food and beverage - wells fargo · source: nielsen aoc+c. grocery department trends:...

August 2012

Industry Research Update: Food and Agribusiness 1

December 2017

© 2017 Wells Fargo Bank, N.A. All rights reserved. For public use.1

Supermarket Sales

• According to Nielsen, food deflation has impacted all channels, with US supermarket retail sales up only 0.2% YOY (52 week period). Census data indicating slower population growth combined with an aging population, and increased use of e-commerce appear to be impacting sales.

Key Demand Developments

• Growth in housing prices remain a positive to consumer balance sheets, with the Case-Shiller 20 city index rising +6.19% Y/Y in September.

• The performance of the S&P 500 was up +19% YoY, a tailwind for the consumer balance sheet.

• Tailwinds for consumer income statement with job and wage growth as non-farm employment increased by +2.1M and average hourly earnings increased +2.9% Y/Y for Nov 2017.

• Gas prices are a tailwind for the consumer; oil futures have hovered above $55/barrel, up +17% YoY. Average prices remain -20% below the 5 year average.

• The Nov Consumer Confidence Index as measured by the Conference Board now stands at 129.5 (1985=100), up from 126.2 in Oct, up for fifth consecutive month and a 17 year high (Nov 2000, 132.6).

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 -309bp from Aug’16 highs and continues to drop.

• Restaurant pricing measured by the CPI food away from home index (CPI-FAFH) increased +2.34% in October Y/Y, which is up +31bp vs. the prior month and up +2.34% Y/Y.

• Food Retail pricing measured by the CPI food at home index increased +0.59% in October Y/Y, which is up +33bp vs. the prior month and up +140bp vs. the prior year.

• The Producer Price Index (PPI All Food) increased +3.3% in October Y/Y, which is up +110bp vs. the prior month and up +660bp Y/Y.

Industry Update

Food and Agribusiness

Price & 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

August 2012

2© 2017 Wells Fargo Bank, N.A. All rights reserved. For public use.

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

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

Volume Price

Source: Nielsen AOC+C

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

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.

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

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

Volume Price


-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

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

Volume Price


-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

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

Volume Price


-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

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

Volume Price


August 2012


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: Positive economic indicators continue to inch forward; USD measures are now below pre-election levels.

• 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: Prices are above 2016 levels as YoY inventory levels are lower and exports continue to strengthen.

• Pork: Prices are above 2015 and well above decade-low Oct16 levels as inventories stay lower, slaughter counts remain above prior year levels and exports seasonally increase.

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

• Seafood: Shrimp and salmon prices are in line with 2015/16 levels on strong imports; pollock prices are at multi-year lows.

• Dairy: Current prices are in-line with 2016 levels as exports level off and supplies remain ample.

• Specialty Crops: Current sugar, cocoa and orange juice prices are trending up, while coffee and cotton prices appear to have bottomed following periods of decline. Outlook for nut growers in 217 is positive, but need to keep an eye on trade issues and the opportunity for expanding markets overseas.

• Forest Products: Strength in housing starts and remodel activity continues to support demand for framing lumber and structural panel prices.

Labor EnergyGrain Protein

Inflationary InflationaryMixed Inflationary

Food Company Margin Heat Map YoYPrice vs. Volume Commodities

Constructive Inflationary

Commodity Price Y/Y M/MCorn $3.44 -0.1% -1.6%Wheat $4.22 +5.0% -2.9%Soybeans $9.84 -2.4% +0.8% Broilers $0.86 +8.6% +1.4% Cattle $1.21 +13.2% +5.6% Hogs $0.63 +26.9% +0.1% Class III Milk $16.88 +0.7% +1.1% Shrimp $4.72 -3.0% +0.4% Salmon $4.74 -5.8% -2.3%Nat. Gas $7.85 +3.4% -3.2%Electricity $10.56 +3.1% -1.8%Heating Oil $2.70 +19.7% +7.1% Rest. Labor $13.51 +3.8% 0.4%Sup. Labor $13.17 +3.1% 0.1%Food Labor $17.03 +1.4% +0.6% *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

• Crop Inputs: Fertilizer prices remain under pressure with higher than expected imports; all 4 fertilizers are near 2016 levels as DAP ticks higher and Urea trends downward.

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

August 2012


Economics: Positive economic indicators continue to inch forward; USD measures are now below pre-election levels.

Billions of Miles Driven

Trade Weighted Dollar vs. Ag Index

Net Export as % of Production

Net Trade Balance

• The October 2017 voluntary quits as a percentage of employment of 2.3% was slightly above the Oct16 level of 2.2%. The 12 month rolling average is near pre-recessionary levels.

