HET COMITE Rotterdam 20 April Stefan Vogel Global Sector Strategist, Grain & Oilseeds Head of Agri Commodity Markets Research

Transcription

1 Geopolitical developments & Agri Markets HET COMITE Rotterdam 20 April 2015 Stefan Vogel Global Sector Strategist, Grain & Oilseeds Head of Rabobank Group Organisation structure 10 million clients 1.9 million members 139 local Rabobanks 853 branches Support of local Rabobanks Retail clients Corporate clients Private banking Rabobank Nederland Executive Board Supervisory Board Rabobank International Food & agribusiness Wholesale banking Rural and retail banking Direct banking Rabo Development Staff functions Rabobank Group Cooperation & sustainability Rabobank Foundation Investor relations Long term funding Other staff units Subsidiaries and associates Asset management Leasing Real Estate Insurance Mortgages Business International retail Partner banks 1

2 Rabobank Food & Agribusiness Research and Advisory Global network, sector coverage 80 research analysts across the globe Fresno Chicago St. Louis New York Mexico City London Utrecht New Delhi Mumbai Beijing Shanghai Hong Kong Dar es Salaam Singapore São Paulo Buenos Aires Melbourne Sydney Christchurch Animal Protein Beverages F&A supply chains Dairy Farm Inputs Food Fruit, Veg & Flowers Grains & Oilseeds Non food Sugar, Cotton, Coffee & Cocoa Roadmap Geopolitics The Macro Picture Agri fundamentals and price outlook for

3 Geopolitics The Macro Picture No shortage of risk scenarios Financial Markets Research 5 GDP not even back at 2007 levels in most eurozone member states 3

4 Growth rates stuck in low gear so why the euphoria in asset prices? Financial Markets Research 8 4

5 Stock markets Crisis? What crisis? Financial Markets Research 9 The scramble for yield Who would have thought that peripheral debt could be risky? AAA corporate bonds chased lower Financial Markets Research 10 5

6 House prices supported by the low interest rate environment Financial Markets Research 11 So have we become complacent about risk? The shift toward riskier assets is a normal channel through which monetary policy supports economic activity. But taken too far, this dynamic has the potential to facilitate the emergence of financial imbalances. For example, with interest rates at very low levels for a long period of time, and in an environment of low volatility, investors, banks, and other market participants may become complacent about interest rate risk. Yellen Jun 1, 2011 Financial Markets Research 12 6

7 Fighting slow growth and disinflation...at any cost? Financial Markets Research 13 Asset price inflation good for asset holders USD trillions US has bounced back in net financial wealth since the crisis mrt 82 mrt 87 mrt 92 mrt 97 mrt 02 mrt 07 mrt 12 Household net housing worth Household net financial wealth Financial Markets Research 14 7

8 Those who own assets benefit the most from asset price rises The rise of the super rich, top 0.01% own 11.2%. Top 10% own 77.2% 40 share of total US family wealth accruing to various wealth groups, 2012 (NBER) % share Top 0.01% Top % Top 1 0.1% Top 10 1% Bottom 90% Financial Markets Research 15 Trend hasn t gone unnoticed! Financial Markets Research 16 8

9 Where is the income growth for the average American family? So much for the American dream Financial Markets Research 17 UK earnings growth also under pressure Financial Markets Research 18 9

10 Secular stagnation: the new normal? Does inequality matter for economists? Secular stagnation can be defined as a deficit of demand. This has been linked with a savings glut which could in term be a function of the aging population or by increased income inequality. Since rich households save a greater portion of their income than poor ones, this could be suppressing demand. Financial Markets Research 19 So disinflation is evident in consumer price indices...a function of lackluster demand Financial Markets Research 20 10

11 Stresses on the young Financial Markets Research 21 So how coherent is EMU really? The rise of nationalism how worried should we be? European elections May 2014: In France, the National Front overcame its pariah status to win 24 seats, coming first in about 70% of the country's regions...the UK Independence Party (UKIP) had 27.5% of the vote...it was the first time in over a century that a national vote had not been won by either the Conservatives or Labour...There will be two German newcomers in the European Parliament: the anti euro Alternative for Germany, with seven seats, and the far right National Democratic Party, with one seat. In Greece, the far left Syriza coalition came first with 26.6% (six seats) while the ruling conservative New Democracy party took 22.8% (five seats). But Golden Dawn, the far right right party whose leaders are under criminal investigation, came third with 9.4% and three seats. (BBC) Financial Markets Research 22 11

