Grain Market Outlook ConferenceWednesday 12 October 2016
Welcome and Opening AddressPaul Temple – Chair, AHDB Cereals and Oilseeds
Overview
Setting the scene
Global commodity review
Conclusions
Wheat Maize Barley
The UK situation
Setting the scene
Four consecutive years of grain surplus
1,500
1,600
1,700
1,800
1,900
2,000
2,100
Mill
ion
tonn
es
Global wheat and coarse grain supply and demandProduction Demand
Source: FAO
UK crop revenues continue to fallReality check on yields in 2016
Source: AHDB
75
125
175
225
275
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016proj
Inde
x: £
500/
Ha
= 10
0
Harvest year
Gross crop revenues index*
Post planting averager**
Post harvest averager***
* Index of gross wheat, barley and OSR income. Accounting for price and yield. Weighted by UK crop area.
** Olympic average of previous five year yields used to calculate pre-harvest sales volumes, multiplied by average forward price between October and July. Balance of yield sold at average of August to June spot price
*** Actual yields sold at average of August to June spot price
Some relief via lower input costsBut not indicative of full cost structure
*Synchronised to a July – June growing year Source: Defra
75
125
175
225
275
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016proj
Inde
x: 2
004
= 10
0
Key crop costs index*Fertlisers & soil improvers Machinery
Inflation returns to UK wheat pricesAfter three years of almost continuous deflation
-45%
-30%
-15%
0%
15%
30%
45%
Year-on-year change in monthly wheat pricesNearby feed wheat futures Spot delivered NW bread wheat
Source: AHDB
EU referendum result = weak PoundBig exporters have seen greater weakness
Source: Reuters
25
35
45
55
65
75
85
95
105
115
Inde
x (1
00=
Jan
2013
)
A basket of currencies against the US dollar Euro British pound Canadian $ Australian $Argentine Peso Brazilian Real Ruble
Global commodity review- Wheat
Wheat – short term production growth Comfortably exceeding demand
Average annual production growth %
EU1 yr: -9%3 yr: 0% Ukraine
1 yr: -1%3 yr: 7%
Russia1 yr: 18%3 yr: 12%
Australia1 yr: 12%3 yr: 3%
US1 yr: 13%3 yr: 3%
Argentina1 yr: 27%3 yr: 14%
India1 yr: 4%3 yr: -1%
China1 yr: -2%3 yr: 2%
Canada1 yr: 11%3 yr: -6%
Average annual global demand growth %
2016/17 f’cast 732Mt
1 year 4%
3 years 2%
Source: USDA
World wheat export prices Closer interaction with maize to find demand
Source: IGC
130
155
180
205
230
255
280
305
$/t
US SRW, Gulf
US HRW (11.5%), Gulf
US DNS (13.5%), PNW
Canada 1 CWRS (13.5%), StLawrenceEU (France) Grade 1, Rouen
US 3YC (Maize), Gulf
Black Sea milling wheat
Black Sea feed wheat
UK futures (nearby)
Risky global wheat stock perceptionsA long term issue of waning transparency
10%
15%
20%
25%
30%
35%
World stocks-to-use Major exporter stocks-to-use *
World stocks-to-use excl China **
Arg, Aus, Can, EU, Rus, Ukr, US ** = (World – Chinese stock) / (World – Chinese demand + Chinese imports) Source: USDA, AHDB
The 1972 Great Grain Robbery gave rise to transparency in wheat trade
Much has changed since then
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%Percentage share of global wheat exports
Others
South America
Oceania
North America
India
Former SovietUnion - 12European Union -28China
Source: USDA
Top five wheat exporters (Mt)Russia expected to have a clear margin in
2016/17
Rank 2014/15 2015/16 2016/17 f’cast1 EU 34.4 EU 33.9 Russia 30.7
2 Canada 24.9 Russia 25.4 EU 25.5
3 USA 22.6 Canada 21.9 USA 24.9
4 Russia 22.2 USA 21.6 Canada 21.5
5 Australia 16.6 Ukraine 17.4 Australia 18.8
Source: IGC
Russian wheat productionThe world is becoming more exposed to
inconsistent, continental growing conditions
30
35
40
45
50
55
60
65
70
75
Mill
ion
tonn
es
Actual 2007 projection 2016 projection
Source: USDA
North Africa wheat importsA race to fill the gap left by France
0
1
2
3
4
5
6
7
8
9
2015/16 2016/17* 2015/16 2016/17* 2015/16 2016/17*
Mill
ion
tonn
es
From France From UK From others
Algeria Morocco Tunisia
*forecast Source: USDA, Eurostat, HMRC
French wheat supply and demandUK has empathy for the French situation
35.5 36.9 37.5 40.928.5
0
10
20
30
40
50
Mill
ion
tonn
es
French soft wheat suppliesImports+adjustmentProductionOpening stocks
Source: FranceAgriMer, Eurostat
7.3 6.7 7.5 7.2 6.8 7.9 7.8 6.6
9.8 12.98.5 9.9 12.2 11.4 12.6
4.7
0
5
10
15
20
Mill
ion
tonn
es
French soft wheat exportsEU Non-EU
EU wheat supply and demand 2016/17 will likely sensitise stock levels
0
5
10
15
20
25
30
35
Mill
ion
tonn
es
Cumulative EU export licenses - soft wheat
2013/14
2014/15
2015/16
2016/17
Mt 14/15 15/16 est
16/17 f’cast
Opening stocks
11.1 13.0 16.1
Production 148.5 151.6 134.2Imports 2.9 4.1 4.0Domesticdemand
H&I usageAnimal feed
116.2
57.952.4
119.9
58.255.8
120.4
58.855.8
Exports inc. flour
33.3 32.7 25.0
Ending stocks
13.0 16.1 8.9
Source: EU Commission
The structure of European wheat futures is changing
Dec 2016 Euronext CMEOI 138,692 983
Contract size
50t 50t
Delivery points
3 16
Specificweight
76kg/hl 74kg/hl
Protein - 10.5%Hagberg - 170s
Price €157.75/t €163.75/t
Dec 2017 Euronext CMEOI 18,295 205
Contract size
50t 50t
Delivery points
4 16
Specificweight
76kg/hl 74kg/hl
Protein 11% 10.5%Hagberg 220s 170s
Price €173.00/t €171.25/t
*Prices and Open Interest as at 10 October 2016 Source: Euronext, CME
Global wheat conclusions
Remains a key political grain given its main role in feeding people – marginal global interest in feed. This should keep transparency on the agenda, but the short term allure of low prices is distracting.
