decision support tool & market outlook
DESCRIPTION
Decision Support Tool & Market Outlook. USB – QSSB: Partnership Workshop. May 30, 2013. Agenda. Decision Support Tool (DST) Conceptual Overview of the DST Guided Tour of the DST Market Data Strategy vs. Tactics. Decision Support Tool. What is the DST?. - PowerPoint PPT PresentationTRANSCRIPT
Decision Support Tool & Market Outlook
May 30, 2013
USB – QSSB:Partnership Workshop
Agenda
Decision Support Tool (DST) ◊ Conceptual Overview of the DST ◊ Guided Tour of the DST
Market Data◊ Strategy vs. Tactics
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Decision Support Tool
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What is the DST?
The Decision Support Tool (DST) is designed to provide the USB Farmer Directors and stakeholders with information and to guide them through a logical thought process to help make better in-season and annual budgeting decisions, where annual budgeting and planning processes are aligned with the organization’s long range strategic objectives.
It is not meant as a substitute for the unique insights that every farmer director will bring to the process. It is not something that is going to make a decision for you, but it’s something that will assist you in making good strategic decisions for USB.
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DST Overview
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STRATlink Survey Questions
STRATlink Survey – Guided Information Thought Process◊ Information from other DST elements is summarized in information modules
preceding STRATlink questions, aimed to help directors make informed decisions regarding the survey budget allocation questions.
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29% 24% 25% 21% 100%
Domestic Opportunities 27% 38% 29% 29% 31%
International Opportunities 28% 17% 27% 18% 23%
Supply 29% 27% 20% 17% 24%
Communications 16% 17% 24% 36% 22%
Total 100% 100% 100% 100% 100%
Allocation across Action Teams
Allocation within Action Team by Target Area
TotalMeal OilCustomer
FocusFreedom to
Operate
Questions: Set 1 - Allocation across Strategic Objectives / Action Teams
1. Impact on Farmer Profitability 2. USB Ability to Impact 3. Resource Need
4. Budget Allocation by Strategic Objective / Action Team
Thought Process
STRATlink Results
The two screenshots show how the allocations across action teams are displayed in the results section of the at the end of the STRATlink Survey.
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STRATlink Survey Questions
Questions: Set 2-4 - Allocation within Action Team by Target Area1. Ability to Influence USB Strategic Objectives. 2. Target Area Resource Need within Action Teams.3. Action Team Budget Allocation by Target Areas.
Survey is repeated for Oil, Customer Focus, and Freedom to Operate
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29% 24% 25% 21% 100%
Domestic Opportunities 27% 38% 29% 29% 31%
International Opportunities 28% 17% 27% 18% 23%
Supply 29% 27% 20% 17% 24%
Communications 16% 17% 24% 36% 22%
Total 100% 100% 100% 100% 100%
Allocation across Action Teams
Allocation within Action Team by Target Area
TotalMeal OilCustomer
FocusFreedom to
Operate
STRATlink Results
The two screenshots show how the allocations across target areas within action teams are displayed in the results section at the end of the STRATlink Survey. These are the results for the Meal action team, but the results pages for Oil, Customer Focus, and Freedom to Operate are similar.
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Why is QSSB involvement important?
USB Directors specifically asked for it – need your input.
QSSBs have unique insights into regional-specific dynamics.
The DST/STRATlink is a unique way to capture QSSB opinion.
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Market DataStrategic insights vs. tactical considerations
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Market Data: Strategic Insights Drawn from DST!
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Strategy Versus TacticsThey are often confused!
Strategy: High level planning that uses the distinct advantages of an organization to allocate scarce resources to achieve specific goals.
Tactics: A statement of specific actions, within the context of a strategy, that will lead to the achievement of goals.
Information used in strategic decision making is similar but not the same as information used in tactical decisions.◊ Timeframe differences◊ Trends (e.g. price trends versus price fluctuations, consumption trends
versus consumption fluctuations, etc.) ◊ Global versus local◊ “What” the data is telling us versus “how” we should react (with tactics)
to the data.
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Strategic Insights
Over time soybean acres in the US are expected to gain on corn.