12 Central banks running out of options?...bring on the currency war Financial Markets Research 23 The US is performing well on several fronts Financial Markets Research 24 12

13 Currency war heats up for winners and losers Index, 100 = January United States Euro Zone United Kingdom Switzerland Brazil India Source: Bloomberg, Rabobank, 2015 Financial Markets Research 25 Ukraine pays very high prices for the conflict it did not cause Financial Markets Research 26 13

14 The ruble is the best performing EMEA currency so far this year Financial Markets Research 27 USD continues to gain strength S&P GS Agri Index edging off recent lows Index, 100 = January The USD has gained 25% since July headwinds for USD denominated agri commodity prices S&P GS Agri Index has lost 15% against the USD since July S&P GS Ag Index ICE #11 Sugar USD Index CBOT Wheat Source: Bloomberg, Rabobank, 2015 Financial Markets Research 14

15 Brazilian real weakness drives the raw sugar price slide 19 0, ,45 0,42 USc/lb 15 0,39 0, , ,3 12 jan 14 mrt 14 mei 14 jul 14 sep 14 nov 14 jan 15 mrt 15 0,27 ICE #11 (LHS) BRL/USD (RHS) Source: Bloomberg, Rabobank, 2015 Financial Markets Research 29 Brazilian real weakness improves the returns for Brazilian sugar producers Index (100 = July 2014) jul 14 sep 14 nov 14 jan 15 mrt 15 BRL/USD ICE #11 May '15 ICE #11 May '15 in BRL terms Source: Bloomberg, Rabobank, 2015 Financial Markets Research 30 15

16 Dollar strength and crude price weakness pressures the S&P Agri Index Index, 100 = January S & P Agri Index Brent Crude Oil USD Index Source: Bloomberg, Rabobank, 2015 Financial Markets Research 31 Falling oil prices vs. agri commodities Index, 100 = January S & P Agri Index Brent Crude Oil ICE #11 Sugar Soybean Oil Canola Source: Bloomberg, Rabobank, 2015 Financial Markets Research 32 16

17 Drowning in oil 33 or oilprice back on fire soon? 34 17

18 Oil impact what (most) models say: Source: ECB Monthly Bulletin August 2010 Fall in oil prices translates into higher consumption and investment Impact on growth and inflation also depends on (i) policy reaction, and (ii) secondround effects on wages But most of all will it depend on the nature of the shock (demand or supply led) Financial Markets Research 35 Rabobank s oil price outlook Lower direct fuel costs Competitive freight rates Declining processing and packaging costs Declining biofuel demand Financial Markets Research 36 18

19 Agri fundamentals Prices in last 12 months haven t been a smooth ride. 19

20 YTD agri commodity price moves lower with the stronger dollar and stock pressures 2 January 2015 to Date* Source: Bloomberg, Rabobank *as of 16 April 2015 Matif Rapeseed ICE Cotton ICE London Cocoa ICE Cocoa CBOT Soybean Oil ICE Canola CME Feeder Cattle CME Live Cattle ICE Robusta MDEX Palm Oil CBOT Soybeans Matif Wheat ICE White Sugar CBOT Soybean Meal CBOT Corn S&P GS Ag Index ICE No. 11 Sugar MGE Wheat ICE Coffee ICE Feed Wheat CBOT Wheat CME Lean Hog KCBT Wheat -20% -15% -10% -5% 0% 5% 10% Grain and Oilseed markets feel a bit boring...sit back and relax? 22 20

21 or is the next wave coming soon? Key agri price drivers in 2015 Economic headwinds challenge growth Currency wars Low oil prices and declining biofuel demand Speculators Geopolitical risks Rising G&O stocks Weather 21

22 Managed Money shifts to a net short position across grains & oilseeds Managed Money s net position across US grains & oilseeds remains at low levels Thousands contracts Index Managed Money Net Long Grains and Oilseeds S&P GS Agri Commodity Index Source: Bloomberg, Rabobank, /15 global stock building in grains & oilseeds 22