Evolution of Chinese stocks and Russian production / exports are the longer term key to the market direction. High supply confidence right now – wheat trying to find feed demand
A disastrous French crop and implications for the EU will likely impact trade flows etc, but little impact on global pricing.
Global commodity review- Maize
Maize – short term production growth The main powerhouses continue to perform
Average annual production growth %
EU1 yr: 3%3 yr: -1% Ukraine
1 yr: 11% 3 yr: -5%
Russia1 yr: 6%3 yr: 7%
US1 yr: 11%3 yr: 3%
Argentina1 yr: 30%3 yr: 13%
India1 yr: 17%3 yr: 1%
China1 yr: -4%3 yr: 0%
Canada1 yr: -9%3 yr: -3%
Average annual global demand growth %
2016/17 f’cast 732Mt
1 year 3%
3 years 2%
Brazil1 yr: 23%3 yr: 3%
Mexico1 yr: -5%3 yr: 3%
Source: USDA
US maize prices could undermine grain complex – But, need to assess full impact of
harvest pressure in Europe / Black Sea
Source: AHDB NEW Market Data Centre
$/t
Global maize stocks set to remain stableMedium term supply anxiety continues to fade
10%
12%
14%
16%
18%
20%
22%
24%
500
600
700
800
900
1,000
1,100
Stoc
ks to
use
%
Prod
uctio
n an
d de
man
d (M
t)
World maize supply and demandDemand Production Stocks to use
Source: USDA
US maize stocks continue to recover Ethanol remains at the ‘blend wall’
0%
5%
10%
15%
20%
25%
200220240260280300320340360380400
Stoc
ks to
use
ratio
%
Prod
uctio
n an
d de
man
d (M
t)
US maize supply and demand
Production Stocks to use ratio
Source: USDA, EIA
0
50
100
150
200
250
300
350
400
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Mill
ion
barr
els/
thou
sand
ton
nes
US ethanol production and percentage of maize used
Ethanol productionVolume of maize used in ethanol
Russia’s interest in maize continues to grow with Ukraine becoming key to EU
supplies
Russia(Mt)
14/15 15/16 16/17f’cast
Production USDA
IGCFAS/Moscow
SovEcon
11.311.3
13.213.2
13.2
14.014.013.513.8
Demand 8.1 8.9 9.5
Exports 3.2 4.4 4.5
Stocks 0.35 0.27 0.32
Ukraine(Mt)
14/15 15/16 16/17 f’cast
ProductionUSDA
IGCUAC
28.528.5
23.323.323.0
26.026.524.7
Demand 9.4 8.0 8.7
Exports 19.7 16.4 17.0
Stocks 1.8 0.8 1.2
Source: USDA, IGC, FAS/Moscow (attaché report), SovEcon, UkrAgroConsult
Russia continues to eye maize – Ban on EU food imports speeding up self sufficiency ambition
0
10
20
30
40
50
60
70
80
Mill
ion
tonn
es
Wheat production and demand
ExportsDomestic ConsumptionProduction
0
2
4
6
8
10
12
14
16
Mill
ion
tonn
es
Maize production and demand
ExportsDomestic ConsumptionProduction
Source: USDA
South American maize supply and demandCould get interesting if weather issues emerge
0%
5%
10%
15%
20%
25%
0
20
40
60
80
100
120
140
160
Stoc
ks to
use
ratio
%
Prod
uctio
n, d
eman
d an
d ex
port
s (M
t)
Demand Exports Production Stocks to use ratio
Source: USDA
Brazilian maize now a season of two halves – And the world has to wait for
supplies from the second crop
0102030405060708090
Mill
ion
tonn
es
Production of 1st maize crop Production of 2nd maize crop
Source: Conab, USDA
EU-28 maize supply and demand* Offers relative support to European grain prices
*synchronised to a Jul/Jun marketing year Source: EU Commission
0%
5%
10%
15%
20%
25%
30%
35%
0
20
40
60
80
100
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16est
2016/17f'cast
Stoc
ks to
use
(%)
Mill
ion
tonn
es
Opening stocks Production Imports Domestic demandExports Ending stocks STU
Global maize conclusions
Confidence in global and key exporter (US) stocks is growing, making the supply issues of four years ago a very distant memory.
In Europe / Black Sea, supply conditions are a little less rosy which should open up opportunity for wheat / barley feed demand.
