Rice Industry Field Day Global Market and Strategy Update Rob - - PowerPoint PPT Presentation

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Rice Industry Field Day Global Market and Strategy Update Rob - - PowerPoint PPT Presentation

Mar 24, 2024 211 likes •498 views

Rice Industry Field Day Global Market and Strategy Update Rob Gordon - Chief Executive Officer Thursday 15 March 2018 Global Outlook Global Market California Developments Global Stockpiles Foreign Exchange Rice Remains

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Rice Industry Field Day Global Market and Strategy Update

Rob Gordon - Chief Executive Officer Thursday 15 March 2018

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Global Outlook

  • Global Market
  • California Developments
  • Global Stockpiles
  • Foreign Exchange
  • Rice Remains Attractive

Pure, Premium & Sustainable

  • Resilience Proved
  • Five-Year Strategy
  • Vietnam Developments
  • Profit Businesses Success
  • Attracting Customers &

Facilitating Growers

  • Summary
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Pricing Indicators

World Rice Prices Foreign Exchange Milling Yields Crop Size Branded Markets Smooth Pricing

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Medium Grain Prices: Tender Markets

Source: Creed Report

400 500 600 700 800 900 1,000 1,100 1,200 1,300

Japan Minimum Access Pricing (10 Years)

US$/tonne (FOB Origin Port) Period since lastField Day

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Medium Grain Prices: Tender Markets

$835 $820 $775 $775 $755 $755 $745 $735 $735 $710 $685 $580 $570 $550 $560 $565 $535 $530 $530 $540 $740 $749 $752 $770 $780 $810 $805 $820 $850 $830 $870 $880 520 570 620 670 720 770 820 870 920 970

Japan Minimum Access Pricing (Since Sept 2015)

Award Price - FOB California Port Period Since 2017 Rice Field Day US$/tonne

Source: Creed Report

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California Annual Plantings

Source: SunRice

550 473 533 509 595 528 526 534 519 561 558 585 562 567 445 429 541 440 500 400 450 500 550 600 '000 acres

California Rice Acres Planted

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California: Conditions for our major competitor

  • Following drought, gap emerged between the C16 crop and lower

than expected plantings: late harvest in C17 caused short supply

  • Millers chased volume by dropping price in most markets in C16
  • Californian exports forecast to be 24% lower than last year
  • Few export sales beyond core Northeast Asian and Canadian markets
  • Smallest export volume since West Coast port strikes in 2014/15
  • From 30-year highs in 2017, US Medium and Short Grain stockpiles

have now declined by 19% to 9.3 million tonnes

  • Anticipated that California stockpiles of medium grain could be almost fully

depleted by end of the US current crop year (around September 2018)

  • California prices have been steadily rising since March 2017
  • We expect Japanese tender prices will remain above US$800/tonne

until new US crop supply becomes available in October 2018

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California: Unfavourable Water Conditions Developing

  • Water storage continues to

show above average due to the 2016/17 record water year

  • YTD 2017/18 water

accumulation 65% of normal

  • Accumulation potential

diminishing for balance of the water year

  • Snow water content is at 30%
  • f average
  • Next month’s rainfall will be

crucial

  • Water situation could

negatively impact size of the 2018 Californian rice crop

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Global Stockpiles still High

Source: USDA

20 40 60 80 100 120 140 Million tonnes

Rice Stockpiles: China / Thailand / Egypt + 'Rest of World'

China Thailand Egpyt Rest of the World

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Large Stockpiles being Unwound in China & Egypt

  • As a result of high floor prices for domestic farmers, China has a stockpile of

94 million tonnes, which accounts for 67% of overall global stockpiles

  • China is now unwinding this stockpile, especially into lower returning

markets, especially in Asia, Africa and the Pacific

  • China’s exports almost tripled in 2017 and are expected to increase a

further 36% in 2018 (the highest level since 2003)

  • Egypt is also taking steps to unwind growing stockpiles, lifting restrictions on

exports and imposing tariffs on imports

  • Thailand has unwound stockpiles to current levels around 3 million tonnes

from over 11 million tonnes in 2015

  • Typical trend would be for prices to soften as stockpile levels are unwound

SunRice strategy of selling premium Riverina rice into high returning markets and sourcing rice beyond Australia to satisfy demand in lower returning markets assists in insulating Australian growers from cyclical price trends

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Foreign Exchange Movements – A$/US$

  • Stronger A$/US$ exchange rate is

unfavourable for international rice sales

  • SunRice was hedged at average of

US$0.75 for FY18

  • SunRice’s rice price sensitivity to

exchange rate fluctuations: US$0.01 movement equates to A$13/tonne

  • Most senior US central bankers expect

at least three interest rate increases in the US during 2018

  • Majority of our banking syndicate are

presently forecasting A$ to depreciate

  • ver 2018
  • PNG Kina depreciation has continued,

albeit at a slower rate over the past year Strategy of sourcing rice beyond Australia to satisfy demand in lower returning, and often volatile, markets reduces exposure for Australian growers

Sources: Bloomberg

0.30 0.32 0.34 0.36 0.38 0.40

PNG Kina/US$ (since January 2015)

Period since 2017 Field Day 0.65 0.70 0.75 0.80 0.85

A$/US$ (since January 2015)

Period since 2017 Field Day Average Hedging for FY18: US$0.75

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Is the A$ Set to Depreciate?

