Pork Global Market Perspectives 2016 Adolfo Fontes October 2015 - PowerPoint PPT Presentation

Pork Global Market Perspectives 2016 Adolfo Fontes – October 2015

Pork Global Market Perspectives Pork market overview Latin American Potential Brazilian Pork industry Challenges Conclusions

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Rabobank global research team Page 4

World population More food will be needed 2014 7.2 in the first half of this century, than it was Bilhões consumed in the last 7,000 years Source: US Department of Commerce, 2014

Globally, poultry is the fastest growing meat and should replace pork as the most consumed animal protein by 2022 • Global consumption of meat [ MM tons] CAGR¹ +1,6% 346 2013-2022 76 301 (22,0%) +1,4% Beef +2,6% 67 254 (22,3%) 61 (24,0%) 126 (36,4%) 189 +1,3% Pork 112 (37,2%) 56 (29,6%) 98 (38,6%) 78 (41,3%) 128 108 (37,0%) +1,9% Poultry (35,9%) 83 (32,7%) 46 (24,3%) 16 12 14 9 +1,5% Sheep ( 4,6% ) ( 4,7% ) ( 4,7% ) ( 4,8% ) 1995 2005 2013 2022p • Note 1: Compound annual growth rate • Source: Rabobank, OECD, FAO

FAO Projection (2023) for Latin America* *and Caribbean Latin America and Caribbean Production (1,000 t.) Beef Pigmeat Poultry CARG 2014-24 59.192 54.933 49.445 1,3% 20.479 19.760 18.025 1,8% 8.833 8.060 7.384 2,2% 29.880 27.113 24.036 2014 2019 2024 Source: OECD, FAO, 2015 Page 7

Meat per capita consumption per region per year • Per capita consumption (kg/year) – 2013 Beef 110 Poultry Pork 34 84 81 68 28 33 53 14 49 41 13 22 31 37 10 36 5 28 15 15 10 32 28 7 19 16 2 12 16 12 6 World Africa North America Central America South America Asia Europe Oceania and Caribbean Per capita consumption (kg/year) 114 107 98 35 39 60 64 62 57 50 13 5 16 51 13 10 17 45 20 31 38 39 34 4 28 20 0 15 9 14 1 2 China India Japan South Korea Brazil Argentina USA Mexico Fonte: USDA, FAO, Rabobank

Source: Rabobank

Growing importance of trade, but volatile global market conditions Global trade in meat 2000-2015 x 1,000 tonnes 12,000 Poultry : CAGR: +5.5% , 12% of global supply 10,000 Beef: CAGR: +3.7%, 17% of global supply 8,000 6,000 Pork : CAGR: +5.4% , 6% of global supply 4,000 2,000 0 Chicken Beef Pork Source: Rabobank, USDA, 2015

Major Importers – Export opportunities Pork (1,000 t.) 4.983 2014 460 210 441 137 350 1.320 440 815 810 6.056 2024 360 259 455 150 427 1.300 547 1.152 1.406 Russia Canada USA Central America/Caribbean Hong Kong Japan South Korea Mexico China Additional volume imported Additional 1.1 million tons of Pork will be imported China +596 annually until 2024. China, México +337 Mexico and South Korea will South Korea +107 be the main destinations. Source: USDA, 2014 Page 11

Asia’s growing impact on global meat markets Asian imports of meat 1990-2014 1,000 tonnes 4,500 48% 4,000 3,500 46% 3,000 43% 2,500 2,000 1,500 1,000 500 - 1990 1995 2000 2005 2010 Beef Pork Broiler Source: Rabobank/USDA, 2015

Rising..... Urbanization And per capita income Population Page 13

As China grows economically, it will not only import grain but also meat Self-sufficiency in animal protein and GDP per capita (1980-2014) 100% China (including Hong Kong) 90% Percent self-sufficient in animal protein 80% 70% Japan Korea 60% 50% 40% $0 $10.000 $20.000 $30.000 $40.000 $50.000 GDP per capita (current prices, US$) Page 14 Source: USDA, FAO

China’s Self -Sufficiency Has Big Implications for Global Pork BUT , if China’s self-sufficiency AND , pork fell by 5% production in This 1,150k (from 98% to the US would tons of imports 93%) then its have to rise accounts for share of the by 28% to about 19% of Today, China pork trade meet this the global pork (including would rise to demand. trade. Hong Kong) 4 0% . imports only 2% of its annual pork demand. Page 15 Fonte: Rabobank, 2015

More changes are coming... Packaged Pork Fresh Pork 32% 34% 15% 85% 66% 68% Page 16