The world is having to wait longer for the Brazilian crop to arrive. The market will have a level of sensitivity toward growing conditions over the coming months.
Global commodity review- Barley
Global barley supply and demandStocks mirroring wheat and maize, but has
to compete for feed demand
15%
17%
19%
21%
23%
25%
27%
29%
100
110
120
130
140
150
160
Stoc
ks to
use
(%)
Mill
ion
tonn
es
Production Consumption STU
Source: USDA
Global barley tradeChina’s desire for less non-maize feed grain
met by tighter EU S&D
Exports(Mt)
2015/16 2016/17
World 29.5 25.7EU 10.8 6.6Canada 1.2 1.4Ukraine 4.4 4.6Russia 4.2 4.6Argentina 2.6 2.1Australia 4.9 4.9
Source: IGC, USDA
02468
101214161820
IGC USDA IGC USDA IGC USDA
2014/15 2015/16 2016/17
Mill
ion
tonn
es
Chinese imports of sorghum and barley
Sorghum Barley
Projected MENA* barley importsMarket diversity important with lower
Chinese and Saudi demand
0
0.2
0.4
0.6
0.8
1
1.2
1.4
Mill
ion
tonn
es
2015/16 USDA IGC
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Saudi Arabia
Mill
ion
tonn
es
*Those MENA countries that the UK typically exports to Source: USDA, IGC
EU barley supply and demand Lower availability met with higher domestic use
0
2
4
6
8
10
Mill
ion
tonn
es
Cumulative EU export licenses - barley
2013/14 2014/152015/16 2016/17
(Mt)14/15 15/16
est16/17 f’cast
Opening stocks
7.6 7.3 6.7
Production 60.4 61.2 60.0Imports 0.1 0.3 0.2Domesticdemand
H&I usageAnimal feed
51.4
11.736.5
51.3
11.836.3
55.2
11.840.2
Exports 9.5 10.8 5.9Ending stocks
7.3 6.7 5.8
Source: EU Commission, Strategie Grains
Global barley conclusions
World S&D looks finely balanced, but has to follow broader price trends to preserve demand.
Reduced appetite for alternative feed grains from China is less bearish for barley than expected – netted off by a sharply lower French crop.
Market diversity could be important to key exporters with Saudi Arabia also likely to have reduced import requirements.
For the EU, Brexit is likely to mean a finely balanced malting barley S&D for the remaining 27 member states.
UK situation
UK wheat supply and demand
0
5
10
15
20
Mt
Opening stocks Production Imports
Dom.Use(Mt)
13/14 14/15 15/16 EoS
16/17EBS
Totalfeed
14.196.37
15.297.08
14.817.09
15.767.48
0
1
2
3
4
5
6
Mt
Closing stocksExportsExports & free stocksOperating stock required
EBS: AHDB Early Balance Sheet EoS: End of Season Source: Defra, AHDB
GB high quality bread wheatProteins bounce back, lifting pass rates
2015 final 2016 2nd provisional (as at 24 September)
Source: AHDB Cereal Quality Survey
Group 1. min. 76.0 kg/hl, 250 Hagberg &13.0% Protein
GB medium quality bread wheat - Good pass rates combining with higher grp 1 & 2 areas
2015 final 2016 2nd provisional (as at 24 September)
Source: AHDB Cereal Quality Survey
Group 1 & 2. min. 74.0 kg/hl, 180 Hagberg & 12.5% Protein
With a strong pass rate what do UK feed wheat futures represent this year?
0
50
100
150
200
250
300
350
400
450
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2016prov
Appr
ox K
ha h
ittin
g sp
ec
Effective area of medium spec nabim group 1&2 bread wheatnabim group 1&2 area hitting medium spec (74kg/hl, 180s, 12.5%)2016 high scenario (54% pass)2016 mid scenario* (43% pass)2016 low scenario (32% pass)
Source: AHDB*mid scenario calculated from average pass rate since 2007
Group 3’s feeling the squeezeWill we see a recovery as seen in 1 and 2?
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Perc
enta
ge
Harvest year
Estimated proportion of GB wheat area
OtherGroup 4Group 3Group 2Group 1
Source: AHDB Planting and Variety Survey
UK barley supply and demand
0
2
4
6
8
Mt
Opening stocks Production Imports
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
Mt
Closing stocksExportsExports & free stocksOperating stock required
Dom.Use(Mt)
13/14 14/15 15/16 EoS
16/17EBS
Totalfeed
5.653.50
5.463.32
5.663.60
5.543.46
EBS: AHDB Early Balance Sheet EoS: End of Season Source: Defra, AHDB
Barley specific weight needs managing Careful sorting to stay export competitive
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
60.0
61.0
62.0
63.0
64.0
65.0
66.0
67.0
68.0
69.0
1990
/91
1991
/92
1992
/93
1993
/94
1994
/95
1995
/96
1996
/97
1997
/98
1998
/99
1999
/00
2000
/01
2001
/02
2002
/03
2003
/04
2004
/05
2005
/06
2006
/07
2007
/08
2008
/09
2009
/10
2010
/11
2011
/12
2012
/13
2013
/14
2014
/15
2015
/16
2016
/17
prov
Thou
sand
tonn
es
Kg/
hl
UK barley production (right axis) Average specific weight (left axis)
Source: Defra / AHDB
UK oat supply and demand
0.00.20.40.60.81.01.2
Mt
Opening stocks Production Imports
Dom.Use(Mt)
12/13 13/14 14/15 15/16EoS
Totalfeed
0.7170.198
0.8770.345
0.8380.317
0.7840.236
0
0.5
1
1.5
2
Mt
Closing stocksExportsExports & free stocksOperating stock required
EoS: End of Season Source: Defra
The global oat market
Major producer/exporterMajor producer
ImporterMain trade flows into importers
Source: WTO, World Bank, UN Comtrade, HMRC, USDA, Defra
Brexit – the big issues for Cereals and oilseeds
Pre-Brexit ‘honeymoon’ – short term currency impact. Longer term currency will depend on evolution of the UK economy.