0.60 0.65 0.70 0.75 0.80 0.85 0.90 0.95 1.00 1.05 1.10 0.0 0.5 1.0 1.5 2.0 2.5 AUD/USD US 10 YEAR YIELD

10 YEAR RATE SPREAD - AUS v US

10 YEAR BOND SPREAD AUvUS AUD/USD

Source: Bloomberg

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Iron Ore Pricing versus AUD/USD

Source: Bloomberg

0.60 0.65 0.70 0.75 0.80 0.85 0.90 0.95 1.00 1.05 1.10 20 40 60 80 100 120 140 160 180 AUD/USD Iron Ore Price

Iron Ore Price - AUD v USD

Iron Ore Mid Price: US$/tonne (LHS) AUD/USD

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Crop Size and Milling Yield

Source: SunRice

800 963 1,161 829 690 244 802 Forecast 600 59.3% 55.4% 48.3% 57.4% 58.5% 54.9% 57.2% Forecast 58.0% 40 45 50 55 60 200 400 600 800 1,000 1,200

Crop Size and Average MG Milling Yield

Crop Size ('000 tonnes) - LHS Milling Yield Milling Yield (%) '000 tonnes

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Pricing Indicators: On Balance Positive

World Rice Prices Foreign Exchange Milling Yields Crop Size Branded Markets & Sale of Premium Varieties Ensure Stronger Pricing

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SunRice Provides Reliable Paddy Price Indicators

  • SunRice has developed a

consistent track record of providing growers with reliable price range indicators and guidance

  • Regular adjustments to

price range guidance are communicated to growers depending on market and trading conditions

  • Base of the C17 paddy

price range has increased by $50/tonne over the past six months

  • now $350-365/tonne

$275 $317 $294 $395 $404 $415 220 260 300 340 380 420 460 C11 C12 C13 C14 C15 C16 C17

Riverina Paddy Price

A$/tonne (Reiziq) C17 Range $350-365

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Rice Remains an Attractive Prospect for C19

  • SunRice has demonstrated the insulating power that our brands and

international trading activities provide against

  • Price cycles
  • Increasing competition in lower returning markets
  • Exchange rate volatility in certain markets
  • For previous crops SunRice has provided an opportunity for growers to

minimize risk by offering fixed price contracts for certain premium varieties – this practice was well received and will continue in C19

  • Growers can plan for both winter and summer crop rotations, given certainty
  • n pricing for particular rice varieties (in some cases 23 months in advance)
  • Base of the C17 paddy price range has increased by $50/tonne over the

past six months (now $350-365/tonne)

  • C18 paddy price outlook and fixed price contracts for specialty varieties

will be announced after March board meeting Having demonstrated resilience during the cyclical downturn, SunRice is now poised to take advantage of demand in high returning markets for our premium Australian rice

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Pure, Premium & Sustainable

  • Resilience Proved
  • Five-Year Strategy
  • Vietnam Developments
  • Profit Businesses Success
  • Attracting Customers &

Facilitating Growers

  • Summary
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Resilience Proved: Focus returns to Expansion

  • Over the past five years, SunRice’s strategy to expand the business

has succeeded in:

  • Improving financial performance, with turnover now well exceeding

A$1 billion;

  • Building a resilient business to weather cyclical downturns;
  • Increasing grower returns: paddy prices A$350-$415/tonne;
  • Increasing shareholder returns: dividend yield of ~8% per annum
  • Diversifying our source of supply from beyond the Riverina; and
  • Increasing demand for SunRice product: in FY19 (C18) anticipated at

between 1.4-1.5 million paddy tonnes.

  • There is an excellent foundation for further growth of the business
  • Taking advantage of global trends
  • Leveraging SunRice’s distinct competitive advantages
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Five-year Strategy: Pure, Premium & Sustainable

  • Our five-year strategy identifies where these growth opportunities

exist and outlines what we need to do to maximise the benefits

  • Three overarching themes to the refreshed strategy:
  • 1. The provenance of Australian rice

Riverina growers to focus on growing premium, high-value varietals (such as Medium Grain, Low GI, Opus and Koshihikari) to meet increasing demand for quality, ‘clean and green’, healthy products

  • 2. Utilising our various sustainable global supply chains to respond

to increased demand

Lower returning and more volatile markets will be supplied with affordable yet high-quality rice grown outside of Australia

  • 3. Matching global food trends from our diversified product portfolio.
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Fortunately, being an Australian-owned branded rice player today is exciting given that the world is changing in our favour

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Developing countries that are rice eating nations are ramping up the wealth curve, in search for premium and convenience

Rice eating nations are becoming obese and diabetic, and will likely favour a Low GI offering An ongoing global fascination with Sushi

Many rice-eating nations are searching for food safety assurances Movement away from sugars, gluten and animal protein has led to growth in rice flour, rice syrups, rice bran + rice proteins Healthy Snacking

