumes decreased -1.0% YoY, a decrease of -60bp vs. 2Q17.

• Dairy 3Q17 price/mix increased +2.2% YoY, an increase of +90bp vs. 2Q17. Dairy volumes decreased -3.1% YoY, a decrease of -90bp vs. 2Q17.

• Fresh Produce 3Q17 price/mix decreased -0.3% YoY, a decrease of -120bp vs. 2Q17. Fresh Produce volumes increased +3.9% YoY, an increase of +70bp vs. 2Q17.

Dairy

Fresh Produce

• Frozen Food 3Q17 price/mix increased +2.4% YoY, an increase of +60bp vs. 2Q17. Frozen Food volumes decreased -1.5% YoY, an increase of +40bp vs. 2Q17.

• Deli 3Q17 price/mix decreased -2.2% YoY, a decrease of -270bp vs. 2Q17. Deli volumes increased +9.4% YoY, an increase of +420bp vs. 2Q17.

• Bakery 3Q17 price/mix increased +1.8% YoY, a decrease of -10bp vs. 2Q17. Bakery volumes decreased -1.0% YoY, an increase of +190bp vs. 2Q17.

-4%

-2%

0%

2%

4%

6%

1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17

Volume Price


-4%

-2%

0%

2%

4%

6%

8%

10%

12%

1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17

Volume Price


-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17

Volume Price


-4%

-3%

-2%

-1%

0%

1%

2%

3%

1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17

Volume Price


August 2012

3


Source: USDA; BLS; IMF; IntraFish

Food Company Input Cost Summary: As we exit 2H17 a large portion of commodities have shown moderate inflation vs. 2016 levels.

• Economic Backdrop: The start of the new year is historically a time when firms test pricing power. With the economy on an upswing and commodity prices continuing to rise, upward momentum should continue into 2018.

• Corn, Wheat & Soy Prices: 16/17 exhibited low price levels for corn and wheat on increased production, but higher soy prices based on increased exports. 17/18 forecasts point to slightly higher corn yields but lower wheat and soy prices. Annual price estimates are mixed.

• Chicken: Broiler and thigh prices have remained above 2015/16 levels on strong exports. Egg sets once again start to build.

• Beef: Cut-out values, though trending down, are above 2016 levels as YoY inventory levels are down sharply and exports continue to be strong.

• Pork: Prices are above 2015 and well above decade-low Oct16 levels as inventories stay lower while slaughter counts and exports flatten year-over-year.

• Packer Margin Environment: Chicken, beef and pork estimated packer ratios are all near 2016 levels with chicken cut-out values strengthening.

• Seafood: Shrimp and salmon prices dropped below 2016 levels due to strong imports; pollock prices are at multi-year lows.

• Dairy: Current Class III prices are nearing 2015 levels and are projected to drop to 2016 levels as cow numbers and production per cow increase year-over-year.

• Specialty Crops: Currently cotton prices are trending up,, while sugar, cocoa, coffee and orange juice prices are trending down. The outlook for nut growers in 2017/18 is positive, but need to keep an eye on trade issues and the opportunity for expanding markets overseas.

• Forest Products: With housing starts weakening, the increase in remodel activity is not enough to sustain the increase in framing lumber and structural panel prices.

• Crop Inputs: Fertilizer prices remain under pressure with higher than expected imports; Ammonia and DAP have ticked higher while Urea trends downward.

• Energy & Labor: Global oil prices have kept energy prices relatively in check, while we observe wage inflation gains in restaurants and supermarkets.

Labor EnergyGrain Protein

Inflationary InflationaryMixed Mixed

Food Company Margin Heat Map YoYPrice vs. Volume Commodities

Constructive Mixed

Commodity Price Y/Y M/MCorn $3.46 -1.7% +0.5% Wheat $4.15 +3.2% -1.5%Soybeans $9.71 -5.1% -1.3%Broilers $0.87 +3.9% +1.5% Cattle $1.20 +5.4% -1.0%Hogs $0.63 +1.6% -0.6%Class III Milk $15.44 -11.3% -8.5%Shrimp $4.54 -3.0% -1.3%Salmon $4.70 -12.0% +6.0% Nat. Gas $7.69 +5.8% -0.4%Electricity $10.40 +3.2% -1.5%Heating Oil $2.84 +18.6% +5.2% Rest. Labor $13.58 +4.1% 0.4%Sup. Labor $13.20 +1.6% 0.0%Food Labor $17.26 +2.3% +1.0% *Monthly average corn, wheat, soybeans in $/bu; broiler, shrimp in $/lb; cattle, hogs, milk in,

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

Key Commodity Heat Map

August 2012

4


Economics: The start of a new year is historically a time when firms test pricing power. With the economy on an upswing and commodity prices continuing to rise, upward momentum should continue into 2018.