• The October 2017 weekly average earnings are growing +4.0% YoY on a nominal basis; when deflated by food & beverage CPI the Oct17 average wages of $738/week increased +2.9% vs. Oct16. The pre-recession inflation adjusted peak was $703/week in December of 2006.

• The September 2017 monthly average miles driven of 263 billion decreased -1.1% vs. Sep16 as gas prices peaked, though stronger employment continued to provide tailwinds.

• The October 2017 trade weighted dollar index value of 113.1 vs. bulk commodity dollar index value of 105.9 represents a wider gap when compared to the October 2016 values of 115.2 and 108.9, respectively.

• The 2017 YTD net trade balance of -$8.5 billion represents a larger deficit compared the Jan-Oct 2016 total of -$6.7 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 17.7% and 16.5% percent of total production vs. -0.1% 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

12.3

(6.1)

10.3 3.9

5.3

7.1 0.7

(1.1)(4.5)

(17.9)(21.6) (20.8)

-$25.0

-$20.0

-$15.0

-$10.0

-$5.0

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Jan-Oct2017

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


$3.00

$3.50

$4.00

$4.50

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

2015 2016 2017 Futures

Source: FactSet

$/Bu

shel

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

• The November monthly average corn price of $3.44/bu decreased -1.6% vs. the prior month and decreased -0.1% vs. the prior year period.

• The WASDE’s (World Agricultural Supply and Demand Estimates) median average farm price projection for 2017/18 is $3.20/bu, down -4.8% from $3.36/bu in 2016/17. The prior estimate for 2017/18 was $3.20/bu.

• WASDE forecasts global corn production to be 1,044 million tons in 2017/18 which is down -2.9% vs. 2016/17 est.

• The November monthly average wheat price of $4.22/bu decreased -2.9% vs. the prior month and increased +5.0% 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 752 million tons for 2017/18, which is down -0.22% vs. 2016/17.

Wheat

Corn

Soybeans

• The November monthly average soybean price of $9.84/bu increased +0.8% vs. the prior month and decreased -2.40% 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 349 million tons for 2017/18, which is down -.69% vs. 2016/17.

$3.00

$4.00

$5.00

$6.00

$7.00


2015 2016 2017 Futures

Source: FactSet

$/Bu

shel

$7.00

$8.00

$9.00

$10.00

$11.00

$12.00

$13.00

$14.00


2015 2016 2017 Futures

Source: FactSet

$/Bu

shel

August 2012


Soft Commodities Fundamentals: 17/18 forecasts point to slightly higher corn yields but lower wheat and soy yields. Annual price estimates are mixed.

• The November WASDE report for the 2017/18 corn harvest year forecasts yield per acre to increase 0.5% YoY and total supply to decrease -0.1% YoY. Ending stocks are expected to be up +8.4% YoY and stocks to use up +1.6% YoY.

• The November WASDE report estimate for total supply increased +1.8% vs. the prior month; the estimate for ending stocks increased +6.3% vs. the prior month and estimated stocks to use was up +0.8% from prior month.

Wheat

Corn

Soybeans

• The November WASDE report for the 2017/18 wheat harvest year forecasts yield per acre to decrease -12.1% YoY and total supply to decrease -9.7% YoY. Ending stocks are expected to be down -20.8% YoY and stocks to use down -9.4% YoY.

• The November WASDE report estimate for total supply flat vs. the prior month; the estimate for ending stocks decreased -2.6% vs the prior month and estimated stocks to use decreased -1.7%.

• The November WASDE report for the 2017/18 soybean harvest year forecasts yield per acre to decrease -4.8% YoY and total supply to increase +5.2% YoY. Ending stocks are expected to be up +41.2% YoY and stocks to use up +2.7% YoY.

• The November WASDE report estimate for total supply decreased -0.1% vs. the prior month; the estimate for ending stocks decreased -1.2% vs. the prior month and estimated stocks to use decreased -0.1%.

