AUSTRALIAN FEEDLOT SECTOR
03 August 2017
ANZ’S SUPER REGIONAL NETWORK
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KEY:Commercial/ International Banking
Large Corporate & Institutional Banking Private Banking
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Partner Bank Representative Office
ANZ has an established regional network across 33 markets which include 15 Asian markets and representation in Europe, America and Middle East. ANZ is a leading bank in Australia and the largest bank in New Zealand & the Pacific Islands (12 markets)
GERMANYFrankfurt
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2
CONNECTING YOU TO THE FOOD, BEVERAGE AND AGRIBUSINESS SECTORS
CONNECTING YOU FROM ‘PADDOCKTO PLATE’ ACROSS THE GLOBE
• Producers and growers
• Storage and handling companies
• Agricultural input suppliers
• Global trading houses
• Transport and packing companies
• Global food and beverage companies
• Global quick-serve food establishments
ANZ has been banking clients in the Food, Beverage and Agribusiness sectors since 1865 and covers stakeholders across the global supply chain
3
PARTNER WITH ANZ TO ACCESS
• 4 out of Australia's 5 largest milk producers processors
• NZ’s 3 largest dairy processors accounting for over 90% of NZ’s dairy production
• Some of the world’s largest food and beverage companies
• Countries that receive over 85% of Australia’s live cattle exports and over 90% of Australia’s exported beef
• 80% of Australia’s cotton exporters
• 95% of Australian sugar exporters
• Major Food, Beverage & Agribusiness markets across the Asia Pacific region thanks to ANZ’s reach into key origin and destination geographies (China, India, SEA, Greater Mekong and the Pacific)
BENEFIT FROM OUR INDUSTRY EXPERIENCE AND EXPERTISE
Dairy
Oilseeds
Sugar
Coffee
Wine
Cotton
Cocoa
Protein
Grains & rice
Forestry
Rubber
FEEDLOT SECTOR CONTINUES TO EVOLVE
4
AUSTRALIA’S FEEDLOT SECTOR
• Important component of domestic feed complex• Must continue to be strategic in maintaining social
licence• Approaching continuing consolidation• Facing strong global competitors• Focus of growing agri investment• Massive agtech/data potential• Needs to adapt with customers
5
AUSTRALIA ACCOUNTS FOR ~3.5% OF GLOBAL PRODUCTION AND ~15.7% GLOBAL BEEF EXPORTS…
6
Australia Feedlot Capacity 1.2 million head
Australia Cattle Population 27.4 million head
5.6%
8.6%7.7%
4.2%
41.4%
20.4%
2.6%
15.1%
53.8%
31.4%
6.0%
3.3%
Source: MLA, ALFA
Note: Feedlot Capacity is based on March 2017 & Australian Cattle Population is as of June 2015
Australia Beef Production & Slaughter
With herd re-building in progress, beef production is likely to decrease and marginally recover through 2021
-
6%
12%
18%
24%
30%
36%
-
0.5
1.0
1.5
2.0
2.5
3.0
2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F
Beef Production (m tonnes cwt) Slaughter as % of Cattle herd (RHS)
-
200
400
600
800
1,000
1,200
Mar-09 Mar-11 Mar-13 Mar-15 Mar-17
< 500 500 - 1k 1k - 10k > 10k
REDUCED AVAILABILITY OF CATTLE LED TO CATTLE HELD ON FEED FOR LONGER PERIODS…