The bigger issues, to name a few:• Farm support – currently a source of resilience• Access to the EU market – inside or outside the tariff bubble • EU implications: internal trade flows, imports (inc. tariffs) and
S&D status of individual commodities e.g. malting barley • Confidence of / investment from multinationals that are
already well established in UK supply chains• GM import approval framework
Summary of EU grain import tariffs EU import tariffs applicable For in
quota volumes
Outside TRQ system or once quota limit is exhausted
Soft wheat Low / medium quality(Origin specific volumes)
High quality (14% protein, 12% moisture basis)
€12/t
n/a
€95/t
Variable rate* currently set at €0/t
Barley Malting barleyBarley
€8/t€16/t
€93/t€93/t
Oats n/a €89/t
Maize €0/t Variable rate ** currently set at €0/t
Ukrainian specific TRQs Volume (t) Tariff
Soft wheat 950,000 €0/t
Barley 250,000 €0/t
Maize 400,000 €0/t
*Uses Minneapolis Hard Red Spring futures, a FOB premium and freight costs to calculate an indicative CIF EU price. This is compared against a reference price of €157.03/t (155% intervention price). If the indicative CIF price is lower than the EU reference price, a tariff is applied - which changes if a considerable shift the in gap.**A very similar calculation to high quality wheat but using Chicago maize futures as the base.
UK conclusions
The vote for Brexit adds another layer of uncertainty to the market place – probably as big as the weather and global and volatility.
The continuing shift in the variety mix and good quality profile have helped create a more marketable wheat crop with opportunities to displace imports and capture export demand.
The barley revolution continues as the crop continues to command area. However, market requirements i.e. specific weight could offer areas of challenge.
Final comments
Global, EU and UK grain markets continue to rumble on as Brexit ‘talk’ takes the lime light. Grain and other agricultural commodities find themselves in a period of relatively low prices. It will be important that the current, short term state of the food raw material market doesn’t cloud the evolution of UK food and farming policy.
The global grain market is gradually losing transparency, which risks generating future price shocks. Although we shouldn’t get nostalgic about the 1972 Great Grain Robbery the risk of similar events happening shouldn’t be under estimated.
The build up to Brexit is very similar to grain markets – avoid speculation and mange the key risks. The next few years will be critical for the UK cereals and oilseeds industry to build competitiveness, find new sources of resilience, strengthen customer relationships and prepare for some unknowns.
2016/17 Oilseeds market outlookChristophe Cogny - Biofuel & Oilseed Market Analyst, Stratégie/ Tallage
EU markets: Oilseed & Productsprospects 2016/17
12 Oct. 2016
[email protected]/ +33 2 40 74 78 89
Implications for EU rapeseed prices
Tallage
√ Tallage was set up in January 1993
√ Owned by three associates and fully independent fromany other organisations
√ The company's main activities centre on:– the publication Stratégie grains (Monthly reports and
Web service) - strategie-grains.com– the production of specific analytical services
√ Tallage is not involved in any trading or grain production
AHDB London - 2016/17 Oilseed prospects 58
Stratégie grains
√ Stratégie grains reports: a reference for grain and oilseed market analysis in the EU. Every month:– Crop forecasts, industry and animal feed
requirements, price relationships and trade forecasts– complete supply and demand balances
√ www.strategie-grains.com: permanent access to the Stratégie grains databases. Several modules available: – EU Crop Forecasts, – Grain and Oilseed Trade (world, extra and intra-EU)– Biofuels, – Supply and Demand Balances
AHDB London - 2016/17 Oilseed prospects 59
Oilseed market outlook : slightly bullish for rapeseed prices
60
Global context: bearish for meals, tighter for oils Global grain context bearish (esp. corn) Record soybean crop and stocks to remain confortable Tight situation for veg. oils, but crude oil to cap price gains
Rapeseed in the EU: prices should be supported EU rapeseed production sharply down again Imports hard to increase, and late in the crop year Biodiesel market slightly supportive Area should not increase much next year, and tightness to
linger
AHDB London - 2016/17 Oilseed prospects
A few factors in background…
61AHDB London - 2016/17 Oilseed prospects
Low crude oil prices capping veg. oil prices
62AHDB London - 2016/17 Oilseed prospects
Feed demand to keep growing, altough moderately
√ +2.2% expected in 2016/17
√ Share of mealsexpected to remainaround 27.5%
AHDB London - 2016/17 Oilseed prospects 63
With record harvests, global stocks to keep increasing (esp. for grains)
AHDB London - 2016/17 Oilseed prospects 64
Sharp fall in soybean and sunseed prices, while rape prices well supported
65AHDB London - 2016/17 Oilseed prospects
In $/t
Global oilseed markets
66AHDB London - 2016/17 Oilseed prospects
Record soybean and sunseed productions, rapeseed down
67AHDB London - 2016/17 Oilseed prospects
√ +16.6 Mt for soy√ +4.5 Mt for sun√ -1.3 Mt for rape
Global oilseed production (Mt)
