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

Perspectives 2016

Adolfo Fontes – October 2015

Pork Global Market

Pork Global Market Perspectives

Pork market overview Latin American Potential Brazilian Pork industry Challenges Conclusions

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World population

Source: US Department of Commerce, 2014

Bilhões 2014 7.2

More food will be needed in the first half of this century, than it was consumed in the last 7,000 years

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]
• Note 1: Compound annual growth rate
• Source: Rabobank, OECD, FAO

+1,4% CAGR¹ 2013-2022 +1,3% +1,9% +1,5% Pork Poultry Sheep Beef 2022p +1,6% +2,6% 346 76 (22,0%) 16 (4,6%) 128 (37,0%) 126 (36,4%) 2013 301 14 (4,7%) 108 (35,9%) 112 (37,2%) 67 (22,3%) 2005 254 12 (4,7%) 83 (32,7%) 98 (38,6%) 61 (24,0%) 1995 189 9 (4,8%) 46 (24,3%) 78 (41,3%) 56 (29,6%)

FAO Projection (2023) for Latin America*

Page 7

Source: OECD, FAO, 2015

(1,000 t.)

Latin America and Caribbean Production

24.036 27.113 29.880 7.384 8.060 8.833 19.760 20.479 18.025 59.192 54.933

2019 2024 2014

49.445

Pigmeat Beef Poultry CARG 2014-24

1,3% 1,8% 2,2%

*and Caribbean

Meat per capita consumption per region per year

28 32 19 15 49 28 36 22 37 34 13 33 14 28 16 12 2 16 12 6 7 World 41 10 Oceania 84 Europe 68 Asia 31 10 5 South America 81 Central America and Caribbean 53 North America 110 Africa 15 Pork Poultry Beef 39 20 34 28 20 17 45 38 51 31 10 13 39 60 35 16 15 14 9 13 Argentina 107 Brazil 98 South Korea 64 Japan 50 India 4 2 1 China 57 5 Mexico 62 USA 114

Fonte: USDA, FAO, Rabobank

• Per capita consumption (kg/year) – 2013

Per capita consumption (kg/year)

Source: Rabobank

2,000 4,000 6,000 8,000 10,000 12,000 Chicken Beef Pork

x 1,000 tonnes

Growing importance of trade, but volatile global market conditions Global trade in meat 2000-2015

Source: Rabobank, USDA, 2015

Pork: CAGR: +5.4% , 6% of global supply Poultry: CAGR: +5.5% , 12% of global supply Beef: CAGR: +3.7%, 17% of global supply

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460 360 210 259 441 455 350 427 1.320 1.300 440 547 815 1.152 810 1.406 2024

6.056

150 2014

4.983

137 Canada Russia China Mexico South Korea Japan Hong Kong Central America/Caribbean USA

+596 +337 +107

Additional 1.1 million tons of Pork will be imported annually until 2024. China, Mexico and South Korea will be the main destinations.

Additional volume imported China México South Korea

Major Importers – Export opportunities

Pork (1,000 t.) Source: USDA, 2014

Asia’s growing impact on global meat markets

• 500

1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 1990 1995 2000 2005 2010 Beef Pork Broiler

1,000 tonnes

43% 46% 48%

Asian imports of meat 1990-2014

Source: Rabobank/USDA, 2015

Rising.....

Population Urbanization And per capita income

Page 13

Self-sufficiency in animal protein and GDP per capita (1980-2014)

Source: USDA, FAO

As China grows economically, it will not only import grain but also meat

40% 50% 60% 70% 80% 90% 100% $0 $10.000 $20.000 $30.000 $40.000 $50.000 Percent self-sufficient in animal protein GDP per capita (current prices, US$)

Japan Korea China (including Hong Kong)

Page 14

Fonte: Rabobank, 2015

China’s Self-Sufficiency Has Big Implications for Global Pork

Page 15

Today, China (including Hong Kong) imports only 2% of its annual pork demand.

This 1,150k tons of imports accounts for about 19% of the global pork trade. BUT, if China’s self-sufficiency fell by 5% (from 98% to 93%) then its share of the pork trade would rise to 40% . AND, pork production in the US would have to rise by 28% to meet this demand.

More changes are coming...

15% 85% 34% 66% 68% 32% Packaged Pork Fresh Pork

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Global view: Pork 2015/2016

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

Latin America Pork Production

Pork production in 2015 (million tons) Latin America production in 2015

China EU Latin America Russia

5,7 10,8 2,3 54,7

USA

22,5

Others

13,0

Total 109 million tons

0,5 0,6 1,3 3,4 Argentina Brazil Chile Mexico

The fourth largest producer Page 19 Source: USDA, 2015

USDA Pork estimations

+5%

• 1%

+8% +6% +7% +8% +5%

USDA Pork estimations

• 5%

+12% +11% +25% +10%

• 42%
• 33%

+8% +3%

Brazilian exports 2015

Source: MDIC

• 29%
• 3%
• 19%

+37% Uruguai 15,3 15,7 Singapura 20,9 25,8 Angola 27,3 38,7 Hong Kong 84,8 82,6 Russia 176,8 129,5 +3% Jan/Sep15 Jan/Sep14 (1.000 tons)

Jan to Sep 2015: +6%

Russia ban has had particularly impact on global pork and beef market

500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 500 1,000 1,500 2,000 2,500 3,000 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000

Global beef imports in 2013 Global pork imports in 2013 Global chicken imports in 2013

