hope that's light at the end of the tunnel
TRANSCRIPT
Tobin Gorey Agri Commodities Strategist T. 61291171130 E. [email protected]
Important Disclosures and analyst certifications regarding subject companies are in the Disclosure and Disclaimer Appendix of this document and at www.research.commbank.com.au. This report is published, approved and distributed by Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945.
Hope that's light at the end of the tunnel
COVID-19...
I'm heartily sick of this COVID thing - I just want it to be over. Taking our quarterly moment to 'step back' and 'lift our sights' we can perhaps see reasons to be more optimistic that, if not over, that a least there is an end sight. We seem to be closer to mastering this virus. And you can only marvel that humans have such diligence and intelligence that it might be less than year from discovery to mastery. In that context we can all start thinking about a post-COVID world. What will quickly get back to something like normal, and what will not? What will the transition be like? Probably lengthy, among other things. The epidemic will present challenges for some time yet. But we are also getting better at mastering those too. And that progress bodes well for how well we can function before ultimately mastering the COVID-19 virus.
Mastering the epidemic
One very important measure of our progress is that the world's scientists seem to closing in on a vaccine for COVID-19. At least, at the time of writing, media reports 'sound' as though the vaccines are not far away. Vaccine candidates have emerged in from the US, the UK, Russia, China and Australia. Whether the vaccines emerge so quickly, or are successful, is of course unknown. But the very fact that we seem to be on the cusp of protecting ourselves from the virus is enough for us to want to think about the transition to a post-COVID world.
Managing the epidemic
While COVID-19 vaccines are on the horizon, there remains the still very real task of managing the epidemic. Here too there are improvements. The evolution of test and trace procedures have has been driven by many small improvements in technology and processes. 'Drive-thru' testing is an example of I have personally experienced. Abbot Laboratories, a big US healthcare product company, has developed a 5US$, 15-minute COVID-19 test. Other, non-personal, measures are emerging. Engineers are reconfiguring air conditioning systems to increase air turnover in, and reduce air recycling between, enclosed spaces. 'Germicidal' ultraviolet light is being revisited as a method for killing COVID-19 (and a multitude of other bugs besides). JBS, a globe-spanning meat processor, is testing this solution in one of their US plants. The list of examples is almost endless. But taken together the improvements both slow the spread and do so without resort to the more drastic options, like large-scale lockdowns. And with these improvements the prevalence of large-scale lockdowns, and their massive disruption, should diminish.
Epidemic ag impact
We have focussed on three major areas where the epidemic has impacted agriculture.
The Big Pivot
The big pivot by households to food-at-home has been reversed somewhat as lockdowns have been eased. But only somewhat. Many people continue to work from home, so the food service businesses in many business districts have either not re-opened, or operate at reduced capacity. Some of that missing spending will have gone to food service businesses nearer to where people live. But there is no doubt that some households will be delighted to spend less on food by preparing it themselves. So a significant amount of that initial pivot to home food likely remains in place. And while that is the case, agribusiness has a business opportunity to find another channel to consumers. Does that opportunity persist as restrictions are further eased? And, when the epidemic ultimately ends, does that opportunity still exist? The answer will vary from market to market of course The food service business is very unlikely to be the same post-epidemic. Unfortunately, a significant number of businesses will not have survived lockdown and the restricted re-opening that followed. The return to work is also an issue. The death of the office might prove to be greatly exaggerated. But, having learnt to work remotely, many will resist having to be in the office all five days. And not least because the regaining around two hours per day by not commuting is valuable. Those remote days are likely to be significant, and many of those people are going to eat at home. So, yes, that other channel to consumers is likely to be worthwhile. We would also suggest that there is little to be lost strategically by having a more diversified range of customers.
Tobin Gorey Agri Commodities Strategist T. 61291171130 E. [email protected]
Important Disclosures and analyst certifications regarding subject companies are in the Disclosure and Disclaimer Appendix of this document and at www.research.commbank.com.au. This report is published, approved and distributed by Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945.
Labour Supply
Seasonal labour supply remains an important challenge in agriculture. Backpackers have been a large segment of this labour force for a while. Clearly that supply is going to be a trickle of what it normally is with Australia's borders still largely closed to foreigners. Others have found different solutions. Mango growers in the Northern Territory flew in 160 people from Vanuatu that will, after a mandatory fortnight in quarantine, work through the harvest. Locals will likely be filling the gap but that is not without challenges. Perhaps more pressing has been the closure of state borders. The seasonal movement of workers around Australia is substantial and those border closures could stop that happening. While some do travel substantial distances, many only travel short distances to do so. The wrinkle right now is that the 'short distance' happens to cross a state border. Ordinarily that is of no consequence. Australia's state governments mostly seem to be evolving their rules to accommodate these localised border crossings. Across all of agriculture's seasonal labour issues challenges remain. The process is incomplete but it seems growers are either individually or together finding solutions that work within the intent of government policies. Beyond the needs of this immediate season, the outlook is less challenging. Restrictions in Australia are likely to ease further as the epidemic is managed with more and better 'tools'. And ultimately the mastering of the epidemic, both in Australia and other nations, will eventually see the return of backpackers.
Key 'Chain Risks
The other major issue we flagged for agriculture is key facility risk. Agriculture proper is largely a widely-distanced, outdoor activity. A step or two beyond the farmgate though is often the opposite. Often the aggregation and processing facilities are both highly concentrated and indoors. Nonetheless, broadly-speaking, there have been few COVID-19 outbreaks in these facilities in Australia or elsewhere that have seriously disrupted processing or logistics. The risk of disruption though obviously remains. The one glaring exception has been abattoirs. The uniquely cool, enclosed and close-proximity environment of some abattoirs seems to have been conducive to COVID-19 clusters. Australia has had several instances. But there have been outbreaks in many other nations. In the US, the outbreaks were widespread enough to create serious disruptions in the supply-chain. Moreover, the disruptions were large enough to create a supply overhang in beef that will persist into 2021. And in pork large numbers of hogs were euthanased. Abattoirs thus remain a high risk area for the epidemic. The result though is that companies are investing in resources to better manage these risks. So we expect the risk to recede with time. The generally better management, and eventual mastering, of the epidemic will obviously reduce the risk to all of these facilities.
The Tale of Lost Demand
A final category of effects is lost demand. The pandemic has resulted in interruptions to consumption for which there is no later 'catch-up'.
Most agriculture is, ultimately, directed at food consumption. Food consumption is not highly cyclical because it is a necessity. Indeed cyclicality in food largely consists of sliding up and down the quality spectrum, not in the quantity consumed. Even the large scale macro volatility created by the pandemic probably has not changed that. The Big Pivot to home food though provoked a violent switch in the types of food consumed. And that has seen some sectors gain and others lose. The losers will have lost sales during this time that will not be made up later. And that has upstream impacts on commodities. Dairy seems to have suffered from this. And so too has sugar. Seems that we eat more food and drinks that use more of these commodities when we are out socialising.
Some parts of agriculture are connected to energy consumption via biofuels. For most people in the world, energy is another of life's necessities. Lockdowns and restricted re-openings have cut transport fuel use for which there is no later 'catch-up'. US corn and Brazilian sugarcane have a direct connection to this via ethanol. Lower fuel consumption in both nations has, albeit by somewhat different paths, meant there is more corn and sugar left in the world. Both have been large enough to boost inventories of both commodities and lead to somewhat lower prices.
...and all that other Ag stuff
And so we have reasons for emerging optimism about the COVID-19 pandemic, even if that is going to leave behind some 'scars'. How does that mesh with the all the other things going on in agri-commodities? And are those other things dampening or amplifying the pandemic impact. We look at these in detail for most of the major agri-commodities in the pages that follow. A broad summary of some of themes though may be useful.
Tobin Gorey Agri Commodities Strategist T. 61291171130 E. [email protected]
Important Disclosures and analyst certifications regarding subject companies are in the Disclosure and Disclaimer Appendix of this document and at www.research.commbank.com.au. This report is published, approved and distributed by Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945.
Just small pieces of weather
Agriculture's weather-driven production always carries the potential to suddenly tighten supply. And those sudden shifts would be enough to overwhelm any impact a mere pandemic could create. So far though crop weather, while short of ideal, has not produced enough large crop problems to move the supply needle more than modestly. And the chances of that happening are fading. Northern winter crops are counted and, other than a material drop in EU wheat crops, the losses elsewhere were modest. Northern summer, and southern winter, crops are becoming more vivid by the day. Here too the problems have been material but not large. US corn crop forecasts have been cut recently, but only to a record level by a smaller margin. And a large chunk of Argentina's wheat crop looks to be in trouble. Cumulatively that still doesn't add up to much tighter supply. The season is not over though - there is still time for that to occur. One issue emerging near-term is the state of China's corn crops. The regions where those crops are grown have been deluged by rain from three typhoons in the last fortnight. At the time of writing we are not sure how much damage the resulting flooding has done. Perhaps it too will be material. And then there is South America's (still to be planted) summer crops. Obviously those crops have a full season at risk. And they are large enough to have critical impact on global supply-demand balances.
