AUSTRALIAN FEEDLOT SECTOR - 03 August 2017 - The Australian Grains Industry ...
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03 August 2017
AUSTRALIAN FEEDLOT
SECTOR
ANZ’S SUPER REGIONAL NETWORK
2
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)
VIETNAM MALAYSIA
LAOS HONG KONG
THAILAND TAIWAN
MYANMAR SOUTH KOREA
CHINA JAPAN
UNITED STATES OF
GERMANY AMERICA
Frankfurt
New York
UNITED
PHILIPPINES
KINGDOM
London
INDONESIA
UAE
(GCC*)
PAPUA NEW
GUINEA
INDIA
PACIFIC
ISLANDS**
SINGAPORE
NEW ZEALAND
CAMBODIA
KEY:
AUSTRALIA Commercial/ Large Corporate &
Private Banking
Note: *GCC - Gulf Cooperation of Council countries International Banking Institutional Banking
**Pacific Islands comprises of Guam, Solomon Islands, Fiji, Kiribati, Samoa, American Samoa, Cook
Islands, Timor Leste, Tonga, Vanuatu and New Caledonia. Fiji operations comprises of Retail Banking & Wealth Partner Bank Representative Office
Commercial/International Banking, Large Corporate & Institutional Banking, and Retail Banking & Wealth Management
Management
CONNECTING YOU TO THE FOOD, BEVERAGE AND AGRIBUSINESS
SECTORS
ANZ has been banking clients in the Food, Beverage and Agribusiness
sectors since 1865 and covers stakeholders across the global supply
chain
BENEFIT FROM OUR INDUSTRY CONNECTING YOU FROM ‘PADDOCK PARTNER WITH ANZ TO ACCESS
EXPERIENCE AND EXPERTISE TO PLATE’ ACROSS THE GLOBE
• 4 out of Australia's 5 largest milk producers
• Producers and growers processors
• Storage and handling companies • NZ’s 3 largest dairy processors accounting
for over 90% of NZ’s
Dairy Protein Wine • Agricultural input suppliers dairy production
• Global trading houses • Some of the world’s largest food and
beverage companies
• Transport and packing companies
• Countries that receive over 85%
• Global food and beverage companies of Australia’s live cattle exports and over
90% of Australia’s exported beef
Oilseeds Grains & rice Cotton
• Global quick-serve food establishments
• 80% of Australia’s cotton exporters
• 95% of Australian sugar exporters
• Major Food, Beverage & Agribusiness
markets across the Asia Pacific region thanks
Sugar Forestry Cocoa to ANZ’s reach into key origin and
destination geographies (China, India, SEA,
Greater Mekong and the Pacific)
Coffee Rubber
3
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…
Australia Beef Production & Slaughter
Australia Feedlot Capacity
1.2 million head With herd re-building in progress, beef production is likely to
decrease and marginally recover through 2021
Australia Cattle Population
27.4 million head 3.0 36%
2.5 30%
7.7%
41.4% 2.0 24%
8.6%
53.8%
5.6% 1.5 18%
4.2%
3.3% 20.4%