7
Cattle on Feed (‘000 head) by Feedlot Type
Source: MLA, ALFA
8
-
20
40
60
80
Q1'05 Q3'06 Q1'08 Q3'09 Q1'11 Q3'12 Q1'14 Q3'15 Q1'17
Japan Korea Other
Grain-fed beef exports (‘000 swt)
EXPORTS TO EU, CHINA & MIDDLE EAST GRADUALLY INCREASED THEIR SHARE…
Source: MLA, ALFA
~80% OF COST BASE IS MADE UP OF FEEDER CATTLE PURCHASES
9
Purchases 80.7%
Wages 1.4%
Depreciation 1.5%
Utilities 1.7%
Rent 0.8%
Other 0.8%
Profit 13.1%
Industry Cost Structure
Source: IBIS Research
FEEDER CATTLE PRICES INCREASED BY ~220% SINCE 2007…
10
-
50%
100%
150%
200%
250%
300%
Sep-07 Aug-09 Jul-11 Jun-13 May-15 Apr-17
Saleyard Feeder Steer QLD - OTH - Grain Fed Cattle
Weekly prices rebased to Sep 2007 prices
Source: MLA
FEEDER CATTLE PRICES ARE NEGATIVELY CORRELATED WITH GRAIN PRICES…
11
-
100
200
300
400
500
Aug-09 Mar-11 Oct-12 May-14 Dec-15 Jul-17
Feeder Cattle (Ac/kg lwt) Wheat - New Castle, NSW(Ac/tonne)
Price comparison of Feeder Cattle vs Wheat price (feed grade)
Source: Feeder Cattle price sourced from MLA, while Wheat (feed grade) sourced from Bloomberg database (AUWH0142 Index – New Castle, NSW)
12
Short, medium and long-term net profit margins for beef feedlots (2014)
(60%)
(40%)
(20%)
-
20%
40%4
30
52
0
55
00
52
0/1
50
28
K
72
00
75
K
15
00
26
K
63
0/8
00
68
0
17
00
94
0
20
00
15
K
30
00
75
K
25
K
Spain Canada US MexicoArgentina Brazil Peru China Aus. S Africa Nam-ibia
Short Term (Cash) Medium Term (Cash-Depreciation) Long Term (Cash-Depreciation-Opportunity Costs)
AUSTRALIAN FEEDLOTS HAVE MEDIUM TO LONG TERM PROFITABILITY OF 11-14%...
Source: MLA/ Agribenchmark
FINISHING COSTS IN AUSTRALIA ARE ~23% HIGHER THAN SOUTH AMERICAN FEEDLOTS…
13
-
200
400
600
800
1,000
1,200
A -
25
FA
-3
5A
-1
20
G -
26
0G
-2
85
G -
52
5T
G -
80
0F
-60
F -7
0F
-20
0S
P -
43
0S
P -
52
0S
P -
55
0U
K -
45
UK
-8
0U
K -
90
UK
-7
50
IR -
40
RU
-6
40
CA
-2
8K
US
-7
20
0U
S -
75
KA
R -
38
0A
R -
63
0A
R -
80
0A
R -
90
0A
R -
26
KU
R -
90
BR
-6
0B
R -
36
0B
R -
40
0B
R -
68
0B
R -
80
0B
R -
17
50
CO
-1
30
CO
-1
60
CO
-5
20
CO
-8
00
PE
-17
00
CH
-7
0C
H -
15
0C
H -
30
0C
H -
94
0C
H -
20
00
IN -
2IN
-4
IN -
10
0A
US
-6
5A
US
-8
5A
US
-1
50
AU
S -
32
0A
US
-3
60
AU
S -
38
0A
US
-5
40
AU
S -
90
0N
Z -
37
5S
A -
30
00
SA
-7
5K
NA
-6
00
NA
-2
5K
Europe US &Canada
South America Asia Aus. NZAfrica
Cash costs Depreciation Opprtunity Costs Regional Averages
Cattle finishing cost benchmarking (2014)USD per 100lwt
Source: MLA/ Agribenchmark
BEEF FEEDLOTS REVENUE IS FORECAST TO STAGNATE IN NEAR FUTURE…
14
2.7 2.7
2.9
3.7
4.6 4.6 4.7 4.7 4.6 4.7 4.8
FY2012 FY2014 FY2016 FY2018 F FY2020 F FY2022 F
Beef Cattle Feedlot Industry Revenue (AUD bn)
Source: IBIS Research
~59% OF BEEF FROM FEEDLOTS IS UTILISED IN DOMESTIC MARKET…
15
End markets by Share of Industry Revenue
Source: IBIS Research
44.1%
23.4%
6.2%
11.5%
8.3%
6.5% Supermarkets
Exports to Japan
Exports to South Korea
Other export markets
Butchers
Food service establishments
A FRAGMENTED INDUSTRY BUT CONSOLIDATION WILL CONTINUE…
