Brett Stuart - Understanding the Course - Opportunities in a Global Market
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Understanding the Course - Opportunities in a Global Market - Brett Stuart, Global AgriTrends, from the 2016 World Pork Expo, June 8 - 10, 2016, Des Moines, IA, USA. More presentations at http://www.swinecast.com/2016-world-pork-expo
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Brett Stuart - Understanding the Course - Opportunities in a Global Market
- 2. Outline • Global Pork Update – Weak global economy, global commodity deflation – Key global issues CHINA • U.S. Pork Situation / Outlook – ABUNDANT meat & poultry supplies – The Dilemma
- 3. Global Pork Update Global Economy Commodity Deflation Brazil EU China
- 4. Global Economy • Wobbly – IMF has reduced 2016 forecasts, again – Negative interest rates? – Big economy difficulties • EU: Greece $300+ bil; Italy and Portugal concerns remain • Japan: into recession, Abe-nomics, 10-year GDP avg +0.6% • China economy slowing – Developing economy difficulties: • Brazil recession deepens • 3rd world debt crisis, U.S. dollar pressure
- 5. Source: U.S. Federal Reserve Bank
- 7. Global Food Demand • +78 million people per year (global growth) • Global middle class to rise from 2 billion to 4.9 billion by 2030 – Asia driving global food demand – But also, less-developed nations globally – New opportunities for further- processed and consumer-ready food products
- 10. Key Global Pork Issues • Brazil’s economic/political problems • Russia now irrelevant to global protein • EU pork supplies remain large, prices suppressed • China pork • Chinese grain policy shifts (250 mmt stocks) prices down -30% from a year ago • Cheaper feed (at least in the U.S.) • U.S. Expansion – pushing forward – for what markets?
- 11. Brazil Pork • Recession deepens • 19% of pork exported • 2016: production +3% exports +7% • 35% of exports: Russia – New access: China – Weak currency has increased export demand • Feed supplies tight, costs rising
- 12. EU Pork Update • 2014: Russian ban displaced 400,000+ mt of pork and offal • 2015: pork production +2% (467,000 mt) – 2015 Gains: Spain, Denmark, Germany – 2016 Declines: Poland, France • Spain is now the #3 pork producer globally – Exporting 40% of production • Pork production may decline slightly in 2016 – Producers losing money, but seeking gov’t support • Is Russia’s ‘plan’ working?
- 16. Source: China, Hong Kong Customs, AgriTrends Forecasts
- 18. China Pork 2016 • Market RED HOT on tight supplies; liquidation of 2+ mil sows (but not 13 million) • Hog prices RECORD HIGH; Piglet prices skyrocketing • Imports SURGING (but U.S. constrained) • Profits now US$160+/head – Expansion occurring – But longer lag than U.S. • Corn policy adjustments: cheaper corn ahead – 250 mmt (9 bil bu) in storage
- 20. Source: Average of various Chinese market reports, AgriTrends
- 21. Source: GTIS, China NBS (AgriTrends monthly China Pork report)
- 22. Chinese hourly pork consumption = 6,355 mt (US is 1,083)
- 23. Source: Canada Customs, pork only, no variety meat
- 24. China Pork Outlook What we know – Prices (piglets, hogs, corn) – Margins are incredible – Gov’t regulations have some effect What we don’t know – The overall extent of gov’t regulations – Inventories, sows, expansion What I think – Expansion is inevitable; margins are too good – But could be slower than historical
- 25. U.S. Pork Situation / Outlook Supplies The Dilemma
- 29. New U.S. Hog Plants ? • Producers are expanding • CDN piglet imports to rise • Is this a response to rising demand?
- 30. The Dilemma 1. Rising U.S. production – Soft expansion occurring – New plants are seeking/encouraging more production 2. Chinese demand will stall – Chinese expansion will occur • But may be slowed by gov’t reg Where will the EU, U.S., and Canadian pork go?