• Source: USDA WASDE

2015/2016 2016/2017E 2017/2018P 2017/2018P M/M Change Y/Y ChangeOctober November Forecast Forecast

Area Planted (mm) 88.0 94.0 90.4 90.4 0.0% -3.8%Area Harvested 80.8 86.7 83.1 83.1 0.0% -4.2%Yield per Harvested Acre (bu 168.4 174.6 171.8 175.4 2.1% 0.5%

Beginning Stocks (mm bu) 1,731 1,737 2,295 2,295 0.0% 32.1%Production 13,602 15,148 14,280 14,578 2.1% -3.8%Imports 67 57 50 50 0.0% -12.3%Total Supply 15,401 16,942 16,625 16,922 1.8% -0.1%

Exports 1,898 2,293 1,850 1,925 4.1% -16.0%Total Use 13,664 14,647 14,285 14,435 1.1% -1.4%Ending Stocks 1,737 2,295 2,340 2,487 6.3% 8.4%

Stocks to Use (%) 12.7% 15.7% 16.4% 17.2% 0.8% 1.6%

2015/2016 2016/2017E 2017/2018P 2017/2018P M/M Change Y/Y ChangeOctober November Forecast Forecast

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 113 118 150 150 0.0% 27.1%Total Supply 2,927 3,402 3,071 3,071 0.0% -9.7%

Exports 779 1,055 975 1,000 2.6% -5.2%Total Use 1,951 2,222 2,111 2,136 1.2% -3.9%Ending Stocks 976 1,181 960 935 -2.6% -20.8%

Stocks to Use (%) 50.0% 53.2% 45.5% 43.8% -1.7% -9.4%

2015/2016 2016/2017E2017/2018P 2017/2018P M/M Change Y/Y ChangeOctober November Forecast Forecast

Area Planted (mm) 82.7 83.4 90.2 90.2 0.0% 8.2%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 49.5 0.0% -4.8%

Beginning Stocks (mm bu) 191 197 301 301 0.0% 52.8%Production 3,926 4,296 4,431 4,425 -0.1% 3.0%Imports 24 22 25 25 0.0% 13.6%Total Supply 4,140 4,515 4,757 4,752 -0.1% 5.2%

Exports 1,942 2,174 2,250 2,250 0.0% 3.5%Total Use 3,944 4,214 4,326 4,326 0.0% 2.7%Ending Stocks 197 301 430 425 -1.2% 41.2%

Stocks to Use (%) 5.0% 7.1% 9.9% 9.8% -0.1% 2.7%

August 2012


$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20


$/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 November USDA broiler price of $0.86/lb. increased +1.4% vs. the prior month and increased +8.6% vs. Nov 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 $0.93.8/lb. Total 2017 production is estimated to be 41.54mm lbs., up +2.0% vs. 2016.

• The November average breast price of $0.98/lb. decreased -6.9% vs. the prior month and -3.4% vs. November 2016.

• The November average thigh price of $1.23/lb. decreased -9.34% vs. the prior month and increased +17.3% vs. November 2016.

• Fundamentals: Cold storage increased +12.1% in November Y/Y, which is up +5.36% vs. the prior month. Egg sets increased 1.9% in November Y/Y, and up -1.02% vs. the prior month. Exports increased +13.3% in October Y/Y, which is up 22% vs. the prior month.

• The November average combined regional large egg price of $1.26/dozen increased +5.0% vs. the prior month and +97% vs. Nov’16.

Boneless Skinless Breast Prices

Boneless Skinless Thigh Prices

$0.60

$0.80

$1.00

$1.20

$1.40

$1.60

$1.80


$/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

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

700


mill

ion

lbs

2015 2016 2017

Source: USDA

August 2012


-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%


% 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

$1.70

$1.80


$/lb

2015 2016 2017 Futures

Source: FactSet

180

195

210

225

240

255

270


$/cw

t

2015 2016 2017

Source: USDA

Beef: Prices are above 2016 levels as YoY inventory levels are lower and exports continue to strengthen.

Cut Out Values

Cold Storage Inventories

Live Cattle Prices

Monthly Cattle Processing

Beef and Veal Exports

Heifer Slaughter

• The November cattle price of $1.21/lb. increased +5.6% vs. the prior month and increased +13.2% vs. Nov16.

• The WASDE U.S. median average price forecast for 2017 is $121.4/cwt, up 0.4% from $120.86/cwt in 2016. The prior projection for 2017 was $121.8/cwt. Total 2017 production is estimated to be 26.3mm lbs., up +4.3% vs. 2016.

• The November average cut-out value decreased -2.9% vs. the prior month and increased +4.8% vs. Sep16.

• Fundamentals: Cold storage increased +4.8% in November Y/Y, which is up +4% vs. the prior month. Heifer slaughter numbers increased +15.0% in October Y/Y, which is up +6.7% vs. the prior month. Exports increased +13.6% in October Y/Y, which is up +7.0% vs. the prior month. Cattle head processed increased +6.2% in October Y/Y which is up +3.9% vs. the prior month. Slaughter weight data indicates that heavier weights contributed to +6.5% of total slaughter volume, which decreased -160bp vs. the prior year period.