Meat consumption in the US has been flat. Domestic food use of soybean oil has been in decline. Biodiesel production has reached new levels. Given higher soybean acres and flat to lower domestic
meal/oil levels, exports are going to be very important. Very tight US stocks. Controlling the supply chain as a way to achieve food security.
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Over time soybean acres in the US are expected to gain on corn.
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• Impact of leveling off of the RFS.
• Cotton and wheat have difficulty competing with corn/soy economics.
• Can the US compete with Brazil for soy acres?
The US is increasingly a corn-soy farm economy.
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Flat domestic meat consumption has kept meal consumption flat.
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• Meat exports have been a bright spot in the industry.
• DDG impact has reached a peak?
• Canola meal has made inroads-will this continue?
• Why has canola use grown?
Flat domestic meat consumption has kept animal numbers slow growth to flat.
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Poultry had been the main driver of increased meal demand.
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Cattle hit especially hard by the drought.
Poultry profitability has been sustained.
Many hog producers were able to forward contract in 2012 and lock in margins.
How hard hit were non-US livestock operators by high prices in 2012/13?
Per capita domestic food use of edible oils has been in decline.
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Slow growth economy and efficiencies have hurt per capita consumption of edible oils.
Soy oil has lost ground to other oils. Trans fat and price issues?
Can high oleic soy oil recapture market share? How best to deploy quality enhancements?
Canola and palm oil have displaced soybean oil in food uses.
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Canola and palm oil have gained ground relative to soy oil.
Should we compete on price or quality dimensions or both?
The bright spot: Biodiesel production has reached new levels.
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Soy oil has the lions share of biodiesel production.
There is a limited volume of animal based material available.
How will future energy policy shape biodiesel production in the future?
How best to develop additional new uses for soy oil?
Biodiesel margins have rebounded but have been volatile.
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A direct relationship between biodiesel usage and margins.
Are there ways to boost biodiesel margins outside of the policy area?
Will we need additional biodiesel capacity?
Given higher soybean acreage and production, soybean exports are going to be very important.
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Soybean exports could go to 2.025 bil. bu. by 16/17 (see next slide).
Which markets? China?
Do we have the right infrastructure?
Long-term supplies look ample, but we have had very tight stocks and high prices the past two years.
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Have tight stocks/high prices done long-term damage to demand?
Are we still viewed as a reliable supplier by both domestic and export customers?
Given higher supplies in the future, how can we attract demand?
Exporting beans/meal/oil versus exporting meat: which is better?
Controlling the supply chain as a way to achieve food security.
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MAY 29, 2013, 7:51 AM
Smithfield to Be Sold to Chinese Meat Processor BY MICHAEL J. DE LA MERCED AND DAVID BARBOZA
1:07 p.m. | Updated
Smithfield Foods, one of the country’s biggest pork producers, agreed on Wednesday to sell itself to one of China’s biggest meat processors for about $4.7 billion, a deal that would be the largest takeover to date of an American company by a Chinese one.
The transaction will almost certainly face heightened scrutiny from American government regulators, including over issues of national security. Smithfield and Shuanghui plan to refer their transaction to a government panel that oversees foreign investments in the country.
Still, Smithfield has argued that the deal will be good for itself and the American farm industry by opening a broad path to selling more pork into a country with a growing appetite for meat.
The deal also fulfills one of the ambitions of the Chinese government: to encourage companies to go abroad by acquiring assets and resources and technical expertise.
In North America, Africa and Australia, Chinese companies, flush with cash, are buying up land and resources to help a country that is plagued by water shortages and short of arable land, a situation exacerbated by a long running property and infrastructure boom.
Market DataTactical Considerations
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Overview
US supplies tight in 2012/13 due to poor crop, strong demand before South American harvest.
US soybean exports have fallen; meal exports competitive with Argentina until recently.
US soybean oil stocks likely to drop sharply. 2013 South American harvest record large. US soybean stocks to rebuild in 13/14 on better
yields, larger export competition. Soybean and meal futures have moderated from
record levels in Sep. 2012; US basis strong. Lower prices expected after 2013 US harvest.