1.0 12%
31.4%
0.5 6%
6.0% 15.1%
Note: Feedlot Capacity is - -
based on March 2017 & 2.6%
2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F
Australian Cattle Population is
as of June 2015 Beef Production (m tonnes cwt) Slaughter as % of Cattle herd (RHS)
Source: MLA, ALFA
6REDUCED AVAILABILITY OF CATTLE LED TO CATTLE HELD ON FEED
FOR LONGER PERIODS…
Cattle on Feed (‘000 head) by Feedlot Type
1,200
1,000
800
600
400
200
-
Mar-09 Mar-11 Mar-13 Mar-15 Mar-17
< 500 500 - 1k 1k - 10k > 10k
Source: MLA, ALFA
7EXPORTS TO EU, CHINA & MIDDLE EAST GRADUALLY INCREASED
THEIR SHARE…
Grain-fed beef exports (‘000 swt)
80
60
40
20
-
Q1'05 Q3'06 Q1'08 Q3'09 Q1'11 Q3'12 Q1'14 Q3'15 Q1'17
Japan Korea Other
Source: MLA, ALFA
8~80% OF COST BASE IS MADE UP OF FEEDER CATTLE PURCHASES
Purchases 80.7% Industry Cost Structure
Wages 1.4%
Depreciation 1.5%
Utilities 1.7%
Rent 0.8%
Other 0.8%
Profit 13.1%
Source: IBIS Research
9FEEDER CATTLE PRICES INCREASED BY ~220% SINCE 2007…
Weekly prices rebased to Sep 2007 prices
300%
250%
Saleyard Feeder Steer QLD - OTH - Grain Fed Cattle
200%
150%
100%
50%
-
Sep-07 Aug-09 Jul-11 Jun-13 May-15 Apr-17
Source: MLA
10FEEDER CATTLE PRICES ARE NEGATIVELY CORRELATED WITH GRAIN
PRICES…
Price comparison of Feeder Cattle vs Wheat price (feed grade)
500
Feeder Cattle (Ac/kg lwt) Wheat - New Castle, NSW(Ac/tonne)
400
300
200
100
-
Aug-09 Mar-11 Oct-12 May-14 Dec-15 Jul-17
Source: Feeder Cattle price sourced from MLA, while Wheat (feed grade) sourced from Bloomberg database (AUWH0142 Index – New
Castle, NSW)
11AUSTRALIAN FEEDLOTS HAVE MEDIUM TO LONG TERM PROFITABILITY
OF 11-14%...
Short, medium and long-term net profit margins for beef feedlots (2014)
40%
20%
-
(20%)
(40%)
(60%)
5500
7200
1500
1700
2000
3000
430
520
28K
75K
26K
680
940
15K
75K
25K
520/150
630/800
Spain Canada US Mexico Argentina Brazil Peru China Aus. S Africa Nam-
ibia
Short Term (Cash) Medium Term (Cash-Depreciation) Long Term (Cash-Depreciation-Opportunity Costs)
Source: MLA/ Agribenchmark
12-
200
400
600
800
1,000
1,200
A -25F
A -35
USD per 100lwt
A -120
G -260
G -285
G -525T
G -800
Source: MLA/ Agribenchmark
F -60
F -70
F -200
SP -430
Europe
SP -520
Cash costs
SP -550
UK -45
UK -80
UK -90
AMERICAN FEEDLOTS…
UK -750
IR -40
RU -640
CA -28K
US -7200
US &
US -75K
Canada
AR -380
Depreciation
AR -630
AR -800
AR -900
AR -26K
Cattle finishing cost benchmarking (2014)
13
UR -90
BR -60
BR -360
BR -400
BR -680
BR -800
BR -1750
South America
CO -130
Opprtunity Costs CO -160
CO -520
CO -800
PE -1700
CH -70
CH -150
CH -300
CH -940
CH -2000
Asia
IN -2
IN -4
IN -100
AUS -65
AUS -85
AUS -150
Regional Averages
AUS -320
AUS -360
Aus.