Global view: Pork 2015/2016 Embargo against the US, Australia and the EU Strong recovery after PEDv Largest importer Pork exports will increase almost 10% in 2015 Production has decreased in 2015 while imports are increasing Brazil has been benefited from the Russia embargo against other exporters Pork production increased more than 70% in the last 5 years Page 18 Fonte: Rabobank, 2014

Latin America Pork Production Pork production in 2015 (million tons) Latin America production in 2015 3,4 USA The fourth largest producer Russia 10,8 EU 2,3 22,5 Others 13,0 Latin 5,7 America 1,3 0,6 0,5 54,7 China Brazil Mexico Chile Argentina Total 109 million tons Source: USDA, 2015 Page 19

USDA Pork estimations -1% +5% +6% +8% +7% +5% +8%

USDA Pork estimations -5% +12% +11% +25% +10% -42% -33% +8% +3%

Brazilian exports 2015 (1.000 tons) Jan/Sep14 Jan/Sep15 +37% Jan to Sep 2015: +6% 176,8 129,5 +3% 84,8 82,6 -29% -19% -3% 38,7 27,3 25,8 20,9 15,7 15,3 Russia Hong Kong Angola Singapura Uruguai Source: MDIC

Russia ban has had particularly impact on global pork and beef market Global beef imports Global pork imports Global chicken imports in 2013 in 2013 in 2013 1,000 tonnes 1,000 tonnes 1,000 tonnes 3,000 5,000 4,000 4,500 3,500 2,500 4,000 3,000 3,500 2,000 3,000 2,500 2,500 1,500 2,000 2,000 14% 13% 1,500 1,000 1,500 1,000 1,000 6% 500 500 500 0 0 0 10% of global meat trade was sold to Russia Source: Rabobank analysis based on USDA, Rostat, 2014

Russia meat ban: 41% of 2013 import volumes is banned now Total Russian meat imports by country of origin Tonnes 600,000 500,000 400,000 300,000 200,000 100,000 - Source: Rabobank analysis based on Rostat, 2014

Exchange rate in Brazil BRL/USD 4,00 3,60 3,20 2,80 2,40 2,00 1,60 Jul/10 Sep/15 0,57  USD/BRL 0,26  USD/BRL Devaluation 1,20 ~55% 0,80 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 26 Source: Bloomberg, 2015

...From the Brazilian point of view... 27

...From the American point of view... 28

...From the Russian point of view... 29

Russian supermarket H2 2014 Page 30

International meat prices Live Cattle (LC1) and Lean Hog (LH1) Usd/cwt 150 -16% -60% -42% -14% 100 Live Cattle 50 Lean Hog 0 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Page 32 Source: Bloomberg, 2015

Vantagens Comparativas

LA has considerable scope to expand food and feed production World: new land available for rain-fed agriculture  Global demand for agricultural commodities is rising [million hectares] as a result of increasing population and rising real Sub-Saharan Africa 95 107 Latam/Caribbean 94 29 incomes E Europe/C Asia 44 7  Although part of the need for greater output can be S & E Asia 11 3 3 0 Good logistics achieved by raising productivity, new land will ME/N Africa Bad logistics RoW 25 28 nevertheless be required for agriculture in the future  The distribution of such resources is hard to South America.: new land availability estimated by crop evaluate, but it is certainly uneven around the world. [million hectares] Nevertheless, it is clear that Latin America, and Brazil 36 Argentina specifically Brazil, holds a substantial part of the world’s 26 Other S America 22 unused agricultural land 11 15 10 10 1 10 9 7 4 6 4 2 1 Wheat Corn Soybeans Sugarcane Source: World Bank, 2010 Page 34

Water availability Use of water and availability Source: Harvard Business School Page 35

Pork cost price comparison selected countries (EUR kg cwe) 2,00 1,50 1,00 0,50 0,00 Feed Other variable costs Labour Other fixed costs

EU high quality processed pork products EU meat consumption per specie Processed meat consumption By category and country (1,000 tonnes pw) Other Beef 25.000 3% 15% Poultry 21% 20.000 15.000 10.000 Pork 61% 5.000 - Canned meat Frozen Convenience Cured meat Bacon & ham Chilled convenience

However, it resulted in the most productive and efficient industry globally Pigs weaned sow year (head) Lean meat production sow year (kg) 35 1.600 1.400 30 1.200 25 1.000 20 800 15 600 10 400 5 200 0 0

EU pork industry dominated by Germany and Spain EU pork production 2000-2025 (1,000 tonnes cwe) 6.000 5.000 4.000 3.000 2.000 1.000 0 2000 2005 2010 2014 2025F