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2012 US Soybean Crop Smallest in 4 Years
2012 crop of 3,015 million bushels smallest since 2008
Area up, but yield of 39.6 bu./acre was smallest in 9 years
2013 crop forecast at a record 3,388 million bushels on record acreage, yield of 43.9 bu./acre
Only 24% planted as of May 19; 5-year average is 42%
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Stocks Very Tight in 12/13, Rebuilding in 13/14
US supplies very tight due to small crop, strong exports before S. American harvest
Stocks/use ratio has been no lower than 4.5% since 1970; USDA’s forecast of 4.0% seems unrealistic
Imports forecast larger than normal
Late planting may prolong the wait for this year’s crop
Larger crop to allow stocks to rebuild in 2013/14 31
Soybean Exports Small After Strong Start
2012/13 US soybean exports started strong due to reduced competition from South American supplies
Mar/Aug exports small due to high US prices, strong Brazil exports
Similar pattern seen in 2003/04
China has cancelled some purchases of US soybeans
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Soybean Crush Very Front Loaded
US soybean crush strong first half of 2012/13 on large meal exports
Similar to 2009/10, which also followed S. America drought
Tight supplies to restrain crush until this year’s harvest, similar to 2003/04
Crush margins currently low due to high soybean prices
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Soybean Basis Extremely Strong
US cash soybean prices well above nearby futures with supplies very tight
Central Illinois basis has been above recent years since November
Soared this month because May futures (the nearby contract during Mar. & Apr.) were well above July futures, which became the nearby this month
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2012/13 Meal Supplies Tight on Strong Exports
Tight soybean supplies to limit 2012/13 crush
Domestic meal use down on lower feeding rate (2011 crop had low protein content)
Exports strong on reduced South America supplies
Imports forecast at double normal
Smaller exports, larger domestic use seen in 13/14
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US Meal Competitive with Argentina Until Recently
Argentina meal basis strong amid slow farmer selling of 2013 soybean crop
Brazil basis weak, but soybean exports taking precedence there
US basis strong, but competitive with Argentina until recently
US export sales strong longer than expected
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Biodiesel Growth to Reduce Soybean Oil Stocks
Small crush this summer to restrain 2012/13 soybean oil production
Exports well above last year
Ending stocks forecast to drop to 1.7 billion pounds
Moderation in oil yield from record level to limit 13/14 production
Larger biodiesel production to offset smaller food use & exports, keeping stocks fairly tight
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Biodiesel Production to Increase Further
Biomass-based diesel usage mandate grows to 1.28 bil. gal. in 2013 from 1.0 bil. in 2012
Biodiesel also to help meet advanced biofuel mandate
Return of blender credit has boosted production margins
Soybean oil usage seen at 4.95 billion pounds in 12/13, 5.50 billion in 13/14
Industrial-grade corn oil usage rising, canola oil is price sensitive
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Soybean Oil Stocks Expected to Plummet
US soybean oil stocks currently large due to strong Sep/Feb crush, high oil yield of 2012 crop
Stocks forecast to plummet this summer as tight supplies restrain crush & biodiesel production grows
Strong biodiesel production to limit extent that stocks rebuild in 2013/14
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US Soybean Oil Prices Well Above South American
US soybean oil basis strong with stocks likely to fall
Brazil basis weakest since early 2009
Argentina basis also weak due to drop in biodiesel exports to Europe
US soybean oil exports likely small for the remainder of 2012/13 and during 2013/14
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South American Soybean Crop Record Large
South American soybean production increased from 115.8 million tonnes in 2011/12 to 148.6 million in 2012/13
Increased area, rebound in yields
Brazil production of 82.0 million tonnes essentially matches US (82.1 million)
2013/14 South American crop forecast at 154.7 million tonnes
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Brazils Soybean Exports Surge on Large Crop
Record production on larger area, rebound in yields
Soybean exports going strong (mainly to China)
Crush expected to increase modestly on rebound in domestic soybean meal usage
Meal exports slightly lower as soybean exports take precedence
Growth in biodiesel production limiting soybean oil exports
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Brazil Showing Huge Export Capability