14% 13% 6%

1,000 tonnes 1,000 tonnes 1,000 tonnes

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

• 100,000

200,000 300,000 400,000 500,000 600,000

Tonnes Source: Rabobank analysis based on Rostat, 2014

Exchange rate in Brazil

26

Source: Bloomberg, 2015

0,80 1,20 1,60 2,00 2,40 2,80 3,20 3,60 4,00 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

BRL/USD

Jul/10 Sep/15

0,57  USD/BRL 0,26  USD/BRL

Devaluation ~55%

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

27

28

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

29

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

Russian supermarket H2 2014

Page 30

International meat prices

Source: Bloomberg, 2015

Page 32

Live Cattle (LC1) and Lean Hog (LH1)

50 100 150

Jul-15 Apr-11 Oct-11 Apr-12 Oct-12 Jul-13 Apr-13 Jan-11 Jul-11 Jul-14 Jan-15 Jan-14 Oct-10 Oct-15 Apr-15 Oct-14 Apr-14 Oct-13 Jan-13 Jul-12 Jan-12

• 42%
• 16%
• 14%

Usd/cwt

• 60%

Live Cattle Lean Hog

Vantagens Comparativas

Source: World Bank, 2010

World: new land available for rain-fed agriculture South America.: new land availability estimated by crop

LA has considerable scope to expand food and feed production

[million hectares] [million hectares]

95 94 44 25 107 29 28 3 3 11 7 ME/N Africa S & E Asia E Europe/C Asia Latam/Caribbean Sub-Saharan Africa RoW Bad logistics Good logistics 10 10 11 22 9 4 6 4 7 Wheat 10 2 Sugarcane 15 1 Soybeans 1 36 Corn 26 Other S America Argentina Brazil

 Global demand for agricultural commodities is rising

as a result of increasing population and rising real incomes

 Although part of the need for greater output can be

achieved by raising productivity, new land will nevertheless be required for agriculture in the future

 The distribution of such resources is hard to

evaluate, but it is certainly uneven around the world. Nevertheless, it is clear that Latin America, and specifically Brazil, holds a substantial part of the world’s unused agricultural land

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Water availability

Source: Harvard Business School

and availability Use of water

Page 35

Pork cost price comparison selected countries (EUR kg cwe)

0,00 0,50 1,00 1,50 2,00 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)

Beef 15% Pork 61% Poultry 21% Other 3%

• 5.000

10.000 15.000 20.000 25.000 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)

5 10 15 20 25 30 35 200 400 600 800 1.000 1.200 1.400 1.600

EU pork industry dominated by Germany and Spain

EU pork production 2000-2025 (1,000 tonnes cwe)

1.000 2.000 3.000 4.000 5.000 6.000 2000 2005 2010 2014 2025F

In the US, High-Flying Pork Producers Margins Have Returned to Earth

• Source: Iowa State

($60) ($40) ($20) $0 $20 $40 $60 $80 $100 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

2012 Drought RFS and Great Recession PEDv Outbreak

Hog Production Margin per Head

Page 41

Corn prices

Source: Bloomberg, Rabobank, 2015

Source: Bloomberg, Rabobank, 2015

Page 42

Soybean prices

Potential in Argentine meat production

Page 43

Source: OECD, Rabobank estimates, 2014

(1,000 t.)

Beef Poultry Pork

500 1.000 1.500 2.000 2.500 3.000 3.500 2023F 2022F 2021F 2020F 2019F 2018F 2017F 2016F 2015F 2014 2013 2012 2011 2010 2009 2008 2007 2006 2024F

+2,2%

2005 2004 2003 2002 2001 2000

OECD outlook Beef Production

500 1.000 1.500 2.000 2.500 3.000

2001 2000 2023F 2022F 2021F 2020F 2019F 2018F 2017F 2016F 2015F 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2024F

+2,5%

OECD outlook Poultry Production

100 200 300 400 500 600 700

2023F 2022F 2021F 2020F 2019F 2018F 2017F 2016F 2015F 2014F 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 2024F

+2,9%

OECD outlook Pork Production

Rabobank estimates on the Brazilian meat market

Source: USDA, Rabobank estimates, 2015

Growth Potential within 10 years

Beef Poultry Pork +1,078 +2,585 +750 +1,111 +1,367 +140 Consumption Trade Status Meat 8.826 3.482 4.849 7.875 8.953 1.849 2.961 3.446 2.696

2013

8.535 725

2023

5.916 585 +2,1% 19.397

2013 2023

11.411 23.810 +3,7%

Poultry Pork Beef

Domestic Consumption Trade Status World export of AP and Brazilian Share (2013-2023)

(1,000 t.)

18,7% 24,8% 28,8% 30,3% 8,2% 8,5% 0,0% 5,0% 10,0% 15,0% 20,0% 25,0% 30,0% 35,0% 2.000 4.000 6.000 8.000 10.000 12.000 14.000 16.000 18.000 2013 Beef 2023 Beef 2013 Poultry 2023 Poultry 2013 Pork 2023 Pork Others Brazil Brazil Share

Challenges

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Infrastructure Political and economic crisis

Conclusions

Source: Rabobank, 2014 Logistics

• Will logistics capacity grow at the same

rate as production & export availability? Increased demand

• Asian Protein demand
• Domestic Middle Class

Health & security

• Animal Heath status
• Food safety & quality

Economic framework

• Credit crunch, crisis
• Exchange rates

Economics

• Grain costs
• Large (600 mn) domestic

market with rising real incomes Environment

• Climate change & emissions
• Animal welfare

Potential

• Room to growth in productivity
• Land and water availability

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S O W T

Volatile business environment

• Exchange rate, commodity prices,

interest rates

47

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