16
6.0% 5.1%
5.1%
83.8%
JBS Australia Pty Limited
Mort & Co Ltd
Teys Australia Pty Ltd
Other
Source: IBIS Research, ALFA
Beef Cattle Feedlot Industry by Major Players
WITH RISING GLOBAL COMPETITION IN GRAIN, THE DOMESTIC FEEDLOT INDUSTRY
HAS RENEWED IMPORTANCE
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
FY'1
3
FY'1
4
FY'1
5
FY'1
6
FY'1
7E
FY'1
8F
WHILE MAJORITY OF AUSTRALIAN GRAIN IS EXPORTED, SIMILAR OTHER AGRI PRODUCE…
18
Val
ue
of
Ag
ricu
ltu
ral
Exp
ort
s (A
UD
m)
Source: ABARES, MLA (data sourced for Beef Production, Exports)
FY'13
FY'14
FY'15
FY'16
FY'17E
FY'18F
FY'13
FY'14
FY'15
FY'16
FY'17E
FY'18F
FY'13
FY'14
FY'15
FY'16
FY'17E
FY'18F
FY'13
FY'14
FY'15
FY'16
FY'17E
FY'18F
68%
32%
55% 45% 100%
74%
26%
Average Exports as % of Production
Grains, Oilseeds & Pulses
Beef Dairy Cotton Wool
71%
29%
A$12.2bn1 A$7.2bn1 A$3.3bn1 A$3.1bn1 A$2.1bn1
Note 1: Average Value of Agricultural exports between 2012-13 (FY13) to 2017-18F (FY18F)
Together these five commodity groups represent ~63% (average) of Total farm exports
19
(150,000)
(100,000)
(50,000)
-
50,000
100,000
150,000
200,000
250,000
Brazil USA ArgentinaUkraine Canada Australia Thailand India Egypt Iran SouthKorea
SaudiArabia
EU Mexico Japan China
2000/01 2005/06 2010/11 2016/17
GROWTH IN STRENGTH OF GLOBAL AGRI POWERHOUSES – WHILE THE BSR CONTINUES TO RISE
Agriculture produce – Net tradeIn ‘000MT, Commodities include Grains, Oilseeds, Meat, Dairy and Sugar
+11% +2% +4% +15%
+2% +2% -1% +28%+5%
+2%
Growth in Net Exports CAGR (2000-16)
Growth in Net Imports CAGR (2000-16)
Source: USDA, ANZ Analysis
RISING GRAIN & OILSEEDS DEMAND IS INCREASINGLY BEING MET BY EMERGENT PLAYERS IN SOUTH AMERICA, BLACK SEA REGION…
20
Grain & Oilseed Export Share (%)% Share of exports of Select Countries
Grain & Oilseeds Export VolumeIn ‘000MT, Major Countries
Source: USDA, ANZ Analysis
Without Soybean
10% 12% 16% 23%
40% 37% 32% 22%
14% 11% 15% 12%
1% 5% 5% 10%
12% 10% 10% 8%
11% 9% 10% 9%
1% 5% 2% 8% 12% 9% 11% 8%
-
20%
40%
60%
80%
100%
2000/2001 2005/2006 2010/2011 2016/2017
-
100
200
300
400
500
2000/2001 2005/2006 2010/2011 2016/2017
-10%20%30%40%50%60%70%80%90%100%
2000/2001
Brazil United States ArgentinaUkraine Canada AustraliaRussia European Union
FEED INDUSTRY – THE LARGEST DOMESTIC GRAIN & OIL SEEDS CUSTOMER MAY BENEFIT FROM LOW PRICES…
21
-
10
20
30
40
50
60
2000/2001 2004/2005 2008/2009 2012/2013 2016/2017
FSI Consumption Feed Consumption Exports
Grain & Oil seeds consumption share estimatesIn Million MT
Source: USDA PSD
RISING PROTEIN CONSUMPTION TO DRIVE FEED DEMAND
22
23
PER CAPITA MEAT AND DAIRY CONSUMPTION TO CONTINUE STRONG GROWTH IN DEVELOPING REGIONS OVER 10 YEARS…
-
50
100
150
200
250
300
350
2013-15 2025 2013-15 2025 2013-15 2025
Developed Developed Other Developing Other Developing Sub-Saharan Africa Sub-Saharan Africa
Cereals Roots and tubers Meat Fish Dairy Sweeteners Vegetable oils
Per capita food consumption by regionIn Kg/cap/year
Source: FAO – OECD Outlook