  • n the rise

(including Gluten Free Snacks)

Food trends that affect SunRice

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Our greater emphasis on sushi and Low GI rices will likely resonate with the Asian consumer – we will further emphasise these varietals in the Riverina going forward

Overweight populations in Asia 100 100 3 10 50 33

ANZ US Japan ME + S.Africa Asia excl Japan EU

Global Sushi demand

Indexed: Japan size indexed to 100

Japanese cuisine restaurants outside Japan increased by 16% CAGR from 2006 to 2015

  • Diabetes is the world’s fastest growing chronic disease
  • 60% of diabetics in the world live in Asia
  • Several Asian nations have reached critical levels, where

25-45% of population is overweight

  • A disproportionate number of diabetics live in

Asia relative to other regions

‒ Analysts have pointed to the growing need for a competitive Low GI rice product

Overweight prevalence (%) in adults

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Expansion of Short Grain would Benefit Growers

219 100 51 Koshi and Low GI MG High- Returning markets MG Low- Returning markets Indexed – a comparison of paddy returns

Medium Grain to High-returning markets = Indexed at 100

  • Riverina should be positioned as

the premium Medium Grain source for premium Medium Grain markets

  • Riverina well positioned to grow

high-returning varietals, such as short grain, that are growing in demand and have less global competition

  • We need not abandon our lower

returning markets, but serve them from lower cost supply sources

  • Require permanent offshore supply

to serve these lower-returning markets

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The 2017 Strategy aims to reposition the higher-cost Riverina supply as

  • ur premium supply source intended for premium end-markets.

→This means growing higher-returning varietals, investing in equipment that ensures a premium finish, and increase efficiency

We aim to ensure that the Riverina grower can compete against cotton through the SunRice 5R Proposition. The Riverina is well positioned to grow some high- returning varietals that are growing in demand and have less global competition

  • We will promote fewer but higher-earning varietals
  • Focus on Premium-market Medium Grain, Short Grains and Low GI
  • More streamlined supply chain
  • Supportive agronomic packages
  • Greater forward-pricing arrangements and a minimum guarantee for the pool
  • Invest in operations and storage to streamline operations, increase efficiency

and reduce cost

  • SunRice’s 5R Proposition:
  • Maximise reliable
  • Manage farmer Risks, Relationship and Research
  • Enhance the Reputational image of the industry and the quality of our

message

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Vietnam: Ensuring SunRice is able to service our high volume yet low value markets from a lower cost supply source

  • 600,000 paddy tonnes of exports per annum: SunRice is one of Vietnam’s

larger rice exporters (5% of total exports and ~50% of Japonica exports)

  • SunRice has ensured that the mills we contract are ISO and HACCP

accredited

  • Pesticide, fertiliser and input management through using certified growers,

and through working directly to control agronomic practices

  • Competitive pricing: over four years have delivered an increase in returns
  • ver long grain to farmers by an average of 30% at farm-gate
  • Export and logistics capability through extensive network of providers: over

the past 18 months there were 724 shipments across 24 ports

  • Establish breeding programmes to improve yields and address consumer

preferences: yields have increased from 7 to 10 tonnes/hectare

  • Assessment of viable mills in relevant growing regions has

intensified

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Profits Businesses Critical to Ongoing Success

  • Includes International

Rice Business, Rice Food, Riviana and CopRice

  • Diverse mix of profit

businesses

  • Riviana
  • SunFoods
  • Trukai
  • Increasing globally

traded volumes requires intensified global sourcing

  • Last year secured

500,000 paddy tonnes to fill Riverina shortfall

22.7 36.0 33.5 49.2 52.0 34.2 C17 Guidance 45.0 20 25 30 35 40 45 50 55 C11 C12 C13 C14 C15 C16 C17

SunRice NPAT

$ Million

In C17, the rice pool was supplemented by Profits Businesses, recognizing the loyalty of growers who dedicated resources to rice

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Attracting Customers & Facilitating Growers

Customer Engagement

  • Initiation of ‘paddy to plate’ tours to the Riverina for present and potential

customers in key markets to educate on our premium offering and traceability through our vertically integrated supply chain

  • 10 touring parties visited in the past year from Japan, Korea and China
  • Record sales to Japan in FY18 (35,000 milled tonnes)
  • Two year contract signed in November to supply short grain to Japan
  • Category Business Teams established to focus on growth markets, as well as Low

GI and ingredients

Ongoing R&D is Critical

  • Rice partnership + RRAPL
  • YRM70 (Viand) & YRK5 varieties
  • Research to develop a Low GI Medium Grain variety
  • Research into tropical varieties in Queensland and Vietnam
  • Including a unique ‘puffing rice’ variety for Kellogg's
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Summary: International Focus, Local Benefits

Meeting the ever increasing demand of our global customers, who are willing to pay for a sustainable supply of premium Riverina rice, and matching consumer trends with relevant products.

  • We will concentrate Riverina supply on higher value varieties to

service the most premium markets to lift paddy returns

  • Traditional high volume, low value markets will be serviced from

lower cost supply chains

  • Both growers and shareholders will benefit from a more

internationally focused SunRice