150

170

190

210

230

250

270


mill

ion

lbs

2015 2016 2017

Source: USDA

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

300

350

400

450

500

550

600


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


$0.40

$0.50

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$0.70

$0.80

$0.90

$1.00

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$1.20


$/lb

2015 2016 2017 Futures

Source: FactSet

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%


% C

hg Y

oY

2015 2016 2017

Source: USDA

50

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, slaughter counts remain above prior year levels and exports seasonally increase.

Cut Out Values

Cold Storage Inventories

Live Hog Prices

Pork Exports

Monthly Processing

Sow Slaughter (3 Month Rolling Average)

• The November average hog price of $0.63/lb. was unchanged vs. the prior month and increased +26.9% vs. Nov16.

• The WASDE U.S. median average price forecast for 2017 is $50.38/cwt, up +9.1% from $46.16/cwt in 2016. The prior projection for 2017 was $49.01/cwt. Total 2017 production is estimated to be 25.6mm lbs., up +2.5% vs. 2016.

• The November average cut-out value increased +1.1% vs. the prior month and decreased -1.0% vs. Nov16.

• Fundamentals: Cold storage decreased -0.1% in November Y/Y, which is down -3.3% vs. the prior month. Sow slaughter increased +0.4% in October Y/Y, which is up +5.48% vs. the prior month. Exports increased +9.6% in October Y/Y, which is up +17.4% vs. the prior month. Hogs processed increased +5.3% in October Y/Y which is down -30bp vs. the prior month. Slaughter weight data indicates that heavier weights contributed to +3.3% of total slaughter volume, which is up +50bp 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

-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


mill

ion

lbs

2015 2016 2017

Source: USDA

August 2012


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

• The November USDA monthly average chicken breast price to feed cost ratio of 12.8 decreased -0.9 vs. the prior month and was down 0.4 vs. the prior year period.

• The 10 year average ratio of 14.9 places the Nov17 result in the second quartile of the 2007-2017 monthly results

• The October USDA monthly average beef cut-out to live cattle ratio of 1.73 increased +0.03 vs. the prior month and decreased -0.01 vs. the prior year period.

• The 10 year average ratio of 1.62 places the Oct17 result in the top 25% of the 2007-2017 monthly results.

Beef

Chicken

Pork

• The November USDA monthly average pork cut-out to live hog ratio of 1.28 increased +0.08 vs. the prior month and decreased -0.14 vs. the prior year period.

• The 10 year average ratio of 1.09 places the November result in the top 25% the 2007-2017 monthly results.

1.40

1.50

1.60

1.70

1.80

1.90

2.00

2.10


1st Q

Ratio

3rd

Q

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

Ratio

3rd

Q

2015 2016 2017

Source: USDA

5.0

10.0

15.0

20.0

25.0


1st Q

Rat

io3r

d Q

2015 2016 2017

Source: USDA

August 2012


3.5

4.0

4.5

5.0

5.5

6.0


$/lb

2015 2016 2017

Source: Urner Barry

Seafood: Shrimp and salmon prices are in line with 2016 levels on strong imports; pollock prices are at multi-year lows. .

• The October Urner Barry farm-raised white shrimp price of $4.72/lb. increased +0.4% vs. the prior month and decreased -3.0% vs. the prior year period.

• The October Urner Barry fresh farmed salmon price of $4.74/lb. decreased -2.3% vs. the prior month and decreased -5.8% vs. the prior year period.

• The Undercurrent News 1H17 Alaskan Pollock price of $2400/metric ton decreased -11.1% vs. the 2H16 price of $2700/metric ton. 2017 Prices remained under pressure due to increased supply levels from remaining 2016 stock and are the lowest season A price levels on record since 2005.

Urner Barry Fresh Farmed Salmon Index

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

Alaskan Pollock

Salmon Imports – Total Volume

• The October NOAA measure of total US shrimp imports was 68.8mm kg, an increase of +12.2% vs. the prior month and an increase of +16.5% vs. Oct16.

• The October NOAA measure of total US salmon imports was 32.6mm kg, a increase of +9.1% vs. the prior month and an increase of +7.8% vs. October 2016.

• 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.

