September 2008 Rabobank International Deborah Perkins World food market developments Rabobank International, New York
September 2008
Rabobank International
Deborah Perkins
World food market developments
Rabobank International, New York
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Contents
Section 1:
Section 2:
Section 3:
Commodity market developments
Implications for specific sectors
Outlook
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Section 1
Commodity Market Developments
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Commodity prices are affected by the interaction of many factors
Commodity price
• Agricultural land• Yield (output/ha)• Farm management• Farm input prices• Weather• Diseases
Supply factors
• Feed • Food• Biofuels• Industrial
Demand factors
• Fund activity• Exchange rates• Freight rates• Crude oil prices• Technical specifications • Market sentiment and speculation• New non-agri market entrants
Other price determining factors
• Trade Policy• Agricultural Policy• Biofuel/Energy policy• Food safety regulations (e.g. GMO)• Sustainability criteria
Policies
Source: Rabobank
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France
India
Russia
Germany
Italy
US
Argentina
Brazil
MexicoChina
Japan
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
0% 2% 4% 6% 8% 10% 12%
Income and population growth are key drivers of increased food consumption
Income growth (07)
CA
GR
pop
ulat
ion
(05-
10)
Source: UN, IMF, Rabobank
Income and population growth in selected countries
Size of bubble = 2006 population
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China’s appetite for natural resources has had a big impact on all commodity prices
Chinese energy consumption Iron ore contact prices
Source: IMF, China State Statistical Bureau, Rabobank
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Ethanol’s impact on commodity demand will focus on corn and sugar
million tonne2006 2012
Wheat and barley
734 803
…of which for ethanol5 19
share (%)1% 2%
Corn
687 818
…of which for ethanol48 157
share (%)7% 19%
Sugar cane
1346 1670
…of which for ethanol230 475
share (%)17% 28%
Source: Rabobank October 2007
Global ethanol production
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Ethanol by-product production and use is also expected to increase substantially
DDGS production in North America
DDGS displacement of corn
Source: Informa, ProExporter, Rabobank
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Increasing consumer demands which must be met are also affecting the cost of food
Safety
Environment & ethics
Local vs Organics
Time
Value for money
Quality
Experience & emotion
Health & Wellness
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The increased presence of non-commercial interest in U.S. agricultural futures markets is having an impact
-30,000
-20,000
-10,000
0
10,000
20,000
30,000
40,000
Mar
-06
Apr
-06
May
-06
Jun-
06
Jul-0
6
Aug
-06
Sep
-06
Oct
-06
Nov
-06
Dec
-06
Jan-
07
Jan-
07
Feb
-07
Mar
-07
Apr
-07
May
-07
Jun-
07
Jul-0
7
Aug
-07
Sep
-07
Oct
-07
Nov
-07
Dec
-07
Jan-
08
Jan-
08
Feb
-08
Mar
-08
Po
siti
on
s
200
400
600
800
1,000
1,200
1,400
US
cen
ts/b
ush
el
Non-Commercial Wheat Net Length Prices
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
Mar
-06
Apr
-06
May
-06
Jun-
06
Jul-0
6
Aug
-06
Sep
-06
Oct
-06
Nov
-06
Dec
-06
Jan-
07
Jan-
07
Feb
-07
Mar
-07
Apr
-07
May
-07
Jun-
07
Jul-0
7
Aug
-07
Sep
-07
Oct
-07
Nov
-07
Dec
-07
Jan-
08
Jan-
08
Feb
-08
Mar
-08
Po
siti
on
s
0
100
200
300
400
500
600
700
US
cen
ts/b
ush
el
Non-commercial Net Length Price
Non-Commercial Corn
-80,000
-30,000
20,000
70,000
120,000
Mar
-06
Apr
-06
May
-06
Jun-
06
Jul-0
6
Aug
-06
Sep
-06
Oct
-06
Nov
-06
Dec
-06
Jan-
07
Jan-
07
Feb
-07
Mar
-07
Apr
-07
May
-07
Jun-
07
Jul-0
7
Aug
-07
Sep
-07
Oct
-07
Nov
-07
Dec
-07
Jan-
08
Jan-
08
Feb
-08
Mar
-08
Po
siti
on
s
400
600
800
1,000
1,200
1,400
1,600
US
cen
ts/b
ush
el
Non-commercial Soy Net Length Price
Non-Commercial Soy
Non-Commercial Wheat
-4,000
-2,000
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
May
-06
May
-06
Jun-
06
Jul-0
6
Aug
-06
Sep
-06
Oct
-06
Nov
-06
Dec
-06
Jan-
07
Feb
-07
Mar
-07
Apr
-07
May
-07
May
-07
Jun-
07
Jul-0
7
Aug
-07
Sep
-07
Oct
-07
Nov
-07
Dec
-07
Jan-
08
Feb
-08
Mar
-08
Apr
-08
Pos
ition
s
0