Billions of Miles Driven

Trade Weighted Dollar vs. Ag Index

Net Export as % of Production

Net Trade Balance

• The November 2017 voluntary quits as a percentage of employment was 1.8% which was flat YOY as of Nov16. The 12 month rolling average is near pre-recessionary levels.

• The November 2017 weekly average earnings are growing +2.9% YoY on a nominal basis; when deflated by food & beverage CPI the Nov17 average wages of $728/week increased +2.9% vs. Nov16. The pre-recession inflation adjusted peak was $699/week in December of 2006.

• The October 2017 monthly average miles driven of 275 billion increased +1.21% vs. Oct16 as gas prices peaked, though stronger employment continued to provide tailwinds.

• The December 2017 trade weighted dollar index value of 112.9 vs. bulk commodity dollar index value of 105.26 represents a wider gap when compared to the December 2016 values of 119.0 and 114.66, respectively.

• The 2017 Nov YTD net trade balance of +6.2 billion represents a smaller surplus compared the Jan-Nov 2016 total of +8.7 billion. The 2016 full year net trade balance of -$3.3 billion is the largest full year trade deficit since pre-2007.

• The 2017 pork and broiler markets face a stronger headwind from dollar strengthening as net exports comprise 17.8% and 16.3% percent of total production vs. -0.5% for beef.

Voluntary Quits as % of Employment

Weekly Earnings Rates

$650

$700

$750

$800

$850

$900

$950Weekly Wages Food Inflation Adjusted

Source: BLS, Wells Fargo

90

95

100

105

110

115

120

Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17

Ag Bulk Commodities Trade Weighted

Jan 2014=100

Source: USDA, Federal Reserve, Wells Fargo

2.6 6.5

9.1 13.8 16.1

22.0 22.7 21.6 16.3 18.4

27.3

(6.1)

10.3 3.9

5.3

7.1 0.7

(1.1)(4.5)

(17.9)(21.6) (21.1)

-$30.0

-$20.0

-$10.0

$0.0

$10.0

$20.0

$30.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Jan-Nov2017

China HK ROW

Source: USDA, Wells Fargo

-5%

0%

5%

10%

15%

20%

25%

2012 2013 2014 2015 2016 2017

Beef Pork Broiler

Source: USDA, Wells Fargo

200

210

220

230

240

250

260

270

280

290

300

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

Source: Federal Highway Admin

1.0%

2.0%

3.0%

Source: BLS, Wells Fargo

August 2012

5


$3.20

$3.40

$3.60

$3.80

$4.00

$4.20

$4.40

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

2015 2016 2017 Futures

Source: CBOT

$/Bus

hel

Grain Prices: 16/17 exhibited low price levels for corn and wheat on increased production, but higher soy prices based on increased exports.

• The December monthly average corn price of $3.46/bu increased +0.5% vs. the prior month and decreased -1.7% vs. the prior year period.

• The WASDE’s (World Agricultural Supply and Demand Estimates) median average farm price projection for 2017/18 is $3.25/bu, down -3.3% from $3.36/bu in 2016/17. The prior estimate for 2017/18 was $3.20/bu.

• WASDE forecasts global corn production to be 14,604 million bushels in 2017/18 which is down -6.3% vs. 2016/17 est.

• The December monthly average wheat price of $4.15/bu decreased -1.5% vs. the prior month and increased +3.2% vs. the prior year period.

• The WASDE U.S. median average farm price forecast for 2017/18 is $4.60/bu, up +18.3% from $3.89/bu in 2016/17. The prior estimate for 2017/18 was $4.60/bu.

• WASDE forecasts global wheat production to be 1,741 million bushels for 2017/18, which is down -24.6% vs. 2016/17.

Wheat

Corn

Soybeans

• The December monthly average soybean price of $9.71/bu decreased -1.3% vs. the prior month and decreased -5.1% vs. the prior year period.

• The WASDE U.S. median average farm price forecast for 2017/18 is $9.30/bu, down -1.8% from $9.47/bu in 2016/17. The prior estimate for 2017/18 was $9.30/bu.

• WASDE forecasts global soybean production at 4,392 million bushels for 2017/18, which is up +2.2% vs. 2016/17.