Wild Alaskan Landings by Specie

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5


$/lb

2015 2016 2017

Source: Urner Barry

2200

2400

2600

2800

3000

3200

3400


$/M

etri

c To

n

2015 2016 2017

Source: Undercurrent News

30

35

40

45

50

55

60

65

70

75


mill

ion

kg

2015 2016 2017

Source: NOAA

20

22

24

26

28

30

32

34

36


mill

ion

kg

2015 2016 2017

Source: NOAA

0

200

400

600

800

1,000

1,200

2011 2012 2013 2014 2015

Pink Sockeye Chum Coho Chinook

Source: Urner Barry

August 2012


12

13

14

15

16

17

18

19


$/cw

t

2015 2016 2017

Source: USDA

12

13

14

15

16

17

18


2015 2016 2017 Futures

Source: USDA

$/cw

t

1.0

1.4

1.8

2.2

2.6


$/lb

2015 2016 2017

Source: USDA1.0

1.5

2.0

2.5

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

F

3Q17

F

Bn lb

s milk

equi

vale

ntSkim solids Milkfat Y/Y Change (%)

Source: USDA

-5%

-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 prices are in-line with 2016 levels as exports level off and supplies remain ample.

Class I Milk

Cheddar Cheese, 40lb. block

Milk Production

Dairy Exports

• The November USDA class I milk price of $16.44/cwt decreased -1.6% vs. the prior month and decreased -1.0% vs. October 2016. The October average class III milk price of $16.69/cwt increased +2.0% vs. the prior month and increased +12.6% October 2016.

• The WASDE U.S. median average all milk price forecast for 2017 is $17.65/cwt, up +8.2% from $16.30/cwt in 2016. The prior projection for 2017 was $17.70/cwt. Total 2017 production is estimated to be 215.7 bn lbs., up +1.6% vs. 2016.

• The November USDA average cheese price of $1.66/lb. decreased -4.17% vs. the prior month and decreased +11.6% vs. November 2016.

• Fundamentals: Milk production increased +1.4% in October Y/Y, which increased +375bp vs. the prior month. The milk cow herd size was up +70bp vs. the prior year period. Total milkfat and skim solid exports are expected to increase +4.1% in 3Q17 Y/Y, which is down -350bp vs. the prior quarter.

• November average USDA Grade AA butter prices of $2.22/lb. decreased -4.5% vs. the prior month and increased +11.87% vs. November 2016.

Class III Milk

Butter Prices Grade AA

August 2012


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: Current sugar, cocoa, and orange juice are trending up, while coffee and cotton prices appear to have bottomed following periods of decline.

Sugar #16 Prices

Cocoa

Sugar #11 Prices

CottonOrange Juice

Coffee

21

23

25

27

29

31

33

c/lb

2015 2016 2017

Source: ICE

0.50

0.55

0.60

0.65

0.70

0.75

0.80$/

lb2015 2016 2017

Source: FactSet

1,850

2,150

2,450

2,750

3,050

3,350

3,650

$/M

T

2015 2016 2017

Source: FactSet

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70

1.80

$/lb

2015 2016 2017

Source: Factset

• The October ICE sugar #16 average price of $0.270/lb. increased +0.7% vs. the prior month and decreased -5.1% vs. the prior year period.

• The October ICE orange juice average price of $1.55/lb. increased +3.8% vs. the prior month and decreased -22.8% vs. the prior year period.

• The October cocoa average price of $2,086/MT decreased --4.0% vs. the prior month and decreased -12.8% vs. the prior year period.

• The October ICE sugar #11 average price of $0.142/lb. increased +2.2% vs. the prior month and decreased -37.9% vs. the prior year period.

• The October average cotton price of $0.68/lb. increased +0.5% vs. the prior month and +10.6% vs. the prior year period.

• The October average coffee price of $1.26/lb. increased +2.2% vs. the prior month and increased +24.4% vs. the prior year period.

August 2012


$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 is positive, but need to keep an eye on trade issues and the opportunity for expanding markets overseas. Almond Prices Pistachio Prices

Walnut Acres & Yield

Pistachio Acres & 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 walnuts of $0.91/lb. increased +11.1% vs. the 2015 average price of $0.81/lb.

• 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.

• The 2016 total annual walnut production of 1,372mm pounds increased +13.2% vs. the 2015 production of 1212mm pounds. The 2016 average yield per acre of 4,360 pounds increased +7.9% vs. the 2015 average of 4,040 pounds.