AUS -380
AUS -540
AUS -900
NZ -375
SA -3000
SA -75K
FINISHING COSTS IN AUSTRALIA ARE ~23% HIGHER THAN SOUTH
NA -600
NZAfrica
NA -25KBEEF FEEDLOTS REVENUE IS FORECAST TO STAGNATE IN NEAR
FUTURE…
Beef Cattle Feedlot Industry Revenue (AUD bn)
4.7 4.7 4.7 4.8
4.6 4.6
4.6
3.7
2.9
2.7 2.7
FY2012 FY2014 FY2016 FY2018 F FY2020 F FY2022 F
Source: IBIS Research
14~59% OF BEEF FROM FEEDLOTS IS UTILISED IN DOMESTIC MARKET…
End markets by Share of Industry Revenue
6.5%
Supermarkets
8.3%
Exports to Japan
11.5%
44.1% Exports to South Korea
Other export markets
6.2%
Butchers
23.4% Food service establishments
Source: IBIS Research
15A FRAGMENTED INDUSTRY BUT CONSOLIDATION WILL CONTINUE…
Beef Cattle Feedlot Industry by Major Players
6.0%
5.1%
5.1%
JBS Australia Pty Limited
Mort & Co Ltd
Teys Australia Pty Ltd
Other
83.8%
Source: IBIS Research, ALFA
16WITH RISING GLOBAL COMPETITION IN
GRAIN, THE DOMESTIC FEEDLOT INDUSTRY
HAS RENEWED IMPORTANCEWHILE MAJORITY OF AUSTRALIAN GRAIN IS EXPORTED, SIMILAR
OTHER AGRI PRODUCE…
Average Exports as % of Production
29%
32% 26%
45%
55%
68% 100%
71% 74%
16,000
Grains, Oilseeds Beef Dairy Cotton Wool
Value of Agricultural Exports (AUD m)
& Pulses
14,000
Together these five commodity groups represent
12,000
~63% (average) of Total farm exports
10,000
8,000
6,000
4,000
2,000
A$12.2bn1 A$7.2bn1 A$3.3bn1 A$3.1bn1 A$2.1bn1
-
FY'17E
FY'18F
FY'17E
FY'18F
FY'17E
FY'18F
FY'18F
FY'17E
FY'17E
FY'18F
FY'13
FY'14
FY'15
FY'16
FY'14
FY'13
FY'15
FY'16
FY'13
FY'14
FY'15
FY'16
FY'13
FY'14
FY'15
FY'16
FY'13
FY'14
FY'15
FY'16
Note 1: Average Value of Agricultural exports between 2012-13 (FY13) to 2017-18F (FY18F)
Source: ABARES, MLA (data sourced for Beef Production, Exports)
18GROWTH IN STRENGTH OF GLOBAL AGRI POWERHOUSES – WHILE THE
BSR CONTINUES TO RISE
Agriculture produce – Net trade
In ‘000MT, Commodities include Grains, Oilseeds, Meat, Dairy and Sugar
Growth in Net Exports CAGR (2000-16)
Growth in Net Imports CAGR (2000-16)
250,000
200,000
150,000
100,000
50,000
+5% +2% +2% -1% +28%
-
+11% +2% +4% +15% +2%
(50,000)
(100,000)
(150,000)
Brazil USA Argentina Ukraine Canada Australia Thailand India Egypt Iran South Saudi EU Mexico Japan China
Korea Arabia
2000/01 2005/06 2010/11 2016/17
Source: USDA, ANZ Analysis 19RISING GRAIN & OILSEEDS DEMAND IS INCREASINGLY BEING MET BY
EMERGENT PLAYERS IN SOUTH AMERICA, BLACK SEA REGION…
Without
Grain & Oilseeds Export Volume Grain & Oilseed Export Share (%) Soybean
In ‘000MT, Major Countries % Share of exports of Select Countries
500 100%
12% 9% 11% 8%
1% 5% 2% 8%
400 100%
90%
80% 11% 9% 10%
70%
60%
50%
40%
30%-
20%
10% 80% 9%
2000/
2001 10% 10%
12% 8%
1% 5% 5%
300 60% 10%
14% 11% 15%
12%
200
40%
32% 22%
40% 37%
100
20%
23%
12% 16%
- 10%
2000/2001 2005/2006 2010/2011 2016/2017 -
2000/2001 2005/2006 2010/2011 2016/2017
Brazil United States Argentina
Ukraine Canada Australia
Russia European Union
Source: USDA, ANZ Analysis 20FEED INDUSTRY – THE LARGEST DOMESTIC GRAIN & OIL SEEDS
CUSTOMER MAY BENEFIT FROM LOW PRICES…
Grain & Oil seeds consumption share estimates
In Million MT
60
50
40
30
20
10
-
2000/2001 2004/2005 2008/2009 2012/2013 2016/2017
FSI Consumption Feed Consumption Exports
Source: USDA PSD
21RISING PROTEIN CONSUMPTION TO DRIVE
FEED DEMAND
22PER CAPITA MEAT AND DAIRY CONSUMPTION TO CONTINUE STRONG
GROWTH IN DEVELOPING REGIONS OVER 10 YEARS…
Per capita food consumption by region