$3.60

$4.00

$4.40

$4.80

$5.20

$5.60

$6.00


2015 2016 2017 Futures

Source: CBOT

$/Bu

shel

$8.50

$9.00

$9.50

$10.00

$10.50

$11.00

$11.50

$12.00


2015 2016 2017 Futures

Source: CBOT

$/Bus

hel

August 2012

6


Grain Fundamentals: 17/18 stocks/use forecast is largest in over 10 years for corn and soybeans; wheat stocks to decline on small crop. Prices seen lower for corn and soybeans, higher for wheat.

• USDA raised its 2017 corn yield estimate another 1.2 bushels in January to a record 176.6 bushels. Production was raised 26 million bushels as the higher yield was partly offset by smaller acreage.

• Projected ending stocks were raised 40 million bushels to 2,477 million on the larger crop and slightly lower feed and residual usage.

• The midpoint of USDA’s marketing year average price forecast range was raised $0.05 per bushel to $3.25, which would be down from $3.36 in 2016/17.

Wheat

Corn

Soybeans

• USDA raised its 2017/18 wheat ending stocks forecast 29 million bushels in January. This was mainly due to a 20-million-bushel cut in feed and residual usage following a larger-than-expected December 1 stocks estimate.

• USDA held its 2017/18 average farm price forecast at $4.60, which is up from the previous year’s $3.89.

• USDA estimated winter wheat seedings at 32.6 million acres, which was down 0.1 million from the previous year but well above market expectations for a decline of 1 to 2 million acres.

• USDA lowered its 2017 soybean yield estimate 0.4 bushels per acre to 49.1 bushels. Production was reduced 34 million bushels to 4,392 million, which still is record large.

• The smaller crop and a larger crush forecast were more than offset by a cut of 65 million bushels in exports. USDA’s 2017/18 ending stocks forecast was raised 25 million bushels to 470 million, reflecting a stocks-to-use ratio that would be the largest in 11 years.

• USDA’s 2017/18 farm price forecast was unchanged at $9.30, which is down from $9.47 in 2016/17.

2015/16 2016/17 2017/18F 2017/18F M/M Change Y/Y ChangeDecember January Forecast Forecast

Area Planted (mm) 88.0 94.0 90.4 90.2 -0.2% -4.0%Area Harvested 80.8 86.7 83.1 82.7 -0.5% -4.6%Yield per Harvested Acre (bu) 168.4 174.6 175.4 176.6 0.7% 1.1%

Beginning Stocks (mm bu) 1,731 1,737 2,295 2,293 -0.1% 32.0%Production 13,602 15,148 14,578 14,604 0.2% -3.6%Imports 67 57 50 50 0.0% -12.3%Total Supply 15,401 16,942 16,922 16,947 0.1% 0.0%

Exports 1,901 2,293 2,437 2,477 1.6% 8.0%Total Use 13,664 14,649 14,485 14,470 -0.1% -1.2%Ending Stocks 1,737 2,293 2,437 2,477 1.6% 8.0%

Stocks to Use (%) 12.7% 15.7% 16.8% 17.1% 0.3% 1.5%

Average Farm Price ($/bu) $3.61 $3.36 $3.20 $3.25 1.6% -3.3%


Area Planted (mm) 55.0 50.1 46.0 46.0 0.0% -8.2%Area Harvested 47.3 43.9 37.6 37.6 0.0% -14.4%Yield per Harvested Acre (bu) 43.6 52.7 46.3 46.3 0.0% -12.1%

Beginning Stocks (mm bu) 752 976 1,181 1,181 0.0% 21.0%Production 2,062 2,309 1,741 1,741 0.0% -24.6%Imports 113 118 150 155 3.3% 31.4%Total Supply 2,927 3,402 3,071 3,076 0.2% -9.6%

Exports 778 1,055 975 975 0.0% -7.6%Total Use 1,951 2,222 2,111 2,087 -1.1% -6.1%Ending Stocks 976 1,181 960 989 3.0% -16.3%

Stocks to Use (%) 50.0% 53.2% 45.5% 47.4% 1.9% -5.8%

Average Farm Price ($/bu) $4.89 $3.89 $4.60 $4.60 0.0% 18.3%


Area Planted (mm) 82.7 83.4 90.2 90.1 -0.1% 8.0%Area Harvested 81.7 82.7 89.5 89.5 0.0% 8.2%Yield per Harvested Acre (bu) 48.0 52.0 49.5 49.1 -0.8% -5.6%

Beginning Stocks (mm bu) 191 197 301 302 0.3% 53.3%Production 3,926 4,296 4,425 4,392 -0.7% 2.2%Imports 24 22 25 25 0.0% 13.6%Total Supply 4,140 4,515 4,752 4,718 -0.7% 4.5%