Strong crush expected in 2016/17
68AHDB London - 2016/17 Oilseed prospects
Global oilseed demand (Mt)
√ +11.3 Mt for soy√ +3.6 Mt for sun√ -1.3 Mt for rape
Source: Strategie Grains
Soybean stocks to become confortable in the US
69AHDB London - 2016/17 Oilseed prospects
Soybean S&D for major countries (Mt)
Prices have not much of an upward potential, expect if concerns over the plantings emerge (in South Am. and/or next spring in the US)
Source: Strategie Grains
Veg. oil production to increase moderately
70AHDB London - 2016/17 Oilseed prospects
Source: Strategie Grains
√ +4 Mt for palm√ +1.6 Mt for soy oil√ +1.5 Mt for sun oil√ -0.5 Mt for rape oil
Global palm oil markets to remain tight
71AHDB London - 2016/17 Oilseed prospects
Source: Strategie Grains
Global stocks to increase only slightly next year, remaining to stock/use levels
Global context: rather bearish for soybean and meal, veg. oils should bring moderate support
72AHDB London - 2016/17 Oilseed prospects
√ Record soybean and maize crops to weight on meal prices
√ Modest growth in veg. oil production just enough to match demand (esp. tight for palm and rape oils)
√ Share of veg. oil should keep increasing in crush margins
√ Crude oil price to cap veg. oil prices, limiting support to seed prices
Rapeseed & EU oilseed markets
73AHDB London - 2016/17 Oilseed prospects
Global rapeseed production down with EU & Black Sea
74AHDB London - 2016/17 Oilseed prospects
Global rapeseed production (Mt)
Source: Strategie Grains
Global trade: major switches for exporters
75AHDB London - 2016/17 Oilseed prospects
World to rely on good Australian harvest (not arriving in the EU beforeJan. 2017). Strengh of Asian demand to monitor closely
Source: Strategie Grains
EU to rely on Australian supply
76AHDB London - 2016/17 Oilseed prospects
Source: Strategie Grains
Sharp fall in Western-EU production
77AHDB London - 2016/17 Oilseed prospects
EU rapeseed production (kt)
Source: Strategie Grains
Higher flows from Romania/Bulgaria
78AHDB London - 2016/17 Oilseed prospects
Registered shipments from RO/BG towards other EU countries (kt)
By end-september - http://www.strategie-grains.com
EU rapeseed crush margins to remain low
79
Rape crush margins (Hbg), €/t
AHDB London - 2016/17 Oilseed prospects
EU crush volumes (S.Grains estimates)
Slight upward potential for EU rapeseed prices
80AHDB London - 2016/17 Oilseed prospects
EU Rapeseed S&D
Source: Strategie Grains
EU sunseed stocks to recover slightly in 2016/17
81AHDB London - 2016/17 Oilseed prospects
Source: Strategie Grains
Biodiesel UE: a framework at the Union level…
√ Directive 2009/28/CR on Renewable Energy (RED) sets target at 10% renewable energy in transport –compliance required for biofuels to match GHG savings thresholds
√ Challenged quickly and fierce debate from 2012 until 2015 : limit at 7 % “first generation biofuels”
√ Directive 2009/30/CE or “Fuel Quality Directive”(FQD) sets 6 % reduction in GHG by 2020 in fuels
82AHDB London - 2016/17 Oilseed prospects
…But national policies
√ Germany sets its own rulebook towards GHG saving (“FQD like”)
√ France sticks to 7 % incorporation target (“RED like”)
√ Spain should increase mandates moderately (to 5% next year), but seems too ambitious compared with actual biofuel share
√ UK ? .. Status quo likely for domestic policy, change in tariffs in coming years?
83AHDB London - 2016/17 Oilseed prospects
Monthly biodiesel incorporation (%cal)
84AHDB London - 2016/17 Oilseed prospects
*source: BAFA, CORES, UKTrade
Low crude oil prices : consequences
√ Biodiesel share decreases vs. diesel (5.1% in Jan/July 2016 in Germany against 5.4% last year)
√ Higher diesel consumption mitigates lower % of biodiesel (+7% diesel consumption in DE this year)
Higher biodiesel consumption to rely on changes in legal framework (mostly Germany with increase in GHG savings to 4% from 2017)
85AHDB London - 2016/17 Oilseed prospects
Biodiesel UE: demand seen up with Germany
√ Imports may recover after rulings against export taxes
√ Consumption should grow with German framework
√ EU biodiesel production seen slightly up with rape oil (at the expense of food demand)
86AHDB London - 2016/17 Oilseed prospects
87
EU Biodiesel market (Mt)
AHDB London - 2016/17 Oilseed prospects
√ Higher demand in Germany (from Jan. onwards) should bring EU consumption to close to 12.5 Mt
√ Rape oil to benefit from this additional demand
Source: Strategie Grains
EU rape oil markets : lower supplies to cut consumption
88AHDB London - 2016/17 Oilseed prospects
July/June Source: Strategie Grains
Changes in EU oil prices
89AHDB London - 2016/17 Oilseed prospects
EU Vegoils and Biodiesel prices (€/t)
Rapeseed prices to be supported within the EU
90AHDB London - 2016/17 Oilseed prospects
√ Vegetable oil prices should be supported in coming months (although capped by crude oil)
√ Lack of rape oil to help build premium over others
√ Lack of rapeseed within the EU means crush needs to decrease : crush margins will remain thin -> rape seed price to follow rape oil price up
Prices ratios favourable for rapeseed sowings
91AHDB London - 2016/17 Oilseed prospects
Euronext prices for rapeseed and wheat
Rapeseed area seen only slightly up due to dry soils during plantings : lack of supplies to continue?
