Global dairy outlook

Transcription

1 Global dairy outlook - Opportunity knocks! March 2012 Michael Harvey Senior Analyst Rabobank Food & Agribusiness Research and Advisory

2 Contents Section 1: Section 2: Section 3: Commodity market update Global outlook Opportunity knocks! What does it mean for Australia s dairy sector? 2

3 Dairy markets remain bearish On the back of softer fundamentals 3

4 Mainly on the back of strong supply Unusually good weather across most regions 4

5 And lighter buying in China Back they are back in the market now 5

6 Commodity market outlook Rabobank s view remains neutral Modest downward pressure Global supply remains sufficient Sluggish demand in Nth Hemisphere Cautious purchasing persisting But prices to stabilising - gdt forward curve Market drivers to watch US margin watch Escalation in Euro zone debt crisis Oil-driven inflationary pressure Venezuela??? 6

7 What it means at the farmgate? Commodity markets were resilient through a strong Oceania spring But prices in USD terms have fallen Plus minimal relief from high currency Hence downward revisions of farmgate price forecasts But profitability should continue across the sector 7

8 Contents Section 1: Section 2: Section 3: Commodity market update Global outlook Opportunity knocks! What does it mean for Australia s dairy sector? 8

9 Consumption growth to accelerate An average 2.4% CAGR over next 5 years 9

10 But demand growth will be unbalanced Divergent prospects for developed and emerging countries The day is coming when we could sell everything we make to Asia. Perhaps we should. Sir Henry van der Heyden, Fonterra's chairman Size = Current market volume (LME) 10

11 Cheese growth will underperform Western mature markets still dominates cheese Source: Rabobank Analysis, IMF, Country Import/Exports data 11

12 Demand heavy where milk is short And the cost of producing milk will remain high Source: Rabobank Analysis, CEPEA, Statistical Buearu of China 12

13 Rabobank medium term outlook Demand push / cost pull supports higher trading range Whole Milk Powder historic and medium-term target Source: USDA, Rabobank forecasts,

14 Volatility a ongoing feature Medium term likely to bring more frequent shocks WMP pricing: intra year trading range 14

15 Contents Section 1: Section 2: Section 3: Commodity market update Global outlook Opportunity knocks! What does it mean for Australia s dairy sector? 15

16 Australia is entrenched in the growth markets Concentration in Asia reflects geographical proximity Africa 3% Middle East 11% Australian exports by region, 2010/11 (% of value) Americas 4% Other 5% South-East Asia 30% Europe 3% Other Asia 28% Japan 16% Source: Dairy Australia 16

17 Costs of producing milk remain elevated Heavily influenced by feed costs 17 Sources: Rabobank, FNP, USDA, ILB-CCE-DG Agri, DairyNZ, Onfarm Consulting, Genske Mulder & Co, Margenes Agropecuarios.

18 But Australia milk very competitive Narrowing of the spread was evident in 2010 Sources: FNP, USDA, ILB-CCE-DG Agri, DairyNZ, Onfarm Consulting, Genske Mulder & Co, Margenes Agropecuarios. 18

19 A fair return for effort Australia? A modest ROA - impacting investment across the sector Source: John Mulvaney/OnFarm Consulting, Rabobank Analysis 19

20 The milk is flowing again in Australia But what future role will Australia play? 2011/12 expected to grow 4%; reaching 9.4bn litres Milk pool is still 2bn litres below record levels Will Australia s role in global markets continue to evolve? 20

21 Conclusion Short-term outlook is sound Market is in a down cycle But still structurally higher Long-term fundamentals are very positive Australia is well placed Global demand growing at 2.4% p.a. Mainly in Asia Pacific region Low cost milk Growth is in our backyard markets We produce a safe product But we have some challenges Is then an appetite to grow? All farm systems need to be adaptable to a complex/volatile environment 21

22 Food & Agribusiness Research and Advisory A global network of research professionals supporting knowledge based banking Over 70 analysts in 13 different countries Focus areas: Dairy Grains & Oilseeds Animal Protein Beverages Farm Inputs Food Retail Sugar & Sweeteners Fruits & Vegetables Fresno Mexico City St Louis Chicago New York London Santiago de Chile Buenos Aires Sao Paulo Utrecht Beijing Shanghai New Delhi Hong Kong Mumbai Singapore Melbourne Sydney Christchurch 22

23 Contact details Michael Harvey Senior Analyst Food & Agribusiness Research and Advisory The financial link in the global food chain DISCLAIMER Professional advice is recommended for all financial and strategic decisions. However, this information is not professional advice and has not been prepared to be used as the basis for, and should not be used as the basis for, any such decisions. This information is general in nature only and does not take into account an individual s personal circumstances. No representation is made that any forecast or projected information is correct or will eventuate and past performance is not indicative of future performance. Although reasonable efforts have been taken to ensure the accuracy of the contents of this publication, no warranty is given in regard to the total completeness and accuracy of the printed contents. The persons involved in the preparation and distribution of this information and their related persons disclaim all liability for any direct, indirect, consequential or other loss or damage suffered due to any use of or reliance on the information. 23