Exports 1,942 2,174 2,225 2,160 -2.9% -0.6%Total Use 3,944 4,213 4,306 4,248 -1.3% 0.8%Ending Stocks 197 302 445 470 5.6% 55.6%

Stocks to Use (%) 5.0% 7.2% 10.3% 11.1% 0.7% 3.9%

Average Farm Price ($/bu) $8.95 $9.47 $9.30 $9.30 0.0% -1.8%

Source: USDA WASDE

Source: USDA WASDE

Source: USDA WASDE

August 2012

7


$0.65

$0.75

$0.85

$0.95

$1.05

$1.15


$/lb

2015 2016 2017

Source: USDA

Chicken: Broiler and thigh prices have remained above 2015/16 levels on strong exports. Egg sets once again start to build.Whole Broiler Prices Cold Storage Inventories

Broiler Exports

Egg Sets

• The December USDA broiler price of $0.87/lb. increased +1.5% vs. the prior month and increased +3.9% vs. December 2016.

• The WASDE U.S. median average price forecast for 2017 is $0.934/lb., up +10.8% from $0.843/lb. in 2016. The prior projection for 2017 was $0.938/lb. Total 2017 production is estimated to be 41,541 million lbs., up +2.0% vs. 2016.

• The December average breast price of $1.03/lb. increased +4.3% vs. the prior month and +0.8% vs. December 2016.

• The December average thigh price of $1.21/lb. decreased -1.7% vs. the prior month and increased +21.9% vs. December 2016.

• Fundamentals: Chicken cold storage increased +8.6% in January Y/Y, which is down -1.23% vs. the prior month. Egg sets increased 3.3% in December Y/Y, and up 2.6% vs. the prior four weeks. Broiler exports increased +4.0% in November Y/Y, but was down -10.5% vs. the prior month.

• The December average combined regional large egg price of $1.76/dozen increased +28.1% vs. the prior month and +67.2% vs. Dec’16.

• The WASDE U.S. per capita disappearance is estimated at 274.2, down .18% compared to 2016’s actual of 274.7. 2018 is projected to increase to 278.9, up +1.71% from 2017 estimates, though down from December’s projected 279.1.

Boneless Skinless Breast Prices

Boneless Skinless Thigh Prices

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

$1.50

$1.60

$1.70


$/lb

2015 2016 2017

Source: USDA

$0.60

$0.75

$0.90

$1.05

$1.20

$1.35

$1.50


$/lb

2015 2016 2017

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 Jul-16 Jan-17 Jul-17

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

Source: USDA

-6%

-4%

-2%

0%

2%

4%

6%

180

185

190

195

200

205

210

215

220

225

Jan-13 Sep-13 May-14 Jan-15 Sep-15 May-16 Jan-17 Sep-17

Egg Sets ( In million) Y/Y% Change

Source: USDA

450

500

550

600

650


mill

ion

lbs

2015 2016 2017

Source: USDA

August 2012

8


-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%


% C

hg Y

oY

2015 2016 2017

Source: USDA$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

$1.50

$1.60


$/lb

2015 2016 2017 Futures

Source: CBOT

180

195

210

225

240

255

270


$/cw

t

2015 2016 2017

Source: USDA

Beef: Cut-out prices are above 2016 levels as YoY inventory levels are down sharply and exports continue to be strong.

Cut Out Values

Cold Storage Inventories

Live Cattle Prices

Monthly Cattle Processing

Beef and Veal Exports

Heifer Slaughter

• The December cattle price of $1.20/lb. decreased -1.0% vs. the prior month and increased +5.4% vs. Dec16.

• The WASDE U.S. median average price forecast for 2017 is $121.52/cwt, up 0.6% from $120.86/cwt in 2016. The prior projection for 2017 was $121.42/cwt. Total 2017 production is estimated to be 26,305 million lbs., up +4.3% vs. 2016.

• The December average cut-out value decreased -2.7% vs. the prior month and increased +4.4% vs. Dec 16.

• Fundamentals: Cold storage decreased -13.7% in January Y/Y, which is up +.9% vs. the prior month. Beef and veal exports increased +3.1% in November Y/Y and were up 0.3% vs. the prior month. Heifer slaughter numbers increased +6.2% in December Y/Y, which is down -8.4% vs. the prior month. Exports increased +3.1% in November Y/Y, which is up +3.1% vs. the prior month. Cattle head processed decreased -1.2% in December Y/Y which is down -6.6% vs. the prior month.