92AHDB London - 2016/17 Oilseed prospects
EU Rapeseed Area
Thank you for you attention!
[email protected] +33 2 40 74 77 89
93AHDB London - 2016/17 Oilseed prospects
Coffee Break
Brexit: Making sense of the long-term challenge aheadDavid SwalesHead of Strategic Insight024 7647 8854 / [email protected]
Background
Changes are expected but many things have remained the same
• UK is still a member of the EU.• UK businesses remain bound by all the current
EU rules and regulations for up to two years after Article 50 is triggered (likely during 2017).
• Many areas of EU funding (including agricultural support) guaranteed by Treasury until 2020
• Depending on any UK/EU trade deal, rules and regulations may still apply.
Our support for the industry Helping our levy payers make sense of the issues as they evolve. Helping key stakeholders and Governments to seek the best possible deal for our industries outside the EU.
http://www.ahdb.org.uk/news/EUReferendum
Four major areas of concern for agriculture
• International trade• UK/EU• With third countries
• Agricultural policy• Support payments• Rural development• Market management
• Migrant labour• Regulations
International Trade
In the short term exports have benefited
1
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
Jan-
10
May
-10
Sep-
10
Jan-
11
May
-11
Sep-
11
Jan-
12
May
-12
Sep-
12
Jan-
13
May
-13
Sep-
13
Jan-
14
May
-14
Sep-
14
Jan-
15
May
-15
Sep-
15
Jan-
16
May
-16
Sep-
16
Poun
d to
Eur
o/Do
llar (
£=x)
EUR USD
Exchange rates dropped sharply following the July vote. Pound is at lowest level against dollar since 1985. Euro exchange rate has also fallen an is at similar level to 2008-2013 period after financial crisis.
But how will relationships change?
Free Trade Agreements – are often limited to certain products and have quotas and tariffs for others.
Trade with the EU is important
Source: HMRC
15
16
17
18
19
20
21
22
23
24
25
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16
Prod
uctio
n (M
illio
n to
nnes
)
Trad
e (M
illio
n to
nnes
)
Wheat and barley UK production, exports and imports
Production (right axis) Exports (left axis) Imports (left axis)
UK cereal exports fluctuate
Key trade markets
Spain
Portugal
Netherlands
Algeria
Tunisia
JapanOther EU
Other Non-EU
Wheat and barley exports for 2015/16
Canada
Germany
France
DenmarkIreland
SwedenUSA
Ukraine
Other EU
Other Non-EU
Wheat and barley imports 2015/16
Oilseed exports are almost entirely to the EU
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Rapeseed Soyabeans Soyameal
Mill
ion
tonn
es
2015/16 UK production, exports and imports of rapeseed, soyabeans and soyameal
Production Exports Imports
Source: Defra, HMRC
EU tariff barriers for cereals
Code Product Tariff rate Effective ad valorem rate (2015 prices)
10011900 Durum Wheat (excl. seed) €148/t 63%
10019120 Seed of Wheat/Meslin €95/t 50%
10019900 Wheat and Meslin (excl. seed and Durum) €95/t 53%
10031000 Seed of Barley €93/t 44%
10039000 Barley (excl. seed) €93/t 53%
10041000 Seed of Oats €89/t 49%
10049000 Oats (excl. seed) €89/t 30%
10059000 Maize (excl. seed) €94/t 49%
.EU tariff rates, above Tariff Rate Quotas, are high for many products. This gives an idea of the barriers which will face UK exporters if UK exports to the EU are subject to these tariffs
More opportunities to capitalise on overseas market growthSurge in the global middle class will change demand
millions 2009 2020 2030North America 338 18% 333 10% 322 7%
Europe 664 36% 703 22% 680 14%
Central andSouth America
181 10% 251 8% 313 6%
Asia-Pacific 525 28% 1740 54% 3228 66%
Sub-Saharan Africa 32 2% 57 2% 107 2%
Middle East and North Africa
105 6% 165 5% 234 5%
World 1845 100% 3249 100% 4884 100%
Source: The World Bank, Kharas and Gertz 2010
EU trade agreements
Agricultural Policy
Agricultural support levels
UK Governments have been critical of value for money offered by Pillar 1 direct payments, but funding guaranteed until 2020.
Importance of support payments
Viability by sector if support were removed
15%8%
17% 12% 19% 18%
20%
8%
53%
30%28%
23%
16%
20%
28% 19%
38%
62%
10%28% 32%
50.0%
4% 6% 1% 2%
32%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
All farms Dairy Livestock Mixed Crops Horticulture
Income still above opportunity costs - farms with good prospectsIncome still positive - farms with good prospectsIncome still positive but insufficient to invest+moderniseFarms able to survive but likely to suffer financial distressFarms unable to survive
Source: Defra / Wageningen University
Will consumers pay more for British?