Prices are still low-ish
Most US$ agri-commodity prices fell heavily as the initial fears about the consequences of the COVID-19 pandemic mounted. Most have rallied substantially from those pandemic lows. Often those lows were extreme lows (sub 10th percentile). So, despite impressive price gains, the resulting price levels are still, well, low.
There are a handful of exceptions to this general picture. And both are Australian livestock, cattle and sheep, where producers have started to rebuild severely depleted Australia herds and flocks.
A$ agri-commodity prices have a more mixed picture. Wheat and canola prices are, judged over a longer timeframe, mid-range. The others are low but held up by an Australian Dollar, that despite a 17US¢ cent rally from pandemic lows, is still not all that high. The bad news is that we expect the Aussie to keep on rallying into next year, to create a headwind for A$ prices.
China-Australia trade
The souring in relations between China and Australia continues to have ramifications for Australian agriculture. China has announced an inquiry into alleged dumping of Australian wine in China. Australia’s CBH, the WA grower‑owned crop marketer, has been suspended from exporting barley to China because of weeds detected in recent cargoes. The resolution might of course lay in the dumping inquiry or further sanitary testing. But both issues can be also seen as broader souring of relations between China and Australia. The issues again emphasises tension between Australia being economically embedded in Asia but politically embedded in the west. Both issues can only serve to heighten debate in Australia on how best to manage that tension.
Commonwealth Bank
AgQHope that's light at the end of the tunnel
Tobin GoreyAgri-Commodity [email protected]
Agri-commodity quarterly update September 2020
2AgQ
Overview
Wheat
Coarse Grains
Oilseeds
Soybeans
Canola
Table of contents*
Cotton
Sugar
Dairy
Beef
Sheep & Lamb
* Click the link below to switch to a section
3AgQ
1%
86%
56%
22%
47% 48%
23%15%
37%
51%
40%
0%
20%
40%
60%
80%
100%
WOOL8.58A$/kg
LAMB**679A¢/cwt
WHEAT272$A/t
CORN175$A/t
SOYBEANS489$A/t
CANOLA528A$/t
COTTON440A$/AUbale
SUGAR331$A/t
CATTLE L3.16A$/kg
CATTLE F4.17A$/kg
WMP3980A$/t
GLOBAL PRICE PERCENTILES* (A$) - Jun 2020
Source: CBA, Bloomberg* Since 2005. Inflation-adjusted to present prices. **April-Jun 2020 prices are estimates.
Price Comparisons
3%
61%
40%
14%
31% 28%
14%10% 11%
31%26%
0%
20%
40%
60%
80%
100%
WOOL6.3US$/kg
LAMB495US¢/cwt
WHEAT540US¢/bl
CORN347US¢/bl
SOYBEANS970US¢/bl
CANOLA385US$/t
COTTON64.1US¢/lb
SUGAR11.9US¢/lb
CATTLE L104US¢/lb
CATTLE F138US¢/lb
WMP2900US$/t
GLOBAL PRICE PERCENTILES* (US$) - Jun 2020
Source: CBA, Bloomberg* Since 2005. Inflation-adjusted to present prices. **April-Jun 2020 prices are estimates.
Wheat
5AgQ
Wheat: Global outlook Inventories are likely to rise modestly in
season 2020 season but remain neutral
Global inventory is notionally high,…
…but more than half is in China, which we consider to be ‘off market’…
…while US inventories remain ‘on market’
Australia contributes a big portion of the production gains but that is more than offset by a drop in EU production
0%
10%
20%
30%
40%
50%
60%
1990 1995 2000 2005 2010 2015 2020
inc. China
exc. China
Source: USDA, CBA
GLOBAL WHEAT: STOCKS TO USE
Russia, 38
US, 27EU, 26
Canada, 25
Ukraine, 182020 TOP 5 WHEAT EXPORTERS* (mmt)
* 70% of global trade Source: USDA
17 16
+12+4
+4+4 +2 +1 +1 -2 -2 -19
-3
05
101520253035404550556065
GLOBAL WHEAT SEASON 2020 (mmt)
Source: USDA, CBA
6AgQ
Wheat: US outlook US wheat production little changed in
season 2020
US wheat crop is roughly ‘right-sized’
Season 2020 Hard Red Winter inventory still too high…
…but also ‘right-sized’ in season 2021
Excess US inventory now in Hard Red Spring…
…a lesser burden for the mid-pro market
0%
10%
20%
30%
40%
50%
60%
1990 1995 2000 2005 2010 2015 2020
Source: USDA, CBA
US WHEAT: STOCKS TO USE
HRW 38%
SRW 15%
HRS 29%
WW 15%
Durum 3%
Source: USDA
US WHEAT CLASS PRODUCTION 2020
0
10
20
30
40
50
60
70
80
90
100
1990 1995 2000 2005 2010 2015 2020
Production Consumption & Exports
Source: USDA, CBA
US WHEAT (mmt)
7AgQ
Wheat: Australian outlook Australia 2020 wheat crop a little above
normal at about 27mmt
Estimate 4mmt larger – mostly because it eventually rained in WA
Australia are larger exporter, ~18mmt,…
…including some east coast ports for the first time in a while
0
5
10
15
20
25
30
35
40
1990 1995 2000 2005 2010 2015 2020
Production Consumption & Exports
AUSTRALIA WHEAT (mmt)
Source: USDA, CBA
0%
10%
20%
30%
40%
50%
60%
1990 1995 2000 2005 2010 2015 2020
Source: USDA, CBA
AUSTRALIA WHEAT: STOCKS TO USE
NSW 14%
Qld 3%
SA 21%
Tas 0%
Vic 24%
WA 38%
Source: ABARES, CBA
Total = 27.1mmt
Source: ABARES, CBA
STATE WHEAT SHARES 2020
8AgQ
Wheat: Global prices Global wheat prices have lifted from lows
with somewhat tighter supply
US wheat inventory remains a ‘handbrake’ but that will ease over the next year or so
Feed grain supply comfort perhaps remains the bigger barrier to higher prices
Wheat prices have to settle for being relatively high for now
0
100
200
300
400
500
600
2005 2007 2009 2011 2013 2015 2017 2019 2021
90%
70%
50%
30%
10%
Price
WHEAT* PRICE PERCENTILES (Real**, $A/t)*Prompt Chicago w heat futures**Since 2005, rebased to current prices
Source: CBA
0
200
400
600
800
1,000
1,200
1,400
2005 2007 2009 2011 2013 2015 2017 2019 2021
90%
70%
50%
30%
10%
Price
WHEAT* PRICE PERCENTILES (Real**, USc/bl)*Prompt Chicago w heat **Since 2005, rebased to current prices
Source: CBA
0
100
200
300
400
500
600
700
800
2015 2016 2017 2018 2019 2020
20162017201820192020 Source: Bloomberg
*Chicago July Contract, US¢/bl
WHEAT HARVEST PRICE*
9AgQ
Wheat: Australian prices Australian wheat price have fallen sharply but
remain above average…
…primarily because global prices are also healthy
The large 2020 crop in prospect is the main reason for the fall
Australia’s basis decline was delayed by the big fall in the Aussie Dollar in March…
…but its full force was felt as the Aussie recovered
New crop prices – west, south and east – are all already down to competitive levels
We are tempted to say prices are close to the lows, but: the Aussie Dollar is likely higher; we are wary of calling that there will be no
harvest pressure; so there are still a couple of hurdles
100
150
200
250
300
350
400
450
500
550
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Kwinana Adelaide
Geelong Kembla
AUSTRALIAN WHEAT* PRICES (A$/t)
Source: ProFarmer
* APW1
-100
-50
0
50
100
150
200
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Kwinana Adelaide
Geelong Kembla
AUSTRALIAN WHEAT BASIS* (A$/t)
Source: CBA
* APW1 - Russia 11.5%
10AgQ
Wheat: Seasons
Argentina W
Australia W
Canada S
China W
China S
EU W
India W
Kazakhstan S
Russia W
Russia S
Turkey W
Ukraine W
Ukraine S
US W
US S
MAJOR WHEAT SEASONS
Plant Harvest
Jan Jun Dec
Source: USDA
W = Winter S = Spring
Coarse grains
12AgQ
Coarse grains: Global outlook World inventory rise (ex-China) means
supply conditions ease a little
US is the main source of extra supply…
…gains elsewhere are more modest
US likely holds about half of the world’s inventory (ex-China) unless…
…China has appetite to replenish depleted reserves…
…floods in China may boost that appetite
US, 63
Ukraine, 39
Brazil, 38
Argentina, 37
EU, 10
2020 TOP 5 COARSE GRAIN EXPORTERS* (mmt)
Source: CBA
*Top 5 are 85% of global trade
-3
10
+41+4 +3 +3 +3 +1 +0 +0 -0 -0 -1 -41
-30-20-10
010203040506070
Source: USDA, CBA
GLOBAL COARSE GRAIN SEASON 2020 (mmt)
0%
5%
10%
15%
20%
25%
30%
35%
40%
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
World
World ex-China
GLOBAL COARSE GRAIN: STOCKS TO USE
Source: USDA, CBA