150

170

190

210

230

250

270


mill

ion l

bs2015 2016 2017

Source: USDA

-30%

-20%

-10%

0%

10%

20%

30%

40%

300

350

400

450

500

550

600

Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18

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

Source: USDA

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

1,600

1,800

2,000

2,200

2,400

2,600

Jan-14 Aug-14 Mar-15 Oct-15 May-16 Dec-16 Jul-17

Poun

ds (

000s

)

Baseline Slaughter Incremental Weight Y/Y Change (%)

Source: USDA

August 2012

9


$0.40

$0.50

$0.60

$0.70

$0.80

$0.90

$1.00


$/lb

2015 2016 2017 Futures

Source: CBOT

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%


% C

hg Y

oY

2015 2016 2017

Source: USDA

60

70

80

90

100

110


$/cw

t

2015 2016 2017

Source: USDA

Pork: Prices are above 2015 and well above decade-low Oct16 levels as inventories stay lower while slaughter counts and exports flatten year–over-year.

Cut Out Values

Cold Storage Inventories

Lean Hog Prices

Pork Exports

Monthly Processing

Sow Slaughter (3 Month Rolling Average)

• The December average hog price of $0.63/lb. decreased -0.6% vs. the prior month and increased +1.6% vs. December 2016.

• The WASDE U.S. median average price forecast for 2017 is $50.48/cwt, up +9.4% from $46.16/cwt in 2016. The prior projection for 2017 was $50.38/cwt. Total 2017 production is estimated to be 25,585 million lbs., up +2.5% vs. 2016.

• The December average cut-out value decreased -1.0% vs. the prior month and increased +3.1% vs. Dec16.

• Fundamentals: Cold storage inventories increased +2.8% in January Y/Y, which is down -2.3% vs. the prior month. Three month average sow slaughter increased +2.1% in December Y/Y, which is up +1.15% vs. the prior month. Exports decreased -3.3% in November Y/Y, which is down -.03% vs. the prior month. Hogs processed were flat in December Y/Y but down -.8% vs. the prior month. Slaughter weight data indicates that heavier weights contributed to +4.2% of total slaughter volume, which is up +1.4% vs. the prior year period.

-20.0%

-10.0%

0.0%

10.0%

20.0%

1,600

1,800

2,000

2,200

2,400

Jan-14 Aug-14 Mar-15 Oct-15 May-16 Dec-16 Jul-17

Poun

ds (

000s

)

Baseline Slaughter Incremental Weight Y/Y Change (%)

Source: USDA

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

300

350

400

450

500

550

600

650

700

750

Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18

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

Source: USDA

300

350

400

450

500

550


mill

ion

lbs

2015 2016 2017

Source: USDA

August 2012

10


Packer Margin Environment: Chicken, beef and pork estimated packer ratios are all near 2016 levels with chicken cut-out values strengthening.

• The December USDA monthly average chicken breast price-to-feed cost ratio of 13.4 increased +0.6 vs. the prior month and was up +0.5 vs. the prior year period.

• The 10 year average ratio of 14.9 places the Dec17 result in the second quartile of the 2007-2017 monthly results.

• The December USDA monthly average beef cut-out to live cattle ratio of 1.72 decreased -0.01 vs. the prior month and was flat vs. the prior year period.

• The 10 year average ratio of 1.64 places the Dec17 result in the top 50% of the 2007-2017 monthly results.

Beef

Chicken

Pork

• The December USDA monthly average pork cut-out to live hog ratio of 1.19 decreased -0.09 vs. the prior month and decreased -0.06 vs. the prior year period.

• The 10 year average ratio of 1.10 places the December result in the 2ndQuartile of the 2007-2017 monthly results.

1.45

1.55

1.65

1.75

1.85

1.95

2.05


1st Q

3rd

Q

Rat

io

2015 2016 2017

Source: USDA

0.80

0.90

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70


1st Q

3rd

Q

R

atio

2015 2016 2017

Source: USDA

10.0

12.0

14.0

16.0

18.0

20.0


1st Q

Rat

io 3

rd Q

2015 2016 2017

Source: USDA

August 2012

11


3.75

4.00

4.25

4.50

4.75

5.00


$/lb

2015 2016 2017

Source: Urner Barry

Seafood: Shrimp and salmon prices dropped below 2016 levels due to strong imports; Pollock prices are at multi-year lows. .

• The Urner Barry farm-raised white shrimp average price of $4.54/lb. in December was down -1.3% from the prior month and was -3.0% below the previous year.