In Kg/cap/year
350
300
250
200
150
100
50
-
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
Source: FAO – OECD Outlook 23CHINA DEMOGRAPHICS – INCREASING AGEING
Population by Age Group
Male Female
CHINA JAPAN GERMANY
10% - 10% 10% - 10% 10% - 10%
0-4
5-9
10-14
15-19
20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
65-69
70-74
75-79
80-84
85-89
90-94
95-99
100+
Source: US Bureau, International DatabaseJAPAN’S CALORIE CONSUMPTION HAS CONTINUED TO FALL SINCE
1990
Japan Calorie consumption by Source
3,500
3,000
2,500
2,000
1,500
1,000
500
-
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Dairy and Eggs Grain Meat Produce Sugar and Fat Other
Source: FAO Statistics, ANZCHINA CONSUMES AS MANY CALORIES PER CAPITA AS JAPAN DID IN
1990
China Calorie consumption by Source
3,500
3,000
2,500
2,000
1,500
1,000
500
-
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Dairy and Eggs Grain Meat Produce Sugar and Fat Other
Source: FAO Statistics, ANZJAPAN EXPERIENCED A FALL IN CONSUMPTION ACROSS FOOD TYPES
% change in Japan’s Per Capita and Total Consumption by Category 1990-2011
4%
2%
-
(2%)
(4%)
(6%)
(8%)
(10%)
(12%)
(14%)
Grain Produce Dairy & Eggs Meat Sugar & Fat Other Total
Per Capita Total
Source: FAO Statistics, ANZHISTORIC CONSUMPTION GROWTH IN CHINA HAD BEEN EXPONENTIAL
% change in China’s Per Capita and Total Consumption by Category 1990-2011
250%
200%
150%
100%
50%
-
(50%)
Grain Produce Dairy & Meat Vegetable Sugar & Other Total
Eggs Oil Fat
Per Capita Total
Source: FAO Statistics, ANZCHINA & SE ASIAN COUNTRIES ARE THE LARGEST IMPORTERS OF
GRAIN & OILSEEDS
Grain & oilseed
Grain & Oilseeds Import Volume CHINA demand increased
In ‘000MT, Major Countries by 6.3x (2000-16)
350,000
Population GDP pcp increased
increased by by 5.3x (2000-16)
115m (2000-16)
300,000
1.43 23.96
1.38
1.31 1.34
1.27 15.40
9.25
250,000 2.92 5.06
2000 2005 2010 2016 2022F 2000 2005 2010 2016 2022F
200,000 GDP per capita (PPP)
Population (bn)
in ‘000 $
150,000 Grain & oilseed
ASEAN COUNTRIES
demand increased
by 2.3x (2000-16)
100,000 Population
increased by 123m GDP pcp increased
(2000-16) by 2.5x (2000-16)
50,000
16.56
0.64 0.68
0.51 0.55 0.59 11.60
8.49
4.67 6.32
-
2000/2001 2005/2006 2010/2011 2016/2017
China SE Asia European Union Japan 2000 2005 2010 2016 2022F 2000 2005 2010 2016 2022F
Mexico Egypt Saudi Arabia South Korea
Population (bn) GDP per capita (PPP)
in ‘000 $
Source: USDA, IMF and ANZ Analysis 29FEED CONSUMPTION IN ASIA PROVIDE SIGNIFICANT OPPORTUNITY..
Asia Feed Consumption Share – Grains & Oilseeds East Asia
• Consumption is dominated by China
55% • Rising per capita income levels driving animal protein
45% demand
55% • Intensifying competition for exports especially from
South America
• Increasing integration through supply chain
investments in Australia
Feed FSI
50%
Southeast Asia
• Home to some of fast growing economies
• Changing consumption patterns driven by rising 36%
income levels
45% • Increasing import dependency to cater to rising 64%
domestic demand
Feed FSI
South Asia
40%
21% • Regional consumption is dominated by India –
characterised by low meat consumption (but dairy
industry provide opportunity)
79% • Major destination of Australia’s pulses export
35%
2001 2005 2009 2013 2017 Feed FSI
Asia Feed Consumption Share (%)
Note: Year noted 2001 represent marketing year 2000/2001
Source: Data is sourced from USDA PSD Query.