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Slow Farmer Selling of Argentina’s Large Crop
2013 production near 2010’s record on large area, rebound in yield
Argentina more export oriented than Brazil, especially for products
Farmer selling slow due to high inflation
Slow start to export season for soybeans and meal
Ending stocks to stay relatively large
Soybean oil exports to rise on larger supplies, reduced biodiesel exports to EU (biodiesel import tax expected)
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Argentina Soybean Meal Exports Slow
Argentina soybean meal exports below average for most of 2012/13 marketing year after drought reduced 2012 soybean crop
Despite large 2013 crop, slow farmer selling has kept meal exports below normal so far in 2013/14
Soybean exports also sluggish, but corn exports are large
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China Drives Soybean Import Demand Growth
Soybean exports from major exporters seen increasing 2.9 million tonnes in 2012/13
Forecast to increase 2.3 million tonnes for China, 0.8 million for Europe
Total projected to increase 9.0 million tonnes in 2013/14
China seen increasing 9.6 million tonnes (rebuilding stocks)
Europe down 2.0 million on larger meal imports
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Meal Import Demand Down on Smaller Supplies
World soybean meal import demand seen down 4.4 million tonnes in 2012/13
Tight supplies, slow start for Argentina
Down 2.9 million tonnes for Europe (importing more soybeans due to Argentina’s smaller meal exports)
Larger supplies to allow improvement in 2013/14, especially for Europe
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World Biodiesel Production Growth Slowing
World biodiesel production increased only slightly in 2012
Most of increase was in Indonesia
EU-27, US, Brazil and Argentina flat Larger increase
expected in 2013 US to account for
most of growth (larger mandate)
Argentina to drop on smaller exports
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Palm Oil Dominates Vegetable Oil Trade
Soybean oil exports have declined due to increased usage in biodiesel production
Palm oil trade forecast at 39 million tonnes in 2013/14 vs. 20 million just ten years earlier
Sunflower oil trade moderating from record in 2011/12
Rapeseed/canola oil trade boosted by growth in Canada’s crushing capacity
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China Lowering Stocks in 12/13, to Rebuild in 13/14
China soybean imports grew 6.9 million tonnes to 59.2 million in 11/12
Smaller growth to 61.5 million tonnes expected in 2012/13
Reduction in stocks, slower meal demand growth amid high prices
Larger meal exports Soybean imports forecast at
71.0 million tonnes in 2013/14 on lower prices, better meal demand growth and rebuilding of stocks
Soybean oil imports rebounding, but still below late 2000s 50
China’s Stocks Reduced Amid High World Prices
China’s soybean stocks at ports below 4 million tonnes for first time since Dec. 09
Well below peaks near 7 million tonnes in 2011/12
Large stocks allowing China to import less at high prices
Stocks likely to rise in next few months as huge shipments arrive from S. America (mainly Brazil)
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Soybean Futures to Decline into US Harvest
Tight old-crop US supplies expected to limit downside for soybean futures until this year’s harvest
Stronger basis, wider old-/new-crop inverses will be needed to achieve necessary rationing if futures drop earlier
Lower prices expected in late 2013 & into 2014 if US yields rebound
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Similar Outlook for Soybean Meal
Tight supplies also likely to underpin soybean meal futures until new-crop soybeans are available to crush
Strong exports could put rationing task on domestic livestock industry
Soybean meal looks to have more downside potential than soybean oil
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Decline in Stocks to Bolster Soybean Oil Prices
Soybean oil futures expected to rise this summer as US soybean oil stocks plummet
Basis has firmed, and likely will continue to
Futures projected to decline as soybean prices drop this fall
Less downside risk than soybeans and meal as biodiesel growth keeps soybean oil stocks fairly tight
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Oilseeds Summary
Old-crop US soybean supplies very tight Brazil’s soybean exports going strong; Argentina’s
limited by slow farmer selling China’s soybean stocks declining in 2012/13,
forecast to increase in 2013/14 Tight US supplies to underpin soybean and product
futures & basis levels until harvest Late planting to prolong the wait for 2013 crop Soybean and meal futures to drop into harvest Large biodiesel production to limit rebound in
soybean oil stocks and the downside for prices55