5
10
15
20
25
US
dol
lars
/ cw
t
Non-Commercial Dairy Net Length Price
Non-Commercial Dairy
Source: Bloomberg, Rabobank
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Low inventory levels have contributed to higher and more volatile prices
Global wheat stocks Global corn stocks
Sources: USDA, Rabobank
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Source: ADM, Toepfer International, FAO, Rabobank
million hectares
Area of grains, oilseeds and sugar crops
Projected area of grains, oilseeds and sugar crops
Other suitable agricultural land including forestry, orchards and pasture land OR land that may be taken out of agriculture due to environmental issues
North America
128 143193
2007 2020 Other
Brazil
4978 89
2007 2020 Other
Argentina
30 34 16
2007 2020 Other
EU-27
69 72 60
2007 2020 Other
Australia
21 20 30
2007 2020 Other
M iddle East
32 31 -28
2007 2020 Other
Subsaharan Africa
98 116
436
2007 2020 Other
CIS
94 112 106
2007 2020 Other
India
138 141
-18
2007 2020 Other
China
112 109-24
2007 2020 Other
Other Asia
85 8715
2007 2020 Other
The availability of additional arable land is limited
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The adoption of GM technology will play a key role in increasing production
Agbiotech market by cropAgbiotech market by geography
GM crop area (million acres)Agbiotech market by product
segment
U.S., 71.8
Rest, 7.1
Latin America,
16.6
Canada, 4.5 Cotton,
11.90
Corn, 41.00
Soybean, 43.90
Other, 0.20
Canola, 3.00
Insect resistant
seed, 19.1
Herbicide tolerant
seed, 57.2
Stacked gene
varieties, 23.7
0
50
100
150
200
250
300
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
RR Soybean Other RR Crops Other HR CropsB.t. Cotton IR Maize Stacked Cotton Stacked Maize
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Fertiliser prices are indicative of higher input costs farmers are facing
Fertiliser prices
0
200
400
600
800
1,000
1,200
1,400
USD/
tonn
e
DAP North Africa MOP Vancouver DAP US Gulf Urea FOB Yuzhny
Fertiliser use by region
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USD weakness also relevant
Higher USD prices required to balance the market
USD - Nominal Broad Index
80
90
100
110
120
130
140
Jul-9
6
Jan-
97
Jul-9
7
Jan-
98
Jul-9
8
Jan-
99
Jul-9
9
Jan-
00
Jul-0
0
Jan-
01
Jul-0
1
Jan-
02
Jul-0
2
Jan-
03
Jul-0
3
Jan-
04
Jul-0
4
Jan-
05
Jul-0
5
Jan-
06
Jul-0
6
Jan-
07
Jul-0
7
Jan-
08
Jul-0
8
Jan
1997
= 1
00
Source: US Federal Reserve http://www.federalreserve.gov/RELEASES/H10/Summary/
The USD lost 26% of its value between Jan 2002 and Jul 2008
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Section 2
Implications for specific sectors
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Growth in world fish production is coming from aquaculture and most of it has been in China
0
20
40
60
80
100
120
140
160
1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007
Catch Aquaculture
Millions of tonnes
FISHSTAT 2007
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Source: FAO, FAPRI, Rabobank, USDA, 2007
0
50
100
150
200
250
300
350
1985 1995 2005 2015f
mil
lio
n t
on
nes
Beef Pork Poultry Lamb- Mutton
Global meat demand, 1985- 2015f
Despite increasing demand meat producers face a number of challenges especially with respect to feed costs
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Consumption of fruit in Chile’s largest export market is forecast to increase but prices have been relatively stable
Growth in F&V consumption in the U.S. 2005-2020
-4
-2
0
2
4
6
8
10
Citrus
Apples
Grape
s
Other
fruit
Potato
es
Tomat
oes
Lettu
ce
Other
vege
tables
perc
ent
Source: USDA Fruit & Vegetable consumption
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Consumers tend to spend more on processed fruit and vegetables as their incomes increase
Average US spend on Processed fruit and vegetables
0
20
40
60
80
100
120
140
160
180
Processed Fruit Processed Vegetables
USD
0-30,000 30-50,000 50-75,000 75,000+
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Orange juice concentrate prices have tended to react to supply disruptions
Orange juice price development2002-2007
0
50
100
150
200
250
8/5/
2002
11/5
/200
2
2/5/
2003
5/5/
2003
8/5/
2003
11/5
/200
3
2/5/
2004
5/5/
2004
8/5/
2004
11/5
/200
4
2/5/
2005
5/5/
2005
8/5/
2005
11/5
/200