- 31. U.S. Production Source: USDA, WASDE forecasts
- 32. Source: USDA/ERS, AgriTrends forecasts
- 33. Hog Price Forecasts Bullish • Short term China demand • Summer demand Bearish • Medium/Longer term Chinese demand • Expansion • Beef, poultry expansion
- 35. Summary • Current market exuberance – summer demand and China • Chinese demand is lapping up add’l world (EU) supplies – expansion will occur and prices will drop (2017?) • U.S. production is rising; is demand? • BUT – don’t forget, market “gravity” is UP, on a longer-term basis (population and incomes)
- 36. Denver, Colorado 36 Thank You Brett Stuart bstuart@globalagritrends.com 303-803-8716 www.globalagritrends.com
Editor's Notes
- The global economy has weakened. Both big economies and small economies are seeing slower growth and some are seeing declines.
- Global commodity deflation has pressured all agriculture commodity prices lower. This chart shows the United Nations (FAO) index prices. The strong volatility of the past decade has settled into a deflationary mode as investors place bets elsewhere and demand wanes against large supplies.
- Global commodity deflation began with crude oil/energies, then spread to grains and finally into meat and poultry. Price corrections have been significant. Tight global supplies saw beef prices spike the highest, then retreat the least. Current supplies of pork and poultry are abundant against globally-weak demand. This trend is not over yet. However, global commodity began with crude oil, rising crude prices could indicate that agriculture commodities would see future price increases as well. Watch energy/crude prices to establish price lows.
- Global consumers are seeing more poultry and pork, but no additional increase in beef supplies. This chart calculates the global supply of meat on a per-capita basis. Global beef supplies remain tight/short, providing more price support than pork and poultry.
- Da – yes; oshen korasho – very good
- EU pigs are historically more expensive than U.S. pigs. This chart shows the price spread between EU and U.S. pig prices (in U.S. dollars per hundred pounds). Disease issues in 2014 pushed U.S. prices to historic highs, while Russia’s ban on EU pork drove those prices lower. As a result EU pork became very affordable globally. Today, EU and U.S. prices are nearly equal.
- China, combined with Hong Kong, is the largest pork importer on earth, buying over 2 million metric tons of pork and pork offal in 2015. This chart shows big import spikes in 2008 and 2011 as China’s pork supplies tightened. Also, note rise in European pork, particularly Germany and Spain, into the Chinese and Hong Kong markets. These trends are expected to continue.
- As a result of the competitive EU pork prices, they expanded their market share in key Asian pork markets. This gain in EU market share resulted in lower U.S. and Canadian market shares.
- Over half of the world’s pork is produced and eaten in China. The structure of the industry is mixed with millions of small farms as well as many large-scale farms. Financial losses caused many producers to liquidate pigs in 2014 into 2015. As a result pig prices have now increased to strong-profit levels. Also, China’s corn prices have declined allowing for strong hog profits. Chinese producers will expand based on these strong profits.
- This chart compares hog carcass prices between the U.S., the EU, and China – all in Chinese renminbi per kilogram. Historically U.S. hogs are most affordable. But in recent years, EU pigs have also been very competitive. Imported pork remains very competitive versus Chinese pork.
- Profitably is currently very strong in China. This would lead us to believe that Chinese liquidation is occurring. If so, import demand in China may slow in the 2nd half of 2016. Chinese expansion could reduce import demand for EU pork in late 2016, pressuring EU pork prices lower.
- China’s food inflation has been a key driver of pork imports. If food inflation continues increasing, then high import levels will be sustained. If the February inflation number was due to Chinese New Year and inflation subsides, then imports could begin subsiding as well. If the March inflation rate moves higher, it could be an indication of stronger demand for imported pork in the future.
- China’s food inflation has been a key driver of pork imports. If food inflation continues increasing, then high import levels will be sustained. If the February inflation number was due to Chinese New Year and inflation subsides, then imports could begin subsiding as well. If the March inflation rate moves higher, it could be an indication of stronger demand for imported pork in the future.
- China’s food inflation has been a key driver of pork imports. If food inflation continues increasing, then high import levels will be sustained. If the February inflation number was due to Chinese New Year and inflation subsides, then imports could begin subsiding as well. If the March inflation rate moves higher, it could be an indication of stronger demand for imported pork in the future.
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