• The Urner Barry fresh farmed salmon average price of $4.70/lb. for December was up +6.0% from November, but was down -12.0% from December 2016.

• Single Freeze Alaskan Pollock prices reported by Urner Barry have been at $1.23/lb. since May 2017. Alaskan Minced Pollock prices have been at $0.84/lb. since April 2017.

Urner Barry Fresh Farmed Salmon Index

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

Alaskan Pollock

Salmon Imports – Total Volume

• NOAA indicated Nov. US shrimp imports were 65.3 million kg, down -5.1% from Oct. but up +5.7% from Nov. 2016.

• November salmon imports of 31.6 million kg were down -2.9% from October, but up +13.9% from a year earlier.

• Wild Alaskan landings increased 75% in 2017 and were up slightly from 2015. The increase was led by Pink salmon, which more than doubled from 2016’s low level.

• The 2018 Bristol Bay Sockeye salmon forecast is for a chart-topping 51.3 million fish and a harvest of over 37 million. That compares with a 2017 forecast of 40 million Sockeye, though the run was 42% above forecast and the harvest of 37.7 million was the second-largest on record.

Wild Alaskan Landings by Specie

3.0

3.5

4.0

4.5

5.0

5.5

6.0


$/lb

2015 2016 2017

Source: Urner Barry

0.60

0.75

0.90

1.05

1.20

1.35

1.50

1.65

Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17

$/lb

Single Freeze Alaskan Minced

Source: Urner Barry

35

40

45

50

55

60

65

70

75


mill

ion

kg

2015 2016 2017

Source: NOAA

25

26

27

28

29

30

31

32

33


mill

ion

kg

2015 2016 2017

Source: NOAA

0

200

400

600

800

1,000

1,200

2013 2014 2015 2016 2017

mill

ion l

bs

Pink Sockeye Chum Coho Chinook

Source: Urner Barry

August 2012

12


1.3

1.4

1.5

1.6

1.7

1.8

1.9


$/lb

2015 2016 2017

Source: USDA

1.4

1.6

1.8

2.0

2.2

2.4

2.6

2.8

3.0


$/lb

2015 2016 2017

Source: USDA

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

0

2

4

6

8

10

12

14

16

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

4Q17

F1Q

18F

2Q18

F3Q

18F

4Q18

F

Bn lb

s milk

equ

ival

ent

Skim solids Milkfat Y/Y Change (%)

Source: USDA

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

14,000

15,000

16,000

17,000

18,000

19,000

20,000


mill

ion

lbs

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

Source: USDA

Dairy: Current Class III prices are nearing 2015 levels and are projected to drop to 2016 levels as cow numbers and production per cow increase year-over-year.

Class I Milk

Cheddar Cheese, 40lb. block

Milk Production

Dairy Exports

• The December USDA Class I milk price of $16.88/cwt increased +2.9% vs. the prior month and stayed flat vs. December 2016. The December average Class III milk price of $15.44/cwt decreased -8.5% vs. the prior month and decreased -11.3% vs. December 2016.

• The WASDE U.S. 2018 median average all milk price forecast as of January 2018 is $16.20/cwt, down -8.2% from $17.65/cwt in 2017. Total 2018 production is estimated to be 218.8 bn lbs., up +1.5% vs. 2017.

• The December USDA average cheddar cheese price of $1.49/lb. decreased -10.2% vs. the prior month and decreased -14.0% vs. December 2016.

• Fundamentals: Milk production increased +1.1% in December Y/Y and increased +4.3% vs. the prior month. The milk cow herd size was up +.50 vs. the prior year period. Total milkfat and skim solid exports are projected to increase +3.21% 2018 Y/Y, vs 3.53% from 2016 to 2017.

• December average USDA Grade AA butter prices of $2.21/lb. decreased -0.7% vs. the prior month and increased +1.4% vs. December 2016.

Class III Milk

Butter Prices Grade AA

August 2012

13


1.00

1.20

1.40

1.60

1.80

2.00

2.20

2.40


$/lb

2015 2016 2017

Source: ICE

10

12

14

16

18

20

22

24


c/lb

2015 2016 2017

Source: ICE

Specialty Crops: Currently cotton prices are trending up, while sugar, cocoa, coffee, and orange juice are trending down.