5
2/5/
2006
5/5/
2006
8/5/
2006
11/5
/200
6
2/5/
2007
5/5/
2007
8/5/
2007
11/5
/200
7
2/5/
2008
5/5/
2008
8/5/
2008
US
D/1
5,00
0 p
ou
nd
s o
ran
ge
soli
ds
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73%73%
63%
30%
13%
11%
0%
10%
20%
30%
40%
50%
60%
70%
80%
1970 1980 1990 2000 2006 2010
California Imports
Chile faces strong competition in the U.S. which is an attractive market for all wine exporters
Share of U.S. wine market- California vs. imports, 1970- 2010
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Production growth > 4%
Production growth 2 - 2.5%
-12%
2.1%0.2%
2%
-7.6%
16%
6.6%
-8.4% 2.5%
4.3%
The strongest milk production growth is occurring in some of the non traditional dairying regions
Production increase in key countries in 2007
Source: Rabobank, ZMP, NDDB, IBGE, SAGPyA, CDA
0.4%
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When looking at export opportunities we need to remember that most commodities are thinly traded
Small ripples in these national markets can create LARGE waves in the traded market
European Union
China
USA
Brazil
Trade
Russia
AUS
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Section 3
Outlook
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Even when prices begin to decline they are projected to remain above their 2004 levels
0
50
100
150
200
250
2007 2008 2009 2010 2015
Maize Wheat Rice Soybeans Soybean oil Sugar
Index of projected real food crop prices, 2004 = 100
Source: World Bank, DECPG
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Mexico: Removed tariffs and quotas on pulses, corn, milk, and sugar. Honduras:
Introduced export ban on maize.
Venezuela: In February, Pres. Chavez warned he may nationalize large food companies.
Ecuador: Eliminated tariff on wheat and wheat flour and fixed bread prices.
Peru: Considering subsidizing bread prices, encouraging production of potato bread.
Brazil: Considering removal of tariffs on wheat.
Bolivia: Eliminated import duties on wheat, wheat flour, rice, and maize. Banned wheat exports.
Argentina: Corn export taxes increased to 25% and wheat to 28%. Stopped issuing corn export permits. Ongoing restrictions on beef exports, increased soybean export taxes
Algeria: Gov’t budgeted $4.2 billion for farming in a 2005-09 recovery plan, aiming to improve soil quality, grant concessions of land to agricultural investors to carry out reforestation and promote farm businesses.
Niger: On March 8, gov’t suspended taxes and customs duties on rice imports for 3 months and says it will increase state stockpiles of rice and cereals.
Cameroon: Eliminated VAT on rice and fixed prices of rice.
Egypt: Raised food subsidies.
Turkey: Reduced tariffs on wheat and maize and eliminated that on barley.
Azerbaijan: Eliminated VAT on grains.
China: Introduced export levies on wheat, buckwheat, barley, and oats by 10%. Increased those on wheat flour and starch, maize, sorghum, millet, and soybeans. Introduced export quotas on flour made of wheat, maize, and rice. Placed price controls on staples such as dairy products.
Pakistan: Imposed levies on exports of wheat and wheat flour. Banned private exports of wheat to Afghanistan.
South Korea: Reducing tariffs on wheat and corn and eliminating those on soybeans and feed maize.
India: Eliminated tariffs on wheat and wheat flour and restricted rice exports.
Bangladesh: Reduced tariffs of rice and wheat imports by 5%.
Vietnam: Restricted rice exports, lowered import tariffs on a range of dairy products.
Indonesia: Eliminated tariffs on wheat and soybeans.
Philippines: On 2/21, the gov’t said Pres. Arroyo asked Vietnamese Prime Minister Dung to guarantee a supply of up to 1.5 mln tonnes of rice, signaling rising nervousness about tight supply. On 3/11, gov’t asked for supplies from the East Asia Emergency Rice Reserve, a stockpile from S. East Asian nations, China, Japan, and South Korea, to meet a domestic shortfall. On 3/17, the gov’t asked fast-food restaurants to serve half portions of rice as sides to main dishes to cut down on waste.
Source: Various, Rabobank, correct as at 31 March 2008
Policy responses will be important
Russia: Implemented price controls on certain dairy products, increased beef
import quotas
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