116Source: National Statistics/nVision, 2015
Economy is improving...our customer is getting wealthierEarnings growth - seasonally adjusted figures (excluding bonuses)
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
2001
2001
Jun
2001
Nov
2002
Apr
2002
Sep
2003
Feb
2003
Jul
2003
Dec
2004
May
2004
Oct
2005
Mar
2005
Aug
2006
Jan
2006
Jun
2006
Nov
2007
Apr
2007
Sep
2008
Feb
2008
July
2008
Dec
2009
May
2009
Oct
2010
Mar
2010
Aug
2011
Jan
2011
June
2011
Nov
2012
Apr
2012
Sep
2013
Feb
2013
July
2013
Dec
2014
May
2014
Oct
2015
Mar
2015
Aug
2016
Jan
2016
June
Nominal earnings growth Real earnings growth (nominal earnings growth minus CPI inflation)
Consumers getting better off where real earning growth is above 0
Source: IGD ShopperVista
Price and quality remain key drivers of choice
Total cost and gross revenue (incl. decoupled payments) (€/t)
UK production needs to be price competitiveUK wheat production costs
Conclusions• Tariff-free market access to the EU will be a key issue for the
cereals and oilseeds sector.• Brexit provided opportunities for the UK to opening up
access to fast growing markets around the world. However, this could provide threats as well as opportunities. Will the UK Government adopt a more liberal trade approach than the EU, with less protection for producers?
• The farming industry should prepare for a reduction in direct support post-2020.
• The reduction or removal of direct support payments will affect the viability of many UK farms. Improving industry productivity and competitiveness will be key, as most consumers do not choose or pay more for products solely due to their ‘Britishness’.
Exploring international competitiveness in grain and oilseedSamuel Balieiro - Researcher, AgriBenchmark, Cash Crop team
DatumSeite 121 Sugarcane production in Brazil
Balieiro, 2015
Exploring international competitiveness in grain and oilseed production
Samuel Balieiro, M.Sc. Thünen Institute of Farm Economics
Oct 12th 2016Grain Market Outlook, London
Exploring international competitiveness in grain and oilseed production
Balieiro – London, 2016
Agenda
Page 122
1. Background
2. How profitable are wheat and corn production around the world? Who are the cost leaders?
3. Economics of oilseed production worldwide (soybean & rapeseed)
4. Soybean production systems: a look into Brazil
5. In-farm competitiveness of oilseeds vs. grains
6. Summary
Exploring international competitiveness in grain and oilseed production
Balieiro – London, 2016
Background
Page 123
Competitive advantage is a function of either providing comparable buyer value more efficiently than competitors (low cost), or performing activities at comparable cost but in
unique ways that create more buyer value than competitors and, hence, command a premium price (differentiation) – (Porter, 1985)
DE 1300 MBcountry ha region
Countries in the Cash Crop networkCountries to come onlinePriorities for new partnerships
agri benchmark coverage
Exploring international competitiveness in grain and oilseed production
Balieiro – London, 2016
Location of the Russian and Ukrainian typ. farms
Page 124
UA2000CU*
UA7100PO*
UA2600WURU16000KUR*
RU21000KRA*
RU20000BS
source: google maps
Exploring international competitiveness in grain and oilseed production
Balieiro – London, 2016
Agenda
Page 125
1. Background
2. How profitable are wheat and corn production around the world? Who are the cost leaders?
3. Economics of oilseed production worldwide (soybean & rapeseed)
4. Soybean production systems: a look into Brazil
5. In-farm competitiveness of oilseeds vs. grains
6. Summary
Exploring international competitiveness in grain and oilseed production
Balieiro – London, 2016
Wheat yields in t/ha (avg. 2008 – 2015)
Page 126
• Strong differences in yields: production systems and input intensity• High performing farms in UA and RU show their potential in wheat production
2x
70kg/ha
190kg/ha
90kg/ha
120kg/ha
N input
Exploring international competitiveness in grain and oilseed production
Balieiro – London, 2016
Wheat key costs and prices in USD/t (avg. 2008 – 2015)
Page 127
• Most countries with total cost around $160 – $250/t; UK farms with higher costs• RU and UA farms: cost leaders but facing much lower farm gate prices (-$50/t)
Exploring international competitiveness in grain and oilseed production
Balieiro – London, 2016
Wheat cash costs and revenues in USD/t (avg. 2008 – 2015)
Page 128
• Short term most farms can produce wheat with less than $150/t• Direct payments increase the price gap between EU and Eastern countries (+$100/t)
0
50
100
150
200
250
300
350
AU
4500
SC*
CA
2000
RR
V
CA
2000
SAS
CA
6000
SAS
DE1
100V
P
DE1
300M
B*
DE2
50K
AB
FR23
0PIC
B*
UK
310W
ASH
UK
440S
UFF
UK
800C
AM
*
PL21
00ST
*
RU
2000
0BS
RU
2100
0KR
A
UA
2000
CU
*
UA
2600
WU
Australia Canada Germany France UK Poland Russia Ukraine
Cash cost Price Price + dec. payment
Exploring international competitiveness in grain and oilseed production
Balieiro – London, 2016
Corn yields in t/ha (avg. 2008 – 2015)
Page 129
• US and CA > 10 t/ha – more intense production systems (>175kg N/ha)• Brazilian farm grows corn as a second crop after soybean – lower intensity
Exploring international competitiveness in grain and oilseed production
Balieiro – London, 2016
Corn key costs in USD/t (avg. 2008 – 2015)
Page 130
• All farms with direct and op. costs < $130/t; AR und RU lower than $80/t• US facing high land costs, eating up the price advantage at farm level.