13AgQ
Coarse grains: US corn outlook US on course for a record crop in season
2020 – just by a smaller margin
US ethanol use remains a variable if new COVID-19 lockdowns are widespread
Big US inventory build ahead – too big for an exporter…
…but China has emerged as an outlet via the US-China trade deal
0
50
100
150
200
250
300
350
400
450
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Consumption & Exports Production
Source: USDA, CBA
US CORN PROFILE
0%
5%
10%
15%
20%
25%
30%
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Source: USDA, CBA
US CORN: STOCKS-TO-USE
38%, Feed
38%, Fuel Ethanol
14%, Exports
10%, Other
Source: USDA
2019 US CORN USE Total Use: 347mmt
14AgQ
Coarse grains: Australian outlook Australia's coarse grain supply eased
somewhat in season 2019…
…and 2020 adds a little comfort
2020 comfort even greater from rain boosting pasture, forage and silage
Reduced barley sales to China important• Malt more easily diverted elsewhere• Feed more difficult to divert given global
feed supply comfort 0
2
4
6
8
10
12
14
16
18
2010 2012 2014 2016 2018 2020
Consumption & Exports Production
Source: USDA, Lachstock, CBA
AUSTRALIAN COARSE GRAIN PROFILE (mmt)
0%
5%
10%
15%
20%
25%
30%
35%
2010 2012 2014 2016 2018 2020
Source: USDA, Lachstock, CBA
AUSTRALIAN COARSE GRAIN: STOCKS-TO-USE
NSW 21%
Qld 12%
SA 16%Tas 0%
Vic 18%
WA 34%
Source: ABARES, CBA
*Barley, oats, sorghum, corn
STATE COARSE GRAIN* SHARES 2020
Total = 14.1mmt
Source: ABARES, CBASource: ABARES, CBASource: ABARES, CBA
*Barley, oats, sorghum, corn
STATE COARSE GRAIN* SHARES 2020
Total = 14.1mmt
Source: ABARES, CBASource: ABARES, CBA
15AgQ
Coarse grains: Global prices Corn prices remain low despite the
recovery from lockdown lows
Large US corn crop in season ‘20 means large price gains are unlikely…
…but global supply is not nearly so flush
Major uncertainties remain:• South American crops are not yet planted• US ethanol use remains a variable while
widespread lockdowns are possible
0
100
200
300
400
500
600
700
800
900
2005 2007 2009 2011 2013 2015 2017 2019 2021
90%
70%
50%
30%
10%
Price
CORN* PRICE PERCENTILES (Real**, USc/bl)
*Prompt Chicago Corn Futures
**Since 2005, rebased to current pricesSource: CBA
0
50
100
150
200
250
300
350
400
2005 2007 2009 2011 2013 2015 2017 2019 2021
90%
70%
50%
30%
10%
Price
CORN* PRICE PERCENTILES (Real**, $A/t)
*Prompt Chicago Corn Futures
**Since 2005, rebased to current pricesSource: CBA
200
250
300
350
400
450
500
2016 2017 2018 2019 2020 2021
20172018201920202021Source: Bloomberg
*CBOT December Contract, US¢/bl
CORN HARVEST PRICE*
16AgQ
Coarse grains: Australian prices Australian coarse grain prices have fallen
heavily this year
A much larger prospective 2020 crop is the main reason: but other factors have been important; China’s tariffs on barley imports from
Australia is chief among them; and the Aussie Dollar’s strength is unhelpful
The 2016 lows are not a good analogue year: the Australian Dollar was higher; Australia’s crop was very large; and global supply was easier
Australian feed barley prices are probably close to low enough in our view but we are wary of harvest pressure; and Aussie Dollar strength remains an issue
0
100
200
300
400
500
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Kembla
Geelong
Adelaide
Kwinana
AUSTRALIAN FEED BARLEY PRICES ($A/t)
Source: ProFarmer
-150
-100
-50
0
50
100
150
200
250
300
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
KemblaGeelongAdelaideKwinana
Source: CBA
BASIS: AU FEED BARLEY - US CORN* (A$/t)
* Gulf
17AgQ
Corn: Seasons
Argentina
Brazil CS1
US
China NCP&M
China S
EU
Mexico
India
Canada
South Africa
Plant Harvest
Jan Jun Dec
MAJOR CORN SEASONS
Oilseeds, Oils & Meals
19AgQ
Oilseeds, Oils & MealsMeals
Meal supply is moving towards neutral
US supply is also on a path to neutral
China is buying plenty of US ‘beans
Supply is another season away from a tightening…
…but direction supports canola
Oils
Oil supply tighter as Malaysia’s production growth slows
The pandemic cut use in 2019 season, but growth presumed to resume in 2020
EU evolving as a larger structural importer-100
-50
0
50
100
150
200
250
Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
2020MedianMinMax
CANOLA-SOYBEAN SPREAD* ($US/t)
Source: CBA* Winnipeg Canola Nov - Chicago Soybeans Nov
0%
5%
10%
15%
20%
25%
30%
35%
40%
1980 1986 1992 1998 2004 2010 2016
Meal (soymeal protein equivalent)Oil
Source: CBA
GLOBAL OILSEED PRODUCTS: STOCKS*-TO-USE
* Actual & Potential (seed in product equivalent)
Soybeans
21AgQ
Soybeans: Global outlook Season 2020 likely to end closer to neutral Still much uncertainty – South American
crops not even planted yet China buying more US ‘beans is helping
lower US inventory… …but US inventory is still likely to end
2020 too high Growing meat demand is the silver lining
because it runs down inventory relatively quickly
0
50
100
150
200
250
300
350
400
1990 1995 2000 2005 2010 2015 2020
Production Consumption
GLOBAL SOYBEANS (mmt)
Source: USDA
0%
5%
10%
15%
20%
25%
30%
35%
1990 1995 2000 2005 2010 2015 2020
Source: USDA
GLOBAL SOYBEANS: STOCKS-TO-USE
Brazil 94mmt / 57%
US 45mmt / 27%
Argentina 10mmt / 6%
Paraguay 6mmt / 4%
Canada 4mmt / 3%
2019 TOP 5 SOYBEAN EXPORTERS*
* Top 5 = 96% of global trade Source: USDA, CBA
22AgQ
Soybeans: Global Prices Soybean prices remain on the low side
Brazil’s weak currency continues to be a drag and likely remains weak
Price upside though limited by likely still hefty US inventory by 2020 season-end
South American crop fortunes remain as a major uncertainty for all oilseed prices
600
700
800
900
1000
1100
1200
2016 2017 2018 2019 2020 2021
20172018201920202021
SOYBEAN HARVEST PRICE*
Source: Bloomberg
*Chicago November contract, US¢/bl
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2005 2007 2009 2011 2013 2015 2017 2019 2021
90%
70%
50%
30%
10%
Price
SOYBEANS* PRICE PERCENTILES (Real**, US¢/bl)
*Prompt Chicago Soybean Futures
**Since 2005, rebased to current pricesSource: CBA
-150
-100
-50
0
50
100
150
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021Source: CBA
US-BRAZIL SOYBEAN SPREAD* (US$/t)
* Daily, US: Gulf, Brazil: ParanaguaSep-Aug Year
Canola
24AgQ
Canola: Global outlook Season 2020 sees only a partial recovery
in Canada & EU production, and lost China production
EU decline, after the neonicotinoids ban, possibly permanent
Canola market becoming tight but plenty of substitute sources of oil and meal
Canada-China canola dispute becomes less important – Canada canola more easily sold elsewhere
0
10
20
30
40
50
60
70
80
1990 1995 2000 2005 2010 2015 2020
Production Consumption
GLOBAL CANOLA (mmt)
Source: USDA, CBA
0%
5%
10%
15%
20%
25%
30%
35%
1990 1995 2000 2005 2010 2015 2020
Source: USDA, CBA
GLOBAL CANOLA: STOCKS-TO-USE
Canada 10mmt / 64%
Ukraine 3mmt / 19% Australia
2mmt / 12%
Russia 0mmt / 3%
US 0mmt / 1%
2019 TOP 5 CANOLA EXPORTERS*
* Top 5 = 98% of global trade Source: USDA, CBA
25AgQ
Canola: Australian outlook Expect 2020 Australian crop to be ~3mmt
Australia’s crops are mostly in reasonable or better condition…
…and given largely seasonable weather yields are likely average or better
Much of the larger crop very likely to be exported – offshore appetite is strong
NSW 11%Qld 0%
SA 14%
Tas 0%
Vic 30%
WA 45%
Source: ABARES, CBA
Total = 2.1mmt
Source: ABARES, CBA
STATE CANOLA PRODUCTION 2019
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
1992 1996 2000 2004 2008 2012 2016 2020
Seed
Meal
Oil
AUSTRALIAN CANOLA PRODUCTION (mmt)Source: USDA, CBA
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
1992 1996 2000 2004 2008 2012 2016 2020
AUSTRALIAN CANOLA SEED EXPORTS (mmt)
Source: USDA, CBA
26AgQ
Canola: Prices Canola prices have rallied with tighter