Almond Acres & Yield

Walnut Prices

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 '15

Poun

ds

mill

ion

lbs

Millions Pounds Yield Per Acre

Source: USDA

$0.00

$0.40

$0.80

$1.20

$1.60

$2.00

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

$/Pound

Source: USDA

2,500

2,900

3,300

3,700

4,100

4,500

400

600

800

1,000

1,200

1,400

1,600

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

unds

mill

ion

lbs


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

50

150

250

350

450

550

650

750

850

950

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

Poun

ds

mill

ion

lbs


Source: USDA

August 2012


$260

$280

$300

$320

$340

$360

$380

$400

$420

$440

$460


$/Th

ousa

nd S

q Ft

2015 2016 2017

Source: Random Lengths

Forest Products: Strength in housing starts and remodel activity continues to support demand for framing lumber and structural panel prices. Framing Lumber Index U.S. Housing Starts

Repair & Remodel Expenditures (LTM total)

• The October Framing Lumber Composite Index of $438/thousand sq. ft. increased +3.3% vs. the month prior and increased +23.0% vs. the prior year period.

• The October Structural Panel Composite Index of $534/thousand sq. ft. increased +4.9% vs. the prior month and increased +42.4% vs. the prior year period.

• The October U.S. Housing Starts of 1.29 million units increased +13.7% vs. the prior month and decreased -2.3% 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

$350

$370

$390

$410

$430

$450

$470

$490

$510

$530


$/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


150

200

250

300

350

400

450

$/ST

2015 2016 2017

Source: Green Markets Report; US corn belt

$1.60

$2.00

$2.40

$2.80

$3.20


$\G

allo

n

2015 2016 2017

Source: EIA

$1.80

$2.20

$2.60

$3.00

$3.40


$\G

allo

n

2015 2016 2017

Source: EIA

Crop Inputs: Fertilizer prices remain under pressure with higher than expected imports; all 4 fertilizers are near 2016 levels as DAP ticks higher and Urea trends downward.

Urea Potassium Chloride

DAP Ammonia

• The November US corn belt urea average price of $270/ST decreased -2.4% vs. the prior month and increased +5.18% vs. the prior year period.

• The November US corn belt DAP average price of $377/ST increased +4.2% vs. the prior month and increased +9.7% vs. the prior year period.

• The November US corn belt potassium chloride average price of $260/ST increased +0.7% vs. the prior month and increased +5.5% vs. the prior year period.

• The November US corn belt ammonia average price of $325/ST increased +1.2% vs. the prior month and decreased -10.7% vs. the prior year period.

Diesel Fuel Prices Gasoline Prices

• The November average diesel fuel price of $2.91/gal increased +4.1% vs. the prior month and increased +19.3% vs. the prior year period.

• The November average regular grade gasoline price of $2.56/gal decreased -2.4% vs. the prior month and increased +17.5% vs. the prior year period.

150

200

250

300

350

400

450

$/ST

2015 2016 2017


250

300

350

400

450

500

550

$/ST

2015 2016 2017


180

230

280

330

380

430

480

530

580

630

680

$/S

T2015 2016 2017


August 2012


-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

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 November average natural gas price of $7.85/Mcf decreased -3.2% vs. the prior month and increased +3.4% vs. the prior year period.

• The November average heating oil price of $2.70/gal increased +7.1% vs. the prior month and increased +19.7% vs. the prior year period.

• The November average electricity price of $10.56/kWh decreased -1.8% vs. the prior month and increased +23.1% vs. the prior year period.

• The restaurant labor index increased +3.8% Y/Y in October, but was flat vs. the prior month.

• The supermarket labor index increased +3.1% Y/Y in October, which was up +10bp vs. the prior month and up +310bp vs. the prior year period.

• The food manufacturing labor index increased +0.8% Y/Y in October, which was up +20bp vs. the prior month and up +80bp vs. the prior year period.

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

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%


Y/Y Change % 3 Month Avg

Source: BLS

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%


Y/Y Change %

Source: BLS

$6.50

$7.00

$7.50

$8.00

$8.50

$9.00

$9.50


$/tc

f

2015 2016 2017

Source: EIA

August 2012


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]

Kevin BergquistForest Products Sector [email protected]

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

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

Scott EtzelProtein - Seafood Sector [email protected]

Rob FoxDairy Sector [email protected]

Tim LuginslandGrain & Oilseed Sector [email protected]

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

Matt StommesProtein - Poultry & Beef Sector [email protected]

Lon SwansonCrop Inputs/Feed Sector [email protected]

food and beverage - wells fargo · source: nielsen aoc+c. grocery department trends:...

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