Sugar #16 Prices

Cocoa

Sugar #11 Prices

CottonOrange Juice

Coffee

23

24

25

26

27

28

29

30

31


c/lb

2015 2016 2017

Source: ICE

0.55

0.60

0.65

0.70

0.75

0.80


$/lb

2015 2016 2017

Source: ICE

1,800

2,100

2,400

2,700

3,000

3,300

3,600


$/M

T

2015 2016 2017

Source: ICE

1.10

1.20

1.30

1.40

1.50

1.60

1.70


$/lb

2015 2016 2017

Source: ICE

• The December ICE sugar #16 average price of $0.27/lb. decreased -1.3% vs. the prior month and decreased -8.0% vs. the prior year period.

• The December ICE orange juice average price of $1.46/lb. decreased -3.6% vs. the prior month and decreased -28.4% vs. the prior year period.

• The December cocoa average price of $1,901/MT decreased -10.5% vs. the prior month and decreased -16.2% vs. the prior year period.

• The December ICE sugar #11 average price of $0.14/lb. decreased -3.6% vs. the prior month and decreased -23.2% vs. the prior year period.

• The December average cotton price of $0.76/lb. increased +8.3% vs. the prior month and +7.5% vs. the prior year period.

• The December average coffee price of $1.22/lb. decreased -2.7% vs. the prior month and decreased +13.4% vs. the prior year period.

August 2012

14


$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16

$/Pound

Source: USDA

Specialty Crops: The outlook for growers in 2017/18 is positive, but need to keep an eye on trade issues and the opportunity for expanding markets overseas. Almond Prices Pistachio Prices

Pistachio Production & Yield

• The 2016 USDA average grower price for almonds of $2.44/lb. decreased -22.0% vs. the 2015 average price of $3.13/lb.

• The 2016 total annual almond production of 2,140 million pounds increased +12.6% vs. the 2015 annual production of 1,900 million pounds. The 2016 average yield per acre of 2,280 pounds increased +10.1% vs. the 2015 average of 2,070 pounds.

• The 2016 USDA average grower price for pistachios of $1.68/lb. decreased -32.3% vs. the 2015 average price of $2.48/lb.

• The 2016 total annual pistachio production of 897mm pounds increased +231% vs. the 2015 production of 270mm pounds. The 2016 average yield per acre of 3,750 pounds increased +241% vs. the 2015 average of 1,160 pounds.

Almond Production & Yield

Wine Consumption

1,000

1,300

1,600

1,900

2,200

2,500

2,800

0

400

800

1,200

1,600

2,000

2,400

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16

Poun

ds

mill

ion lb

s

Millions Pounds Yield Per Acre

Source: USDA

$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 '15 '16

$/Pound

Source: USDA

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

0

100

200

300

400

500

600

700

800

900

1,000

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16

Poun

ds

mill

ion lb

s

Millions Pounds Yield Per Acre

Source: USDA

• Total wine consumption increased 2.9% in 2016, while consumption of table wine increased 2.2%. In addition, per capita consumption increased by 2.4% YoY and is up 22.5% since 200. 2017 consumption show slowing growth at 1.3%.

• Sales outlook for premium wine above $10/bottle is positive; however, lower price points seeing a tougher market. California limiting factors of labor, water, and regulatory environment have increased Merger and Acquisition in the Pacific Northwest.

• Consolidation in distribution will continue to create direct-to-consumer opportunities for wineries

• Global wine harvest down due to weather events and wildfire damage. Margins for wineries may be reduced due to higher grape costs.

Source: Gomberg Fredrikson and Wine Institute

0

0.5

1

1.5

2

2.5

3

3.5

500

550

600

650

700

750

800

850

900

950

1,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Gal

lons

Mill

ions

of G

allo

ns

Per Capita Consumption Total Wine Total Table Wine

August 2012

15


$275

$300

$325

$350

$375

$400

$425

$450


$/Th

ousa

nd S

q Ft

2015 2016 2017

Source: Random Lengths

Forest Products: With housing starts weakening, the increase in remodel activity is not enough to sustain the increase in framing lumber and structural panel prices.

Framing Lumber Index U.S. Housing Starts

Repair & Remodel Expenditures (LTM total)

• The December Framing Lumber Composite Index of $433/thousand sq. ft. decreased -0.7% vs. the month prior and increased +20.6% vs. the prior year period.

• The December Structural Panel Composite Index of $430/thousand sq. ft. decreased -8.3% vs. the prior month and increased +17.2% vs. the prior year period.

• The December U.S. Housing Starts of 1.19 million units decreased -6.0% vs. the prior month and decreased -8.1% vs. the prior year period.

• The 3Q17 LTM repair and remodel total expenditure of $309.7Bn increased +1.9% vs. the prior quarter and +6.4% vs. the prior year period.