supply
Canada’s export issues with China are thus becoming less important
Broader oilseed market comfort though means upside likely limited in season ‘20
Aussie Dollar gains are also headwind for A$ prices
300
400
500
600
2016 2017 2018 2019 2020 2021
20172018201920202021
CANOLA HARVEST PRICE*
Source: Bloomberg
*Winnipeg November Contract, C$/t
200
300
400
500
600
700
800
900
2005 2007 2009 2011 2013 2015 2017 2019 2021
90%
70%
50%
30%
10%
Price
CANOLA* PRICE PERCENTILES (Real**, C$/t)
*Prompt Canola Futures
**Since 2005, rebased to current prices
Source: Tomato
200
300
400
500
600
700
800
900
1,000
2005 2007 2009 2011 2013 2015 2017 2019 2021
90%
70%
50%
30%
10%
Price
CANOLA* PRICE PERCENTILES (Real**, A$/t)
*Prompt Canola Futures
**Since 2005, rebased to current prices
Source: Worcestershire
27AgQ
Oilseeds: Seasons
Argentina S
Australia C
Brazil S
Canada C
China C
China S
EU C
India S
India C
Paraguay S
Ukraine C1
Ukraine C2
US S
MAJOR OILSEED SEASONS
Plant Harvest
Jan Jun Dec
Source: USDAC = Canola S = Soybeans
Cotton
29AgQ
Cotton: Global outlook COVID-19 epidemic cuts consumption in
season 2019, so inventories are heavy
Most assume that consumption does not fully recover in season 2020…
…but that outlook is highly uncertain – no one really knows what re-opening brings
China buying US cotton remains an ‘easy’ win for trade deal compliance
0
3
6
9
12
15
18
21
24
1990 1995 2000 2005 2010 2015 2020
China
World Ex-China
COTTON STOCKS (Months of Use)
Source: USDA, CBA
United States, 15
Brazil, 9
India, 3Greece, 1
Australia, 12019 TOP 5 COTTON EXPORTERS*
Source: CBA* million US bales
Top 5 are ~74% of
global trade
0
5
10
15
20
25
30
35
1990 1995 2000 2005 2010 2015 2020
GLOBAL COTTON MARKET (mmt)
Production Consumption
Source: USDA, CBA
30AgQ
Cotton: Australian outlook Australia produced little cotton in season
2019
Serendipitously, not a bad season to miss
Australian cotton production likely to be modest, but higher, in season 2020
More water available, so more planting,…
..but feed crops remain strong competitors
NSW 71%
Qld 29%
Source: ABARES, CBA
Total = 0.1mmt
Source: ABARES, CBA
STATE COTTON PRODUCTION 2019
0.00
0.50
1.00
1.50
2.00
2.50
1985 1990 1995 2000 2005 2010 2015 2020
AUSTRALIAN COTTON YIELDS (t/ha)Source: USDA, CBA
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1985 1990 1995 2000 2005 2010 2015 2020
Production Exports
Source: USDA, CBA
AUSTRALIAN COTTTON MARKET (mmt)
31AgQ
Cotton: Global prices Price recovery since March, while large,
was from extreme lows to low
Price are unlikely to recover to pre-epidemic levels while the US has too much inventory
But the seeds of recovery in 2021 are sown:
All fibres are ‘cheap’, aiding demand Cotton demand rises with recovery Low prices are likely to cut planting China remains a likely buyer of US cotton
20
30
40
50
60
70
80
90
100
2016 2017 2018 2019 2020 2021
20172018201920202021
COTTON PRICE*
Source: Bloomberg
*New York December US contract, US¢/lb
0255075
100125150175200225250275300
2005 2007 2009 2011 2013 2015 2017 2019 2021
90%
70%
50%
30%
10%
Price
COTTON PRICE PERCENTILES (Real**, US¢/lb)
**Since 2005, rebased to current prices
Source: CBA
* New York Cotton prompt US contract
0
200
400
600
800
1,000
1,200
1,400
2005 2007 2009 2011 2013 2015 2017 2019 2021
90%
70%
50%
30%
10%
Price
COTTON* PRICE PERCENTILES (Real**, A$/Abale)
**Since 2005, rebased to current prices
Source: CBA
* New York Cotton prompt US contract
32AgQ
Cotton: Seasons
Australia
Brazil CS
Brazil NE
China
India C&S
Pakistan
US
Uzbekhistan
MAJOR COTTON SEASONS
Plant Harvest
Jan Jun Dec
Source: USDA
Sugar
34AgQ
Sugar: Global outlook Season 2020 on track for a modest
surplus
Pandemic has cut demand: sugar consumption is social
Pandemic has added supply: low ethanol prices diverted more Brazil cane to sugar
Thailand’s likely modest production in 2020 is a substantial offset
Supply chains are at risk from the epidemic…
…so a brief, but now complete, fattening of inventories provided a temporary boost to demand
Long-term dietary shift away from sugar in high-income countries continues to grind away in the background
Brazil, 32.0 India, 5.6
Thailand, 5.4
Australia, 3.5
Guatemala, 2.0
Source: USDA, GreenPool, CBA *Top 5 = 88% of global trade
2020 TOP 5 NET SUGAR EXPORTERS* (mmt)
-15
-10
-5
0
5
10
15
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Q4:Q3 Year
GLOBAL SUGAR BALANCE (mt)
Source: Greenpool, CBA
35AgQ
Sugar: Prices Sugar prices are low
The COVID-19 pandemic has cut prices because supply is now comfortable again
Thailand’s drought provided an offset but Brazilian supply is hefty
Prices remain at risk of spiking if epidemic flares disrupt the supply chain
Stronger Aussie Dollar is weighing on A$ prices
0
5
10
15
20
25
2016 2017 2018 2019 2020 2021
20162017201820192020
SUGAR HARVEST PRICE*
Source: Bloomberg
*New York October Contract, US¢/lb
0
100
200
300
400
500
600
700
800
900
1,000
2005 2007 2009 2011 2013 2015 2017 2019 2021
90%
70%
50%
30%
10%
Price
SUGAR* PRICE PERCENTILES (Real**, $A/t)*NY Prompt Sugar Futures
**Since 2005, rebased to current prices
Source: CBA
0
5
10
15
20
25
30
35
40
45
50
2005 2007 2009 2011 2013 2015 2017 2019 2021
90%
70%
50%
30%
10%
Price
SUGAR* PRICE PERCENTILES (Real**, US¢/lb)*NY Prompt Sugar Futures
**Since 2005, rebased to current prices
Source: CBA
36AgQ
Sugar: Seasons
Brazil Sugar C
India Sugar C
Thailand Sugar C
Australia Sugar C
China Sugar C
China Sugar B
US Sugar C
US Sugar B
EU Sugar B
Russia Sugar B
MAJOR SUGAR SEASONS
Jan Jun Dec
Source: USDAC = CaneB = Beet
Dairy
38AgQ
Dairy: Global outlook Strong yields have raised supply…
…COVID-19 epidemic cut demand via the pivot to home food
EU, via storage subsidy, has kept excess product off the market until now…
…so apparent WMP tightness is not matched in cheese and butter…
…so overstates overall dairy tightness
0%
5%
10%
15%
20%
25%
30%
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020Source: USDA
GLOBAL WMP STOCKS TO USE
NZ 1,536
EU 298
Argentina 97
Australia 42US 29
Source: USDA, CBA
2019 TOP 5 WMP EXPORTERS (kmt)
Top 5 account for 97% of global exports
3.00
3.10
3.20
3.30
3.40
3.50
3.60
3.70
3.80
3.90
4.00
100
110
120
130
140
150
160
170
180
190
200
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Herd (millions, LHS)
Milk Yield (000s litres per cow, RHS)
Source: USDA, CBA
GLOBAL MILK COW HERD & YIELD
39AgQ
Dairy: NZ outlook NZ production likely unchanged to a little
lower in 2020
NZ summer has been too dry for about half of NZ dairy regions
Shaves season 2019 production…
and has an echo in 2020
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May
2016 2017 2018 2019
Source: DCANZ
NZ MILK PRODUCTION (bn litres)
0
1
2
3
4
5
6
7
8
9
2004 2006 2008 2010 2012 2014 2016 2018 2020
FONTERRA NZ FARMGATE MILK PRICE
NZ$/kg milk solids
Source: Fonterra, ASB
0
5
10
15
20
25
2004 2006 2008 2010 2012 2014 2016 2018 2020
NZ MILK PRODUCTION (bn litres)
Source: DCANZ, StatsNZ, ASB
40AgQ
Dairy: Australian outlook Australian milk production rises modestly
on better yields in season 2020
Farmgate prices similar in 2020, around 6.75$, but wide dispersion to continue
Feed supply fully restored by year-end winter harvests…
…reducing feed costs, helping profitability
Industry will continue to further concentrate in the south-east
4
5
6
7
8
9
10
11
12
2004 2006 2008 2010 2012 2014 2016 2018 2020
AUSTRALIAN MILK PRODUCTION (kt)
Source: USDA, CBA
0
1
2
3
4
5
6
7
8
2004 2006 2008 2010 2012 2014 2016 2018 2020
FARMGATE MILK PRICE* - VICTORIA
*$A/kg milk solids
Source: Dairy Australia, CBA
QLD 4%
NSW 12%
VIC East 23%
VIC North19%
VIC West22%
TAS 11%
SA 5%
WA 4%
Source: Dairy Australia, CBA
MILK PRODUCTION BY STATE - 2019/20
Total 8.8bn litres
41AgQ