23 Global stocks In mln t / / / / Corn Oilseed, Soybean Wheat Source: USDA, Rabobank, 2015 Global G&O stocks to hit record highs in 2014/15 But, the stocks-to-use ratio is still at 2003/04 levels Still a long way from being realised Good South American harvest 35% 30% Million tonnes % 20% 15% 10% Corn Soybean Wheat Stocks-to-use ratio, combined Source: USDA, Rabobank,

24 Yemen: Port closures Several ports (incl. Aden) were closed due to an escalated military conflict. Imports cover more than 90% of Yemen s food needs (e.g. wheat & rice) Shippers refuse to call at Yemeni ports due to risk of air strikes and seaborne attacks. Transportation through the Red Sea has not stopped. 47 Black Sea Region weather and geopolitics carry price risk 24

25 Wheat Wheat prices impacted by Geopolitics Russian export tax announced Source: Bloomberg, Rabobank,

26 EU wheat exports compensate for volatile BlackSea exports 30% 25% 20% 15% 10% 5% EU US Russia/Ukraine/Kazakhstan 0% 2009/ / / / / /15 Source: USDA, Rabobank 2015 Russian Grain exports at record high Source: Black Sea Grain, Rabobank,

27 Russian wheat export duty slows exports...when will it be eliminated? Source: Black Sea Grain, Rabobank, Spring grain seeding just started...a lot can happen before harvest Source: Black Sea Grain, Rabobank,

28 Wheat Black Sea Region weather and geopolitics carry price risk Production (million tonnes) Exports (million tonnes) Russia Ukraine Kazakhstan Black Sea exports (RHS) Source: USDA, Rabobank, 2015 World wheat S&D just balanced in 2015/ Million tonnes Million tonnes Surplus/Deficit (RHS) Production Total Consumption Source: USDA, Rabobank,

29 Price forecast: Wheat Neutral to slightly bullish view as ample global stocks buffer prices from new crop weather concerns unit Q3'14 Q4'14 Q1'15 15 Q2'15(f) Q3'15(f) Q4'15(f) Q1'16(f) 16(f) Q2'16(f) CBOT US /bu Matif EUR/t USc / bushel Ample old crop stocks will cap rallies in the coming months Potential challenges to new crop supplies provide some positive support Ukraine and Russia exports are at very low levels, as expected, while those of the EU are at a record pace China is expected to be an opportunistic buyer, but not as aggressive as in 2013/14 CBOT Wheat Previous forecast Rabobank forecast Source: Bloomberg, Rabobank, Soybeans 58 29

30 Soybeans US export sales pace has already reached 92% of the USDA s 14/15 forecast Million tonnes Week 14/15 13/14 12/13 11/12 USDA 14/15 Forecast Source: USDA, Rabobank, March 1 Quarterly Grain Stocks 1 March grain stocks up 13% YOY, with corn stocks of 7.75 billion bushels coming in towards the high end of trade expectations 2.5 net change (billion bushels) YoY Corn Soybean Wheat Source: USDA, Rabobank,

31 US battle for acres is on! Soy Corn 61 Soybeans The USDA Outlook Forum vs. Rabobank s supply and demand estimates for the US in 15/16 Mln bu/mln acres USDA Outlook Scenario 13/14 14/15 15/16(f) 15/16(f) Beginning Stocks Area Planted Area Harvested Yield Production 3,358 3,969 3,800 3,825 Imports Total Supply 3,570 4,086 4,205 4,220 Exports 1,647 1,790 1,820 1,820 Crush 1,734 1,795 1,840 1,840 Seed/Residual Domestic Consumption 1,832 1,911 1,955 1,955 Total Usage 3,478 3,701 3,775 3,775 Ending Stocks Stocks/Usage 2.6% 10.4% 11.4% 11.8% Source: USDA, Rabobank,

32 Price forecast: CBOT Soybeans Price forecast remains bearish unit Q3'14 Q4'14 Q1'15 Q2'15(f) Q3'15(f) Q4'15(f) Q1'16(f) Q2'16(f) Soybeans US /bu 1,145 1, USc / bushel Bearish view maintained, as world soybean stocks are still forecast at a record high 89.6m tonnes Even though the USDA s Prospective Planting numbers at 84.6 million acres came in below the average trade estimate of 85.9 million acres, this will still be enough to allow for further stock building in 2015/16 /6 if yields ild reach trend levels l Record large South American crop is flowing CBOT Soybeans Previous forecast Rabobank forecast Source: Bloomberg, Rabobank, Corn 2015/16: Stock building or stronger than expected demand? 64 32