Exploring international competitiveness in grain and oilseed production
Balieiro – London, 2016
Agenda
Page 131
1. Background
2. How profitable are wheat and corn production around the world? Who are the cost leaders?
3. Economics of oilseed production worldwide (soybean & rapeseed)
4. Soybean production systems: a look into Brazil
5. In-farm competitiveness of oilseeds vs. grains
6. Summary
Exploring international competitiveness in grain and oilseed production
Balieiro – London, 2016
Rapeseed yields in t/ha (avg. 2008 – 2015)
Page 132
• Similar to wheat, European farms with higher yields; DE farms around 4.5 t/ha• Canada and Australia with yields similar to most Ukrainian farms
-1 ton
60kg/ha
240kg/ha
Exploring international competitiveness in grain and oilseed production
Balieiro – London, 2016
Rapeseed key costs in USD/t (avg. 2008 – 2015)
Page 133
• Even with relatively lower yields, Canada and Ukraine are very competitive • Short term: direct + op. costs around $350/t
Exploring international competitiveness in grain and oilseed production
Balieiro – London, 2016
Soybean yields in t/ha (avg. 2008 – 2015)
Page 134
• Most farms around 3 to 3.5 t/ha; • Yield gap in Russia and Ukraine: still a “new” crop but with strong potential
Exploring international competitiveness in grain and oilseed production
Balieiro – London, 2016
Soybean key costs in USD/t (avg. 2008 – 2015)
Page 135
• AR is the cost leader; however facing much lower farm prices (export tax?)• Even with low yields Russian farms are very profitable; Prices similar to other countries
Exploring international competitiveness in grain and oilseed production
Balieiro – London, 2016
Agenda
Page 136
1. Background
2. How profitable are wheat and corn production around the world? Who are the cost leaders?
3. Economics of oilseed production worldwide (soybean & rapeseed)
4. Soybean production systems: a look into Brazil
5. In-farm competitiveness of oilseeds vs. grains
6. Summary
Exploring international competitiveness in grain and oilseed production
Balieiro – London, 2016
Crop rotation: importance of soybean vs. corn (%)
Page 137
• Corn in Brazil (MT) is as second crop - double cropping: soybean “+” corn instead “or”;• In the US the acreage competition of these two crops is more severe
Exploring international competitiveness in grain and oilseed production
Balieiro – London, 2016
Double cropping (BR): quick response to markets
Page 138
• Farmers can decide quickly on the acreage to be sown with corn• Quick responses to market demands (e.g. 2012 drought in the US)• However, second season corn is highly sensitive to weather – droughts (e.g. 2016)
Exploring international competitiveness in grain and oilseed production
Balieiro – London, 2016
Double cropping (BR): corn crop 2016
Page 139
• In MT state yield losses of ca. 2t/ha (-32%) compared to 2014/15 season; • 178,000 seeded ha not harvested – MT production 7,2 million t lower than 2014/15
pictures: noticiasagricolas.com.br
Exploring international competitiveness in grain and oilseed production
Balieiro – London, 2016
Agenda
Page 140
1. Background
2. How profitable are wheat and corn production around the world? Who are the cost leaders?
3. Economics of oilseed production worldwide (soybean & rapeseed)
4. Soybean production systems: a look into Brazil
5. In-farm competitiveness of oilseeds vs. grains
6. Summary
Exploring international competitiveness in grain and oilseed production
Balieiro – London, 2016
Return to land rapeseed vs. wheat (avg. 2008-2015; USD/ha)
Page 141
• Canada, Ukraine and UK clear advantage for rapeseed (ca. + 120 USD/ha)• In Germany and France mixed picture;
Return to land = Revenues -total cost (w/o Land cost)
Exploring international competitiveness in grain and oilseed production
Balieiro – London, 2016
Return to land soybean vs. corn/wheat (avg. 2008-15; USD/ha)
Page 142
• Except for the Iowa farm, soybean was more profitable than corn in the Americas• On the Russian and Ukraine farms: corn & soybean outcompeting wheat – future?
Clear advantage for soybeans
Exploring international competitiveness in grain and oilseed production
Balieiro – London, 2016
Agenda
Page 143
1. Background
2. How profitable are wheat and corn production around the world? Who are the cost leaders?
3. Economics of oilseed production worldwide (soybean & rapeseed)
4. Soybean production systems: a look into Brazil
5. In-farm competitiveness of oilseeds vs. grains
6. Summary
Exploring international competitiveness in grain and oilseed production
Balieiro – London, 2016
Summary
Page 144
I. UA and RU farms are cost leaders in wheat production. Higher yields can be achieved in several regions – increasing competitiveness?
II. As for wheat, RU and UA farms are cost competitive in corn and soybean production. AR is the cost leader – expectation for domestic prices after export tax ban.
III. Our UK typical farms have roughly 1 t/ha lower rapeseed yields than the German farms. Nonetheless, rapeseed has been more profitable than wheat
IV. Double cropping in Brazil increases the overall competitiveness of farms but this system is more sensitive to droughts (corn)
V. Oilseed production has been more profitable than grains in several regions, supporting their observed acreage increase.
Exploring international competitiveness in grain and oilseed production
Balieiro – London, 2016
Knowledge is our business
Page 145
Samuel Balieiro, M.Sc.- Member of agri benchmark Cash Crop team -
Thünen Institute of Farm EconomicsBundesallee 50, 38116 BraunschweigGermany
phone +49 - 531-596-5135mobile +49 - 0152-2311-1071e-mail [email protected] www.agribenchmark.org
www.thuenen.de
Thank you for your attention