Dairy: Global prices WMP prices recovered then dropped
Supply-chain padding for pandemic risk provided a temporary boost to demand
Mismatch between tighter WMP supply and lower WMP prices remains the result of easier supply in other dairy products
China’s appreciating currency a potential ‘wild card’ to boost prices
0
500
1000
1500
2000
2500
3000
3500
4000
2017 2018 2019 2020 2021
20172018201920202021
WMP PRICE*
Source: Bloomberg
*NZX October Contract, US$/t
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2005 2007 2009 2011 2013 2015 2017 2019 2021
90%
70%
50%
30%
10%
Price
WMP* PRICE PERCENTILES (Real**, US$/t)*Whole Milk Pow der**Since 2005, rebased to current prices
Source: CBA
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2005 2007 2009 2011 2013 2015 2017 2019 2021
90%
70%
50%
30%
10%
Price
WMP* PRICE PERCENTILES (Real**, $A/t)*Whole Milk Pow der**Since 2005, rebased to current prices
Source: CBA
Beef
43AgQ
Beef: Global outlook Beef cow herd increases slightly in 2020
COVID-19 outbreaks have:
Briefly closed processors… …and the closure risk remains Overall 2020 output likely to be down… …but second-half 2020 supply is strong
Feeder backlog in US persists into 2021 so heavier supply continues
150
160
170
180
190
200
210
220
230
1990 1995 2000 2005 2010 2015 2020
GLOBAL BEEF COW HERD (mhd)
Source: USDA, CBA
Brazil, 2.6
India, 1.4Australia, 1.4
US, 1.3
NZ, 0.8
*Top 5 are about ~71% global trade
2020 TOP 5 BEEF EXPORTERS* (mmt)
Source: USDA35
40
45
50
55
60
65
1990 1995 2000 2005 2010 2015 2020
GLOBAL BEEF PRODUCTION (mmt)
Source: USDA
44AgQ
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020Source: USDA
AUSTRALIA BEEF EXPORTS (mmt)
Beef: Australian outlook Australia’s beef herd drops again in 2020
COVID closures have not had a major impact on processing – but that risk remains
Pastoralists show a strong appetite to rebuild herds: A southern event so far But a good northern wet season… …would prompt the same trend in the north Herd perhaps rises in 2021, but many years
before a full recovery
0
2
4
6
8
10
12
14
16
1990 1995 2000 2005 2010 2015 2020
AUSTRALIA BEEF COW HERD (mhd)
Source: USDA, CBA
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Calves & Males
Cows & Heifers
Source: ABS, CBA
CATTLE SLAUGHTER* - AUSTRALIA
* Actual & 12 month rolling average
45AgQ
Beef: Global prices US prices have recovered sharply from
COVID-19 lockdowns and processing shutdowns
Price recovery is likely to stay incomplete with a large overhang from shutdowns
A lower US Dollar helps somewhat
Risk from feed-grain prices has been pushed into 2021 at the earliest
80
90
100
110
120
130
140
150
160
2016 2017 2018 2019 2020 2021
2016
2017
2018
2019
2020
US LIVE CATTLE PRICE*
Source: Bloomberg
*December contract, US¢/lb
0
25
50
75
100
125
150
175
200
225
250
2005 2007 2009 2011 2013 2015 2017 2019 2021
90%
70%
50%
30%
10%
Price
LIVE CATTLE* PRICE PERCENTILES (Real**, USc/lb)*Live Cattle, prompt contract
**Since 2005, rebased to current prices
Source: Bloomberg, CBA
0
1
2
3
4
5
6
7
2005 2007 2009 2011 2013 2015 2017 2019 2021
90%
70%
50%
30%
10%
Price
LIVE CATTLE* PRICE PERCENTILES (Real**, A$/kg)
*Live Cattle, prompt contract
**Since 2005, rebased to current prices
Source: CBA
46AgQ
Beef: Australian prices Australian prices leapt with good rains in
most pastoral regions
La Niña and a good northern wet season might boost prices to record levels
The Aussie Dollar’s rally does part of the job
Australian beef is already pricey in global terms…
…but will that be enough?
0
50
100
150
200
250
300
2005 2007 2009 2011 2013 2015 2017 2019 2021
90%
70%
50%
30%
10%
Price
EYCI PRICE PERCENTILES (Real*, USc/kg)*Since 2005, rebased to current prices
Source:CBA
0
100
200
300
400
500
600
700
800
900
2005 2007 2009 2011 2013 2015 2017 2019 2021
90%
70%
50%
30%
10%
Price
EYCI PRICE PERCENTILES (Real*, Ac/kg cwt)*Since 2005, rebased to current prices
Source: MLA, CBA-350
-300
-250
-200
-150
-100
-50
0
50
100
150
200
2005 2007 2009 2011 2013 2015 2017 2019 2021
Grass Finished
Grain Finished
AUSTRALIAN FINISHED CATTLE BASIS (US¢/kg)
Source: CBA
Sheep and lamb
48AgQ
Sheepmeat: Australian outlook Australia’s flock shrinks again in 2020
2021, weather permitting, likely sees a modest expansion
La Niña prospect makes that more likely
Lamb supply tightens…
…but is eased by lower exports of lamb
Mutton exports are likely to fall heavily
0
50
100
150
200
250
300
1995 2000 2005 2010 2015 2020
Mutton Lamb
AUSTRALIAN SHEEPMEAT EXPORTS*
Source: ABS, CBA*000s tonnes sw t
0
20
40
60
80
100
120
140
160
180
200
1971 1976 1981 1986 1991 1996 2001 2006 2011 2016
AUSTRALIAN SHEEP FLOCK (million head)Source: ABS, MLA
1,200
1,400
1,600
1,800
2,000
2,200
2,400
2,600
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2017 2018 2019 2020
AUSTRALIAN LAMB SLAUGHTER ('000 head)
Source: ABS
49AgQ
Sheepmeat: Australian prices Lamb and mutton prices are down but still
high and likely to remain so
Graziers remain keen to rebuild flocks
Sharply lower exports weigh on prices
This high price period probably has a minimum of two seasons to run…
…but ‘high’ does not mean ‘at the peak’
0
100
200
300
400
500
600
700
800
900
1000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: MLA
2017 2018 2019 2020NATIONAL SALEYARD TRADE LAMB INDICATOR*
* A¢/kg cw t
200
300
400
500
600
700
800
900
1,000
2005 2007 2009 2011 2013 2015 2017 2019 2021
90%
70%
50%
30%
10%
Price
LAMB PRICE PERCENTILES (Real**, A¢/kg cwt)
**Since 2005, rebased to current prices
Source: MLA, CBA
0
100
200
300
400
500
600
700
800
2005 2007 2009 2011 2013 2015 2017 2019 2021
90%
70%
50%
30%
10%
Price
MUTTON PRICE PERCENTILES (Real**,A¢/kg cwt)
**Since 2005, rebased to current prices
Source: MLA, CBA
Currencies
51AgQ
US Dollar The US Dollar has started to retreat A falling greenback is supportive of US$
commodity prices Outlook for the global economy is less
gloomy, risk-averse… …so the greenback has weakened We expect the US$ will fall some more… …but there’s a new factor: some central
bank’s are talking about slowing that fall
Agri-exporter’s currencies have diverged Most, the Australian Dollar included, are
not far from pre-pandemic levels Three exporters – Argentina, Brazil and
Russia – have weak currencies Perhaps that weakness gives a pricing
advantage… …but weak-currency nations tend to have
a lot of other downside to offset that
80
90
100
110
120
130
140
150
160
170
180
1971 1981 1991 2001 2011 2021
Rate
90%
70%
50%
30%
10%
US DOLLAR PERCENTILES**Since US$ float (15 August 1971),
BIS Nominal US$ Index
Source: BIS, CBA
60
70
80
90
100
110
120
Jan20
Feb20
Mar20
Apr20
May20
Jun20
Jul20
Aug20
Sep20
Oct20
EUR
AUD
NZD
CAD
RUB
ARS
BRL
THB
AGRI-EXPORTER CURRENCIES v US$ - Calendar '20
Source: CBA
* Index (Jan 1 = 100)
52AgQ
Australian Dollar The Australian Dollar has erased all the
pandemic dip
The Aussie is mid-range by most measures on the US Dollar
The Aussie is doing a little better because of links to China’s stronger recovery
We expect the Aussie to rise some more…
…and so be a dampener on A$ commodity prices
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
1.20
1990 1994 1998 2002 2006 2010 2014 2018 2022
Actual
Forecast
Source: CBA
AUDUSD EXCHANGE RATE (US$)
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1983 1988 1993 1998 2003 2008 2013 2018 2023
Rate
90%
70%
50%
30%
10%
AUSTRALIAN DOLLAR PERCENTILES
*Since f loat (12 Dec 1983), 1A$ buys US$
Source: Bloomberg, CBA0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025
Real (Latest: 0.68)
Nominal (Latest: 0.73)
Source: CBA, OECD
AUD REAL & NOMINAL ($US)
53
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ADDITIONAL INFORMATION FOR PROFESSIONAL INVESTORS OUTSIDE OF AUSTRALIA (CONT.)