CHINA DEMOGRAPHICS – INCREASING AGEING
Population by Age Group
CHINA JAPAN GERMANY
(10%) (5%) - 5% 10%
Male Female
Source: US Bureau, International Database
10% - 10%
0-45-9
10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-8485-8990-9495-99100+
10% - 10% 10% - 10%
JAPAN’S CALORIE CONSUMPTION HAS CONTINUED TO FALL SINCE 1990
Japan Calorie consumption by Source
Source: FAO Statistics, ANZ
-
500
1,000
1,500
2,000
2,500
3,000
3,500
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Dairy and Eggs Grain Meat Produce Sugar and Fat Other
CHINA CONSUMES AS MANY CALORIES PER CAPITA AS JAPAN DID IN 1990
China Calorie consumption by Source
Source: FAO Statistics, ANZ
-
500
1,000
1,500
2,000
2,500
3,000
3,500
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Dairy and Eggs Grain Meat Produce Sugar and Fat Other
JAPAN EXPERIENCED A FALL IN CONSUMPTION ACROSS FOOD TYPES
% change in Japan’s Per Capita and Total Consumption by Category 1990-2011
Source: FAO Statistics, ANZ
(14%)
(12%)
(10%)
(8%)
(6%)
(4%)
(2%)
-
2%
4%
Grain Produce Dairy & Eggs Meat Sugar & Fat Other TotalPer Capita Total
HISTORIC CONSUMPTION GROWTH IN CHINA HAD BEEN EXPONENTIAL
% change in China’s Per Capita and Total Consumption by Category 1990-2011
Source: FAO Statistics, ANZ
(50%)
-
50%
100%
150%
200%
250%
Grain Produce Dairy &Eggs
Meat VegetableOil
Sugar &Fat
Other Total
Per Capita Total
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
2000/2001 2005/2006 2010/2011 2016/2017China SE Asia European Union Japan
Mexico Egypt Saudi Arabia South Korea
CHINA & SE ASIAN COUNTRIES ARE THE LARGEST IMPORTERS OF GRAIN & OILSEEDS
29
Grain & Oilseeds Import VolumeIn ‘000MT, Major Countries
CHINA
ASEAN COUNTRIES
1.27 1.31 1.34 1.38 1.43
2000 2005 2010 2016 2022F
0.51 0.55 0.59 0.64 0.68
2000 2005 2010 2016 2022F
Population (bn)
Population (bn)
4.67 6.32 8.4911.60
16.56
2000 2005 2010 2016 2022F
2.92 5.069.25
15.4023.96
2000 2005 2010 2016 2022F
GDP per capita (PPP)in ‘000 $
GDP per capita (PPP)in ‘000 $
Grain & oilseed demand increased by 6.3x (2000-16)
Population increased by 115m (2000-16)
GDP pcp increased by 5.3x (2000-16)
Grain & oilseed demand increased by 2.3x (2000-16)
Population increased by 123m (2000-16)
GDP pcp increased by 2.5x (2000-16)
Source: USDA, IMF and ANZ Analysis
30
• Consumption is dominated by China
• Rising per capita income levels driving animal protein demand
• Intensifying competition for exports especially from South America
• Increasing integration through supply chain investments in Australia
• Home to some of fast growing economies
• Changing consumption patterns driven by rising income levels
• Increasing import dependency to cater to rising domestic demand
• Regional consumption is dominated by India –characterised by low meat consumption (but dairy industry provide opportunity)
• Major destination of Australia’s pulses export
FEED CONSUMPTION IN ASIA PROVIDE SIGNIFICANT OPPORTUNITY..Asia Feed Consumption Share – Grains & Oilseeds
Source: Data is sourced from USDA PSD Query.