30AGTECH AND DATA
PROVIDE UNIQUE OPPORTUNITIES
31MLA IDENTIFIED FOUR AREAS FOR USE OF DIGITAL TECHNOLOGIES
IN LIVESTOCK ENTERPRISES…
Productivity Benefits
Soil fertility
+13% – 26%
monitoring
Feed
allocation +9% - 11%
systems
Animal
production +4% - 9%
monitoring
Animal
disease +4% - 13%
monitoring
Source: Meat and Livestock report, retrieved from Beef central website 32HOWEVER, 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 “No one technology or technologies
• Cost of Technology would be transformational, and
progress on technologies would be
• Difficulty of implementation incremental, because of the nature of
innovation and adoption”
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
Source: Smart Farming – May 2016, Inquiry into agricultural innovationBANKS REMAIN INTEGRAL PART OF SUPPLY CHAIN
34TRADITIONAL VS REAL TIME FINANCING
Funding Against Land
Failure to tap the working capital finance opportunity
Traditional Financing
Works well
300 Kg 400 Kg 500 Kg
with operators
Day 0 Day 50 Day 100 with long
operation
$ $$$ $$$$$ history
$ Lost $ Lost
Real Time Financing
Technology
300 Kg 400 Kg 500 Kg
provide
Day 0 Day 50 Day 100 opportunity to
unlock
$ $$$ $$$$$ working
capital
$ Gained $ Gained
24ABILITY TO ATTRACT NEW CAPITAL IN THE INDUSTRY BY UNLOCKING
WORKING CAPITAL
20151 20161
1,200 1,200
1,000 1,000
800 800
AUD Million
AUD Million
600 600
400 400
200 200
0 0
Jan 15 Feb 15 Mar 15 Apr 15 May 15 Jan 16 Feb 16 Mar 16 Apr 16 May 16
Traditional Model Real Time Model Traditional Model Real Time Model
Note1: Dressing %=52%, 85% of market value for feed lot with 100 day
36
cycleTHE WAY AHEAD
Drivers Platform
Cattle in feedlot 2,000
4.8
4.5
Funding Based on
AUD 1.0m
4.2 Land
3.9
AUD / Kg
3.6
Working Capital
3.3 AUD 0.4m
Opportunity
3.0
2.7
2.4
2.1
10 11 12 13 14 15 16
Australia Eastern Young Cattle Indicator
Swipe Right to unlock AUD 400k
37MANAGING COMMUNICATION BETWEEN DIFFERENT PARTS OF VALUE
CHAIN REMAINS VITAL…
• Strengthen resource
management system
Production end Consumption end
• Mass production of
Smart agricultural Convenient services offered by
excellent traceable products
production alliance digital agriculture
• Link e-commerce
Product information Consumer habit
Accurate estimates of crop yield, Where, What & How produce is
input applications etc., consumed?
Storage and Marketing of harvest crop Change in consumption patterns
Data to help increase efficiency in Key factors affecting consumer choice
operations
Source: Taiwan govt. website, ANZ 38AUSTRALIA’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
39THANK YOU Presented by MICHAEL WHITEHEAD
DISCLAIMER
> This document is issued by Australia and > Information contained in this presentation is > The points made in this presentation are
New Zealand Banking Group Ltd (‘ANZ’). strictly confidential. It is the property of ANZ. subject to further discussion with you and
The information and opinions contained in As such, no part of it may be circulated, we would be pleased to address any
this document (on which ANZ may have copied, quoted or otherwise referred to comments and queries that you may have
acted or may act for its own purposes) are another party without prior written consent in relation to the proposed funding options
published for the assistance of recipients of ANZ so as to ensure that your particular
but are not to be relied upon as requirements are satisfied
authoritative or taken in substitution for > The terms noted in this presentation is
the exercise of judgment by any recipient. subject to receipt by ANZ of formal credit
While such information and opinions have approval and appropriate legal, accounting,
been compiled or arrived at by ANZ in tax and technical advice. This is not an offer
good faith and from sources believed to be to finance
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.
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