33 Corn Depreciation in both the Ukrainian hryvnia and the Brazilian real vs. the US dollar has considerably increased producer input costs 120 Index, 100 = March UAH/USD BRL/USD Source: Bloomberg, Rabobank, Corn Major corn producers to cut production by some 40 million tonnesyoy in the 2015 calendar year Million tonnes US EU Ukraine Brazil Argentina Source: USDA, Rabobank,

34 Corn A more realistic trend yield would cut US stocks back almost to 13/14 levels Mln bu/mln acres USDA Outlook Scenario 13/14 14/15 15/16(f) 15/16(f) Beginning Stocks 821 1,232 1,777 1,777 Area Planted Area Harvested Yield Production 13,829 14,216 13,595 13,337 Imports Total Supply 14,686 15,472 15,397 15,134 Exports 1,917 1,800 1,850 1,850 Ethanol 5,134 5,250 5,275 5,275 Feed 5,036 5,300 5,275 5,275 FSI 6,501 6,595 6,635 6,635 Total Domestic Use 11,537 11,895 11,910 11,910 Total Usage 13,454 13,695 13,760 13,760 Ending Stocks 1,232 1,777 1,687 1,374 Stocks/Usage 9.2% 13.4% 12.3% 10.0% Source: USDA, Rabobank, Price forecast: CBOT Corn Neutral view on corn prices, with a low during US harvest which is below the futures forward curve unit Q3'14 Q4'14 Q1'15 Q2'15(f) Q3'15(f) Q4'15(f) Q1'16(f) Q2'16(f) Corn US /bu USc / bushel U A smaller Brazilian and Argentine corn crop will tighten the South American balance sheet Projected lower 2015 production in the EU and Ukraine will support prices A US corn planted area of 89.2 million acres was 0.4 million acres above average expectations, but assuming a trend yield ild of 163 bushels/acre, this will result in a decline in US 2015/16 ending stocks CBOT Corn Previous forecast Rabobank forecast Source: Bloomberg, Rabobank,

35 Contact details Rabobank International London Branch Thames Court One Queenhithe London EC4V 3RL UK Rabobank Stefan Vogel Global Sector Strategist, Grain & Oilseeds Head of Telephone +44 (0) Disclaimer This document is issued by Coöperatieve Centrale Raiffeisen Boerenleenbank B.A. incorporated in the Netherlands, trading as Rabobank London ( RL ). The liability of its members is limited. RL is authorised by De Nederlandsche Bank, Netherlands and the Prudential Regulation Authority (PRA) and subject to limited regulation by the Financial Conduct Authority (FCA)and PRA. Details about the extent of our authorisation and regulation by the PRA, and regulation by the FCA are available from us on request. Registered in England and Wales No. BR This document is directed exclusively to Eligible Counterparties and Professional Clients. It is not directed at Retail Clients. The information in this presentation reflects prevailing market conditions and our judgement as of this date, all of which may be subject to change. References to any prices or market data are indicative only. Market conditions may change without notice and no guarantee is offered by RL in respect of the information provided herein and cannot therefore be relied upon. The information and opinions contained in this document have been compiled or arrived at from sources believed to be reliable, but no representation or warranty, express or implied is made as to their accuracy, completeness or correctness. We have further relied upon and assumed, without independent verification, the accuracy and completeness of all information made available to us. To the extent permitted by law, we exclude any liability howsoever arising for the contents of this presentation or for the consequences of any actions taken in reliance on this presentation or the information contained therein. The information and opinions contained in this presentation are wholly indicative and for discussion purposes only. This document is for information purposes only and is not, and should not be construed as, an offer or a commitment by RL or any of its affiliates to enter into a transaction. The information should not be construed as either projections or predictions or as legal, tax, financial or accounting advice. As this information does not take account of your objectives, financial situation or needs, we recommend that you consider the appropriateness of the information having regard to your specific circumstances, and obtain financial, legal and taxation advice before making any financial investment decision. Insofar as permitted by applicable laws and regulations, RL or other legal entities in the group to which it belongs, their directors, officers and/or employees may have conflicting interests. Rabobank London Thames Court, One Queenhithe, London EC4V 3RL, Tel. +44 (0)