Structural Panel Index

$330

$360

$390

$420

$450

$480

$510

$540

$570


$/Th

ousa

nd S

q Ft

2015 2016 2017

Source: Random Lengths

0%

1%

2%

3%

4%

5%

6%

7%

8%

175

195

215

235

255

275

295

315

335

1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17

$ Bi

llion

s$ 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

1,400


Thou

sand

Uni

ts

New Units Y/Y Change (%)Source: US Fed

August 2012

16


200

240

280

320

360

400

440


$/ST

2015 2016 2017

Source: Green Markets Report; US Corn Belt

$1.50

$1.80

$2.10

$2.40

$2.70

$3.00


$/G

allo

n

2015 2016 2017

Source: EIA

$1.80

$2.00

$2.20

$2.40

$2.60

$2.80

$3.00

$3.20


$/G

allo

n

2015 2016 2017

Source: EIA

Crop Inputs: Fertilizer prices remain under pressure with higher than expected imports; Ammonia and DAP have ticked higher while Urea trends downward.

Urea Potassium Chloride

DAP Ammonia

• The December US corn belt urea average price of $268/ST decreased -0.4% vs. the prior month and increased +1.9% vs. the prior year period.

• The December US corn belt DAP average price of $385/ST increased +2.1% vs. the prior month and increased +14.4% vs. the prior year period.

• The December US corn belt potassium chloride average price of $263/ST increased +1.3% vs. the prior month and increased +6.0% vs. the prior year period.

• The December US corn belt ammonia average price of $391/ST increased +20.4% vs. the prior month and increased +11.7% vs. the prior year period.

Diesel Fuel Prices Gasoline Prices

• The December average diesel fuel price of $2.91/gal stayed flat vs. the prior month and increased +15.9% vs. the prior year period.

• The December average regular grade gasoline price of $2.48/gal decreased -3.3% vs. the prior month and increased +10.0% vs. the prior year period.

200

225

250

275

300

325

350

375

400


$/ST

2015 2016 2017


300

325

350

375

400

425

450

475

500


$/ST

2015 2016 2017


250

300

350

400

450

500

550

600

650


$/ST

2015 2016 2017


August 2012

17


0%

1%

2%

3%

4%

5%

Jan-13 Aug-13 Mar-14 Oct-14 May-15 Dec-15 Jul-16 Feb-17 Sep-17

Y/Y Change %

Source: BLS

Energy and Labor: Global oil prices have kept energy prices relatively in check, while we observe wage inflation gains in restaurants and supermarkets.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 December average natural gas price of $7.69/Mcf decreased -0.4% vs. the prior month and increased +5.8% vs. the prior year period.

• The December average heating oil price of $2.84/gal increased +5.2% vs. the prior month and increased +18.6% vs. the prior year period.

• The December average electricity price of $10.4/kWh decreased -1.5% vs. the prior month and increased +3.2% vs. the prior year period.

• The restaurant labor index increased +4.1% Y/Y in December, and was up +0.4% vs. the prior month.

• The supermarket labor index is projected to be flat M/M in December, and up +1.6% YOY.

• The food manufacturing labor index increased +2.3% Y/Y in December, which was up +15bp vs. the prior month.

9.8

10.0

10.2

10.4

10.6

10.8

11.0

11.2


cent

s/kw

h

2015 2016 2017

Source: BLS

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%


Y/Y Change % 3 Month Avg

Source: BLS

-1%

0%

1%

2%

3%

4%

5%


Y/Y Change %

Source: BLS

$6.50

$7.00

$7.50

$8.00

$8.50

$9.00


$/t

cf

2015 2016 2017

Source: EIA

August 2012

18


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.

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

Denise CahillIndustry Advisors Group [email protected]

Karol Aure-FlynnSpecialty Crops Analyst, Analyst Team [email protected]

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

Courtney SchmidtSector Analyst: Protein, [email protected]

Brad RubinSector Analyst: Specialty and Non-Grain [email protected]

Kevin BergquistForest Products Sector [email protected]

David BranchSpecialty and Non-Grain Crops Sector [email protected]

Matt DusiSpecialty and Non-Grain Crops Sector [email protected]

Scott EtzelProtein - Seafood Sector [email protected]

Rob FoxDairy Sector [email protected]

Tim LuginslandGrains and Oilseeds Sector [email protected]

Lee Ann PearceSpecialty and Non-Grain Crops Sector [email protected]

Matt StommesProtein - Poultry and Beef Sector [email protected]

Lon SwansonCrop Inputs/Feed Sector [email protected]

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food and beverage · 2019. 5. 1. · • the october 2017 monthly average miles driven of 275...

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