Grain Market Outlook Conference

Grain Market Outlook ConferenceWednesday 12 October 2016

Welcome and Opening AddressPaul Temple – Chair, AHDB Cereals and Oilseeds

2016/17 Grain Market Outlook Jack Watts, Lead Analyst, AHDBJack.watts@ahdb.org.uk

Overview

Setting the scene

Global commodity review

Conclusions

Wheat Maize Barley

The UK situation

Setting the scene

Four consecutive years of grain surplus

Global wheat and coarse grain supply and demandProduction Demand

Source: FAO

UK crop revenues continue to fallReality check on yields in 2016

Source: AHDB

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016proj

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

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016proj

Key crop costs index*Fertlisers & soil improvers Machinery

Inflation returns to UK wheat pricesAfter three years of almost continuous deflation

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

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

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

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

100%Percentage share of global wheat exports

Others

South America

Oceania

North America

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

Actual 2007 projection 2016 projection

Source: USDA

North Africa wheat importsA race to fill the gap left by France

2015/16 2016/17* 2015/16 2016/17* 2015/16 2016/17*

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

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

French soft wheat exportsEU Non-EU

EU wheat supply and demand 2016/17 will likely sensitise stock levels

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

57.952.4

58.255.8

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

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

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

Global maize stocks set to remain stableMedium term supply anxiety continues to fade

World maize supply and demandDemand Production Stocks to use

Source: USDA

US maize stocks continue to recover Ethanol remains at the ‘blend wall’

200220240260280300320340360380400

US maize supply and demand

Production Stocks to use ratio

Source: USDA, EIA

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

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

Wheat production and demand

ExportsDomestic ConsumptionProduction

Maize production and demand

ExportsDomestic ConsumptionProduction

Source: USDA

South American maize supply and demandCould get interesting if weather issues emerge

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

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

2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16est

2016/17f'cast

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

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

101214161820

IGC USDA IGC USDA IGC USDA

2014/15 2015/16 2016/17

Chinese imports of sorghum and barley

Sorghum Barley

Projected MENA* barley importsMarket diversity important with lower

Chinese and Saudi demand

2015/16 USDA IGC

Saudi Arabia

*Those MENA countries that the UK typically exports to Source: USDA, IGC

EU barley supply and demand Lower availability met with higher domestic use

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

11.736.5

11.836.3

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

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

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?

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2016prov

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?

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Harvest year

Estimated proportion of GB wheat area

OtherGroup 4Group 3Group 2Group 1

Source: AHDB Planting and Variety Survey

UK barley supply and demand

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

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

Dom.Use(Mt)

12/13 13/14 14/15 15/16EoS

Totalfeed

0.7170.198

0.8770.345

0.8380.317

0.7840.236

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

€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.

Thank you jack.watts@ahdb.org.uk

@JGCWatts024 7647 8760

2016/17 Oilseeds market outlookChristophe Cogny - Biofuel & Oilseed Market Analyst, Stratégie/ Tallage

EU markets: Oilseed & Productsprospects 2016/17

12 Oct. 2016

christophe@tallage.fr/ +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

Oilseed market outlook : slightly bullish for rapeseed prices

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

Feed demand to keep growing, altough moderately

√ +2.2% expected in 2016/17

√ Share of mealsexpected to remainaround 27.5%

With record harvests, global stocks to keep increasing (esp. for grains)

Sharp fall in soybean and sunseed prices, while rape prices well supported

In $/t

Global oilseed markets

Record soybean and sunseed productions, rapeseed down

√ +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

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

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)

Veg. oil production to increase moderately

√ +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

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

√ 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

Global rapeseed production down with EU & Black Sea

Global rapeseed production (Mt)

Global trade: major switches for exporters

World to rely on good Australian harvest (not arriving in the EU beforeJan. 2017). Strengh of Asian demand to monitor closely

EU to rely on Australian supply

Sharp fall in Western-EU production

EU rapeseed production (kt)

Higher flows from Romania/Bulgaria

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

Rape crush margins (Hbg), €/t

EU crush volumes (S.Grains estimates)

Slight upward potential for EU rapeseed prices

EU Rapeseed S&D

EU sunseed stocks to recover slightly in 2016/17

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

…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?

Monthly biodiesel incorporation (%cal)

*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)

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)

EU Biodiesel market (Mt)

√ 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

EU rape oil markets : lower supplies to cut consumption

July/June Source: Strategie Grains

Changes in EU oil prices

EU Vegoils and Biodiesel prices (€/t)

Rapeseed prices to be supported within the EU

√ 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

Euronext prices for rapeseed and wheat

Rapeseed area seen only slightly up due to dry soils during plantings : lack of supplies to continue?

EU Rapeseed Area

Thank you for you attention!

christophe@tallage.fr +33 2 40 74 77 89

Coffee Break

Brexit: Making sense of the long-term challenge aheadDavid SwalesHead of Strategic Insight024 7647 8854 / david.swales@ahdb.org.uk

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

llar (

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

05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16

Wheat and barley UK production, exports and imports

Production (right axis) Exports (left axis) Imports (left axis)

UK cereal exports fluctuate

Key trade markets

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

Rapeseed Soyabeans Soyameal

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

17% 12% 19% 18%

30%28%

28% 19%

10%28% 32%

4% 6% 1% 2%

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)

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

Balieiro – London, 2016

Agenda

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

Background

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

Location of the Russian and Ukrainian typ. farms

UA2000CU*

UA7100PO*

UA2600WURU16000KUR*

RU21000KRA*

RU20000BS

source: google maps

Agenda

1. Background

6. Summary

Wheat yields in t/ha (avg. 2008 – 2015)

• Strong differences in yields: production systems and input intensity• High performing farms in UA and RU show their potential in wheat production

70kg/ha

190kg/ha

90kg/ha

120kg/ha

N input

Wheat key costs and prices in USD/t (avg. 2008 – 2015)

• 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)

Wheat cash costs and revenues in USD/t (avg. 2008 – 2015)

• 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)

Australia Canada Germany France UK Poland Russia Ukraine

Cash cost Price Price + dec. payment

Corn yields in t/ha (avg. 2008 – 2015)

• 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

Corn key costs in USD/t (avg. 2008 – 2015)

• 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.

Agenda

1. Background

6. Summary

Rapeseed yields in t/ha (avg. 2008 – 2015)

• 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

Rapeseed key costs in USD/t (avg. 2008 – 2015)

• Even with relatively lower yields, Canada and Ukraine are very competitive • Short term: direct + op. costs around $350/t

Soybean yields in t/ha (avg. 2008 – 2015)

• Most farms around 3 to 3.5 t/ha; • Yield gap in Russia and Ukraine: still a “new” crop but with strong potential

Soybean key costs in USD/t (avg. 2008 – 2015)

• 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

Agenda

1. Background

6. Summary

Crop rotation: importance of soybean vs. corn (%)

• 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

Double cropping (BR): quick response to markets

• 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)

Double cropping (BR): corn crop 2016

• 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

Agenda

1. Background

6. Summary

Return to land rapeseed vs. wheat (avg. 2008-2015; USD/ha)

• 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)

Return to land soybean vs. corn/wheat (avg. 2008-15; USD/ha)

• 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

Agenda

1. Background

6. Summary

Summary

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.

Knowledge is our business

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 samuel.balieiro@thuenen.deinternet www.agribenchmark.org

www.thuenen.de

Thank you for your attention

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