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Canadian InvestorsThe information contained herein is not, and under no circumstances is to be construed as, a prospectus, an advertisement, a public offering, an offer to sell securities described herein, solicitation of an offer to buy securities described herein, in Canada or any province or territory thereof.In Canada, the information contained herein is intended solely for distribution to Permitted Clients (as such term is defined in National Instrument 31-103) with whom Commonwealth Australia Securities LLC (the "US Broker Dealer"), a broker-dealer registered with the US Securities and Exchange Commission and a member of the Financial Industry Regulatory Authority ("FINRA") (CRD# 136321), deals pursuant to the international dealer exemption. To the extent that the information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory of Canada, any trades in such securities may not be conducted through the US Broker Dealer.
Notice of Negative Consent to counterparties that are “Permitted Clients” to receive Fixed Income ResearchCounterparties that are “Permitted Clients” but are not registered under the securities legislation of a jurisdiction in Canada as an advisor or dealer, must acknowledge:I. The US Broker–Dealer is not registered in the local jurisdiction of the counterparty;II. The US Broker–Dealer is a US broker-dealer registered with the US Securities and Exchange Commission;III. Substantially all of the assets of the US Broker-Dealer are outside of Canada; andIV. There may be difficulty enforcing legal rights against the US Broker-Dealer because of the above.
European InvestorsThis report is made available in the UK and Europe only for persons who are Eligible Counterparties or Professional Clients, and not Retail Clients as defined by Financial Conduct Authority rules. Commonwealth Bank of Australia is registered in England (No. BR250) and is authorised by the Prudential Regulatory Authority and is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Regulation Authority are available from the Bank on request. CBA Europe Ltd is registered in England (No. 05687023) and is authorised and regulated by the Financial Conduct Authority.Under Article 24 of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments, the Bank may be required to charge fees for the information provided in this report.
56
ADDITIONAL INFORMATION FOR PROFESSIONAL INVESTORS OUTSIDE OF AUSTRALIA (CONT.)
Hong Kong InvestorsThe contents of this report have not been reviewed by any regulatory authority in Hong Kong. This report has been approved for distribution in Hong Kong by the Commonwealth Bank of Australia, Hong Kong branch office, which is a registered institution with the Hong Kong Monetary Authority to carry out Type 1 (Dealing in securities) and Type 4 (Advising on securities) regulated activities under the Securities & Futures Ordinance.
You are advised to exercise caution in relation to the report. If you are in any doubt about any of the contents of this report, you should obtain independent professional advice. This report is only being made available to persons who are:-
i. ‘Professional Investors’ as defined in the Securities and Futures Ordinance (cap 571) of Hong Kong; orii. to whom an offer of securities may be made in Hong Kong without the need for a prospectus under section 2 and the Seventeenth Schedule of the
Companies Ordinance (Cap. 32 of the Laws of Hong Kong) ("Companies Ordinance") pursuant to the exemptions for offers in respect of which the minimum consideration payable by any person is not less than HK$500,000 or its equivalent in another currency.
Neither this report nor any part of it is, and under no circumstances are they to be construed as, a prospectus (as defined in the Companies Ordinance) or an advertisement of securities in Hong Kong. The securities referred to in the report have not been, nor will they be, qualified for sale to the public under applicable Hong Kong securities laws except on a basis that is exempt from the prospectus requirements of those securities laws.
Japanese InvestorsThis report is made available only for institutional customers. Commonwealth Bank of Australia, Tokyo Branch is a licensed banking business authorised by Japan Financial Services Agency.
Korean InvestorsThe Bank is not licenced to engage in a financial investment business in Korea and nothing in this report shall constitute a recommendation of, offer to sell or marketing of any financial investment product in Korea and is provided to the addressee at its request.
Malaysian InvestorsThis report is intended only for the addressee and is provided to the addressee at its request. This report is not to be distributed or circulated to the public nor should copies of this report be made or distributed or circulated, nor should information in this report be used in any way or quoted or published in any publication or in the media. The information contained in this report should not be considered a constituting investment advice or a proposal to make available, or to offer for subscription or purchase, or an invitation to apply or subscribe for or purchase any security or enter into any derivative described herein. The addressee must inform themselves about, seek appropriate advice regarding, and observe any restrictions or prohibitions imposed under the relevant laws of Malaysia.
57
ADDITIONAL INFORMATION FOR PROFESSIONAL INVESTORS OUTSIDE OF AUSTRALIA (CONT.)
New Zealand InvestorsThe information contained in this report is made available in New Zealand only for persons who are wholesale investors as defined in the Financial Markets Conduct Act 2013 (New Zealand).
People’s Republic of China InvestorsThis report is not an offer to buy or sell financial products or services, nor the solicitation of any offer to buy or sell financial products or services. The financial products referenced in this material may not be offered or sold to any person in the People’s Republic of China ("PRC") for the purpose of this report, excluding Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan) to whom it is unlawful to make the offer or solicitation. Such products are not and will not be registered with, authorised by, nor approved by any PRC authorities. It shall be the sole responsibility of the recipient of this report to verify his/her eligibility to get access to this report, to purchase any financial products, to obtain any required approval, quota and/or registration and to comply with all applicable regulatory requirements under all applicable legal or regulatory regimes. This report is for intended recipients only and may not be forwarded or presented to any other persons without the prior consent of the Bank.
Taiwanese InvestorsThe Bank is not licensed to engage in a security or financial services business in Taiwan and nothing in this report shall constitute a recommendation of, offer to sell or marketing of any investment product within Taiwan.
Thailand InvestorsThis report is only available to institutional investors.
Singaporean InvestorsThe information in this report is made available only for persons who are Accredited Investors or are Expert Investors as defined in the Securities and Futures Act (Singapore). If you are an Accredited Investor or Expert Investor as defined in Regulation 2(1) of the Financial Advisers Regulations ("FAR"), the Bank is obliged to disclose to you that in the provision of any financial advisory services to you, we are exempted under Regulations 28, 34 and 35 of the FAR from complying with the business conduct provisions of sections 26 (False or misleading statements by licensed financial advisers), 27 (Recommendations by licensees), 29 (Obligation to furnish information) and 36 (Disclosure of interests in securities) of the Financial Advisers Act.
58
ADDITIONAL INFORMATION FOR PROFESSIONAL INVESTORS OUTSIDE OF AUSTRALIA (CONT.)