Note: Year noted 2001 represent marketing year 2000/2001
35%
40%
45%
50%
55%
2001 2005 2009 2013 2017Asia Feed Consumption Share (%)
55%
45%
East Asia
Feed FSI
64%
36%
Southeast Asia
Feed FSI
21%
79%
South Asia
Feed FSI
AGTECH AND DATA PROVIDE UNIQUE OPPORTUNITIES
31
MLA IDENTIFIED FOUR AREAS FOR USE OF DIGITAL TECHNOLOGIES IN LIVESTOCK ENTERPRISES…
32
Soil fertility monitoring
Feed allocation systems
Animal production monitoring
Animal disease monitoring
+13% – 26%
+9% - 11%
+4% - 9%
+4% - 13%
Productivity Benefits
Source: Meat and Livestock report, retrieved from Beef central website
HOWEVER, NEED TO ADOPT REALISTIC TIMELINE FOR IMPLEMENTATION OF EMERGING TECHNOLOGIES…Key driving factors that affect level of adoption of a technology or practice by agribusinesses
Characteristics of the Technology or Practice
• Cost of Technology
• Difficulty of implementation
Characteristics of the Target Population
• Financial Capacity
• Education levels
• Social norms
Relative advantages of using the technology or practice
• Improved efficiency
• Better crop yields
• Higher Profitability
Capacity to learn or adapt to generate a relative advantage
• Support infrastructure to aid decision-making and learning
• Update to latest available technology/techniques
“No one technology or technologies would be transformational, and progress on technologies would be incremental, because of the nature of innovation and adoption”
Source: Smart Farming – May 2016, Inquiry into agricultural innovation
BANKS REMAIN INTEGRAL PART OF SUPPLY CHAIN
34
TRADITIONAL VS REAL TIME FINANCING
Real Time Financing
300 Kg 400 Kg 500 Kg
Day 0 Day 50 Day 100
$ $$$ $$$$$
$ Gained $ Gained
300 Kg 400 Kg 500 Kg
Day 0 Day 50 Day 100
$ $$$ $$$$$
$ Lost $ Lost
Traditional Financing
Funding Against Land
Failure to tap the working capital finance opportunity
Works well with operators with long operation history
Technologyprovide opportunity to unlock working capital
24
ABILITY TO ATTRACT NEW CAPITAL IN THE INDUSTRY BY UNLOCKING WORKING CAPITAL
36
20151 20161
0
200
400
600
800
1,000
1,200
Jan 15 Feb 15 Mar 15 Apr 15 May 15
AUD
Mill
ion
Traditional Model Real Time Model
0
200
400
600
800
1,000
1,200
Jan 16 Feb 16 Mar 16 Apr 16 May 16
AUD
Mill
ion
Traditional Model Real Time Model
Note1: Dressing %=52%, 85% of market value for feed lot with 100 day cycle
THE WAY AHEAD
37
Drivers Platform
Cattle in feedlot 2,000
Funding Based on Land AUD 1.0m
Working Capital Opportunity AUD 0.4m
Swipe Right to unlock AUD 400k
2.12.42.73.03.33.63.94.24.54.8
10 11 12 13 14 15 16Australia Eastern Young Cattle Indicator
AU
D /
Kg
MANAGING COMMUNICATION BETWEEN DIFFERENT PARTS OF VALUE CHAIN REMAINS VITAL…
38
Production end
Smart agricultural production alliance
• Strengthen resource management system
• Mass production of excellent traceable products
• Link e-commerce
Consumption end
Convenient services offered by digital agriculture
Product information Consumer habit
Where, What & How produce is consumed?
Change in consumption patterns
Key factors affecting consumer choice
Accurate estimates of crop yield, input applications etc.,
Storage and Marketing of harvest crop
Data to help increase efficiency in operations
Source: Taiwan govt. website, ANZ
AUSTRALIA’S FEEDLOT SECTOR
• Important component of domestic feed complex• Must continue to be strategic in maintaining social
licence• Approaching continuing consolidation• Facing strong global competitors• Focus of growing agri investment• Massive agtech/data potential• Needs to adapt with customers
39
THANK YOUPresented by MICHAEL WHITEHEAD
DISCLAIMER
41
> This document is issued by Australia and New Zealand Banking Group Ltd (‘ANZ’). The information and opinions contained in this document (on which ANZ may have acted or may act for its own purposes) are published for the assistance of recipients but are not to be relied upon as authoritative or taken in substitution for the exercise of judgment by any recipient. While such information and opinions have been compiled or arrived at by ANZ in good faith and from sources believed to be reliable, no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness, any opinions contained in this document may be changed by ANZ without notice. ANZ, its officers, employees, representatives and agents accept no liability whatsoever for any loss or damage, whether direct, indirect, consequential or otherwise howsoever arising (whether in negligence or otherwise) out of or in connection with or from any use of the contents of and/or any omissions from this document
> Information contained in this presentation is strictly confidential. It is the property of ANZ. As such, no part of it may be circulated, copied, quoted or otherwise referred to another party without prior written consent of ANZ
> The terms noted in this presentation is subject to receipt by ANZ of formal credit approval and appropriate legal, accounting, tax and technical advice. This is not an offer to finance
> The points made in this presentation are subject to further discussion with you and we would be pleased to address any comments and queries that you may have in relation to the proposed funding options so as to ensure that your particular requirements are satisfied