US InvestorsThis report is made available for informational purposes only. The products described herein are not available to retail investors. General macro research may be distributed in the United States by the Bank's New York Branch. The information contained herein is not intended to be an exhaustive discussion of the strategies or concepts mentioned herein or tax or legal advice. Investments and strategies are discussed in this report only in general terms and not with respect to any particular security, derivative or transaction, and any specific investments may entail significant risks including exchange rate risk, interest rate risk, credit risk and prepayment risk among others. There also may be risks relating to lack of liquidity, volatility of returns and lack of certain valuation and pricing information. International investing entails risks that may be presented by economic uncertainties of foreign countries as well as the risk of currency fluctuations. Investors interested in the strategies or concepts described in this report should consult their tax, legal or other adviser, as appropriate.
In the United States, securities products and services are provided solely by or through the US Broker Dealer a broker-dealer registered with the US Securities and Exchange Commission and a member of FINRA. The US Broker-Dealer is a wholly-owned, but non-guaranteed, subsidiary of the Bank. The US Broker-Dealer does not make markets or otherwise engage in any trading in the securities of the subject companies described in our research reports. In the United States, research covering debt securities is only made available to persons who qualify as Qualified Institutional Buyers as defined under Rule 144A of the US Securities Act of 1933, as amended (the “Act”) and otherwise abide by the terms of the Notice of Negative Consent below.
Notice of Negative Consent to Qualified Institutional Buyer to Receive Institutional Debt ResearchFINRA adopted Rule 2242, "Debt Research Analysts and Debt Research Reports," to address conflicts of interest relating to the publication and distribution of debt research reports. Rule 2242(j) exempts debt research distributed solely to eligible institutional investors ("Institutional Debt Research") from most of the Rule's provisions regarding supervision, coverage determinations, budget and compensation determinations and all of the disclosure requirements applicable to debt research reports distributed to retail investors.
This notice serves to inform you of the US Broker-Dealer's intent to distribute Institutional Debt Research to you while relying on the exemption provided under FINRA Rule 2242. You have separately certified that:
1. You are, or you are authorized to act on behalf of, a Qualified Institutional Buyer (as defined under Rule 144A of the Act).2. You: (1) are capable of evaluating investment risks independently, both in general and with regard to particular transactions and investment strategies
involving a security or securities (including a debt security or debt securities); and (2) are exercising independent judgment in evaluating the recommendations of the US Broker-Dealer pursuant to FINRA Rule 2111.
3. You agree to promptly advise the US Broker-Dealer if any of the representations or warranties referred to in this notice ceases to be true. Based on the aforementioned certifications by you, the US Broker-Dealer is permitted to provide Institutional Debt Research to you under the exemptions provided by FINRA 2242(j). Unless notified by you in writing to the contrary prior to your receipt of our Institutional Debt Research, the Bank will consider you to have given your consent to the receipt of such Institutional Debt Research.
The Bank is a swap dealer provisionally registered with the US Commodity Futures Trading Commission and is a member of the National Futures Association in such capacity (NFA ID 0249150). In the United States, swaps, and products and strategies involving swaps are not suitable for investment by counterparties that are not "eligible contract participants"(as defined in the US Commodity Exchange Act ("CEA")) and the regulations adopted thereunder; or (ii) entities that have any investors who are not "eligible contract participants." Each hedge fund or other investment vehicle that purchases the products must be operated by a registered commodity pool operator as defined under the CEA and the regulations adopted thereunder or a person who has qualified as being exempt from such registration requirement.
Global Economic & Markets Research | Commodities: Ag Quarterly
5
PROFESSIONAL INVESTORS IMPORTANT INFORMATION AND DISCLAIMER FOR ALL INVESTORS
The information contained in this report is made available only for persons who are sophisticated or professional investors. Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945 (“the Bank”) and its subsidiaries, including Commonwealth Secur ities Limited ABN 60 067 254 300 AFSL 238814 (“CommSec”), Commonwealth Australia Securities LLC and CBA Europe Ltd, are domestic or foreign entities compromising the Commonwealth Bank Group of Companies (“CBGOC”). Global Economic & Markets Research is a business division of the Bank. CBGOC and their directors, employees and their representatives are referred to in this Appendix as the “Group”. This report is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or other financial instruments. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Clients should consider whether any advice or recommendation in this research is suitable for their particular circumstances, and if appropriate, seek professional advice, including tax and legal advice. The Bank believes that the information in this report is correct and any opinions, conclusions or recommendations are reasonably held based on the information available at the time of its compilation but no representation or warranty, either expressed or implied, is made or provided as to accuracy, reliability or completeness of any statement made in this report. Any opinions, conclusions or recommendations of the Bank contained in this report are subject to change without notice and may differ or be contrary to the opinions, conclusions or recommendations expressed by other business units of the Group. The Bank is under no obligation to update or keep current the information in this report. None of the entities within the Group nor their directors, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this report. Any valuations, projections and forecasts contained in this report are based on a number of assumptions and estimates and are subject to contingencies and uncertainties. The inclusion of any such valuations, projections and forecasts in this report should not be regarded as a representation or warranty by or on behalf of the Group or any person or entity within the Group that such valuations, projections and forecasts or their underlying assumptions and estimates will be met or realised. Past performance is not a reliable indicator of future performance. Foreign currency rates of exchange may adversely affect the value, price or income of any security or other financial instrument mentioned in this report. In addition, investors in securities, such as ADRs, whose values are influenced by the currency of the underlying security, effectively assume currency risk. Financial markets products have an element of risk. The level of risk varies depending on the product’s specific attributes and how it is used. Potential investors should note that the product discussed in the report may be sophisticated financial products that involve dealing in derivatives. The Bank will enter into transactions on the understanding that the customer has: made his/her own independent decision to enter into the transaction; determined that the transaction is appropriate; ensured he/she has the knowledge to evaluate and capacity to accept the terms, conditions and risks; and is not relying on any communication from the Bank as advice. Foreign exchange market pricing ranges in the Bank’s Global Economic & Markets Research publications are indicative ranges only and not a guarantee of actual foreign exchange prices being executed by the Bank. Where ‘CBA data’ is cited, this refers to the Bank’s proprietary data that is sourced from the Bank’s internal systems and may include, but not be limited to, credit card transaction data, merchant facility transaction data and applications for credit. The Bank takes reasonable steps to ensure that its proprietary data used is accurate and any opinions, conclusions or recommendations are reasonably held or made as at the time of compilation of this report. As the statistics take into account only the Bank’s data, no representat ion or warranty is made as to the completeness of the data and it may not reflect all trends in the market. All customer data used, or represented, in this report is anonymised and aggregated before analysis and is used, and disclosed, in accordance with the Group’s Privacy Policy Statement. The CBA Spotlight Series does not contain any recommendations but provides commentary on Australian macroeconomic themes. As the CBA Spotlight reports are based on CBA Data, the IB&M Portfolio & Client Analytics (PCA) team provide raw data that may directly or indirectly relate to the themes that have been selected for coverage by the Chief Economist. The PCA team are subject to the same personal conflict requirements and trading restrictions as research, and individuals are wall-crossed per report. CBA Spotlight reports may be viewed in advance of publication by CBA Marketing and Communications in order to produce infographics. Reports are only provided to Marketing and Communications team members under strict wall crossing and during this period their individual trading is monitored. ANALYST CERTIFICATION AND DISCLAIMER Each research analyst primarily responsible for the content of this research report, in whole or in part, [confirms] that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his/her personal views about those securities or issuers and (2) no part of his/her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the report. The analysts responsible for the preparation of this report may interact with trading desk personnel, sales personnel and other constituents for the purpose of gathering, synthesizing, and interpreting market information to form an independent view. The analysts responsible for the preparation of this report may not hold, or trade in, securities that are the subject of this report or where they have offered a recommendation. Analysts must disclose, and receive approval, for all outside business interests from Compliance and the Head of Global Economic & Markets Research, prior to commencing the activity or within a week of joining the Group. The compensation of analysts who prepared this report is determined exclusively by research management and senior Global Markets management (not including investment banking). The Group will from time to time have long or short positions in, and buy or sell, the securities or derivatives, if any, referred to in this research report. The Group may also engage in transactions in a manner inconsistent with the recommendations, if any, in this research report. Directors or employees of the Group may serve or may have served as officers or directors of the subject company of this report. Unless otherwise required and agreed separately, we do not charge any fees for any information provided in this presentation. You may be charged fees in relation to the financial products or other services the Bank provides, these are set out in the relevant Financial Services Guide (“FSG”), relevant Product Disclosure Statements (“PDS”), relevant Terms & Conditions, and/or relevant contract. The Bank’s research teams receive a salary and do not receive any commissions or fees. However, they may be eligible for a bonus payment from the Bank based on a number of factors relating to their overall performance during the year. These factors include how well they meet client service standards. Employees may also receive benefits from client such as tickets to sporting and cultural events, corporate promotional merchandise and other similar benefits. See also General Disclosures, “Supervision of Analysts”, “Personal Conflicts” and “Group Activity”, below. If you have a complaint, the Bank’s dispute resolution process can be accessed in Australia on 13 22 21 or internationally on +61 2 9841 7000. ADDITIONAL INFORMATION FOR PROFESSIONAL INVESTORS INSIDE AUSTRALIA This report is made available for informational purposes only. It is not a prospectus or other disclosure document (as defined in the Corporations Act, Australia) that has been or will be filed with the Australian Securities & Investments Commission. This report is only made available for persons who are sophisticated investors or professional investors (as those terms are defined by section 708(8) or (10) and (11) of the Corporations Act 2001 (Cth) or who otherwise is not a retail investor (as defined in sections 761G and 761 GA of the Corporations Act (Cth)). ADDITIONAL INFORMATION FOR PROFESSIONAL INVESTORS OUTSIDE OF AUSTRALIA This report is not directed to, or is intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or jurisdiction where such distribution, publication availability or use would be contrary to law or regulation or would subject any entity within the Group to any registration or licencing requirement within such jurisdiction. Canadian Investors The information contained herein is not, and under no circumstances is to be construed as, a prospectus, an advertisement, a public offering, an offer to sell securities described herein, solicitation of an offer to buy securities described herein, in Canada or any province or territory thereof. In Canada, the information contained herein is intended solely for distribution to Permitted Clients (as such term is defined in National Instrument 31-103) with whom Commonwealth Australia Securities LLC (the "US Broker Dealer"), a broker-dealer registered with the US Securities and Exchange Commission and a member of the Financial Industry Regulatory Authority ("FINRA") (CRD# 136321), deals pursuant to the international dealer exemption. To the extent that the information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory of Canada, any trades in such securities may not be conducted through the US Broker Dealer. Notice of Negative Consent to counterparties that are “Permitted Clients” to receive Fixed Income Research Counterparties that are “Permitted Clients” but are not registered under the securities legislation of a jurisdiction in Canada as an advisor or dealer, must acknowledge:
I. The US Broker–Dealer is not registered in the local jurisdiction of the counterparty;
II. The US Broker–Dealer is a US broker-dealer registered with the US Securities and Exchange Commission;
III. Substantially all of the assets of the US Broker-Dealer are outside of Canada; and
IV. There may be difficulty enforcing legal rights against the US Broker-Dealer because of the above.
European Investors This report is made available in the UK and Europe only for persons who are Eligible Counterparties or Professional Clients, and not Retail Clients as defined by Financial Conduct Authority rules. Commonwealth Bank of Australia is registered in England (No. BR250) and is authorised by the Prudential Regulatory Authority and is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Regulation Authority are available from the Bank on request. CBA Europe Ltd is registered in England (No. 05687023) and is authorised and regulated by the Financial Conduct Authority. Under Article 24 of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments, the Bank may be required to charge fees for the information provided in this report.
Global Economic & Markets Research | Commodities: Ag Quarterly
6
Hong Kong Investors
The contents of this report have not been reviewed by any regulatory authority in Hong Kong. This report has been approved for distribution in Hong Kong by the Commonwealth Bank of Australia, Hong Kong branch office, which is a registered institution with the Hong Kong Monetary Authority to carry out Type 1 (Dealing in securities) and Type 4 (Advising on securities) regulated activities under the Securities & Futures Ordinance.
You are advised to exercise caution in relation to the report. If you are in any doubt about any of the contents of this report, you should obtain independent professional advice. This report is only being made available to persons who are:-
(i) ‘professional investors” as defined in the Securities and Futures Ordinance (cap 571) of Hong Kong; or
(ii) to whom an offer of securities may be made in Hong Kong without the need for a prospectus under section 2 and the Seventeenth Schedule of the Companies Ordinance (Cap. 32 of the Laws of
Hong Kong) ("Companies Ordinance") pursuant to the exemptions for offers in respect of which the minimum consideration payable by any person is not less than HK$500,000 or its equivalent in
another currency.
Neither this report nor any part of it is, and under no circumstances are they to be construed as, a prospectus (as defined in the Companies Ordinance) or an advertisement of securities in Hong Kong. The securities referred to in the report have not been, nor will they be, qualified for sale to the public under applicable Hong Kong securi ties laws except on a basis that is exempt from the prospectus requirements of those securities laws.
Japanese Investors
This report is made available only for institutional customers. Commonwealth Bank of Australia, Tokyo Branch is a licensed banking business authorized by Japan Financial Services Agency.
Korean Investors
The Bank is not licenced to engage in a financial investment business in Korea and nothing in this report shall constitute a recommendation of, offer to sell or marketing of any financial investment product in Korea and is provided to the addressee at its request.
Malaysian Investors
This report is intended only for the addressee and is provided to the addressee at its request. This report is not to be distributed or circulated to the public nor should copies of this report be made or distributed or circulated, nor should information in this report be used in any way or quoted or published in any publication or in the media. The information contained in this report should not be considered a constituting investment advice or a proposal to make available, or to offer for subscription or purchase, or an invitation to apply or subscribe for or purchase any security or enter into any derivative described herein. The addressee must inform themselves about, seek appropriate advice regarding, and observe any restrictions or prohibitions imposed under the relevant laws of Malaysia.
New Zealand Investors
The information contained in this report is made available in New Zealand only for persons who are wholesale investors as defined in the Financial Markets Conduct Act 2013 (New Zealand).
People’s Republic of China Investors
This report is not an offer to buy or sell financial products or services, nor the solicitation of any offer to buy or sell financial products or services. The financial products referenced in this material may not be offered or sold to any person in the People’s Republic of China ("PRC") for the purpose of this report, excluding Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan) to whom it is unlawful to make the offer or solicitation. Such products are not and will not be registered with, authorised by, nor approved by any PRC authorities. It shall be the sole responsibility of the recipient of this report to verify his/her eligibility to get access to this report, to purchase any financial products, to obtain any required approval, quota and/or registration and to comply with all applicable regulatory requirements under all applicable legal or regulatory regimes. This report is for intended recipients only and may not be forwarded or presented to any other persons without the prior consent of the Bank.
Taiwanese Investors
The Bank is not licensed to engage in a security or financial services business in Taiwan and nothing in this report shall constitute a recommendation of, offer to sell or marketing of any investment product within Taiwan.
Thailand Investors
This report is only available to institutional investors.
Singaporean Investors
The information in this report is made available only for persons who are Accredited Investors or are Expert Investors as defined in the Securities and Futures Act (Singapore). If you are an Accredited Investor or Expert Investor as defined in Regulation 2(1) of the Financial Advisers Regulations ("FAR"), the Bank is obliged to disclose to you that in the provision of any financial advisory services to you, we are exempted under Regulations 28, 34 and 35 of the FAR from complying with the business conduct provisions of sections 26 (False or misleading statements by licensed financial advisers), 27 (Recommendations by licensees), 29 (Obligation to furnish information) and 36 (Disclosure of interests in securities) of the Financial Advisers Act.
US Investors
This report is made available for informational purposes only. The products described herein are not available to retail investors. General macro research may be distributed in the United States by the Bank's New York Branch. The information contained herein is not intended to be an exhaustive discussion of the strategies or concepts mentioned herein or tax or legal advice. Investments and strategies are discussed in this report only in general terms and not with respect to any particular security, derivative or transaction, and any specific investments may entail significant risks including exchange rate risk, interest rate risk, credit risk and prepayment risk among others. There also may be risks relating to lack of liquidity, volatility of returns and lack of certain valuation and pricing information. International investing entails risks that may be presented by economic uncertainties of foreign countries as well as the risk of currency fluctuations. Investors interested in the strategies or concepts described in this report should consult their tax, legal or other adviser, as appropriate. In the United States, securities products and services are provided solely by or through the US Broker Dealer a broker-dealer registered with the US Securities and Exchange Commission and a member of FINRA. The US Broker-Dealer is a wholly-owned, but non-guaranteed, subsidiary of the Bank. The US Broker-Dealer does not make markets or otherwise engage in any trading in the securities of the subject companies described in our research reports. In the United States, research covering debt securities is only made available to persons who qualify as Qualified Institutional Buyers as defined under Rule 144A of the US Securities Act of 1933, as amended (the “Act”) and otherwise abide by the terms of the Notice of Negative Consent below. Notice of Negative Consent to Qualified Institutional Buyer to Receive Institutional Debt Research FINRA adopted Rule 2242, "Debt Research Analysts and Debt Research Reports," to address conflicts of interest relating to the publication and distribution of debt research reports. Rule 2242(j) exempts debt research distributed solely to eligible institutional investors ("Institutional Debt Research") from most of the Rule's provisions regarding supervision, coverage determinations, budget and compensation determinations and all of the disclosure requirements applicable to debt research reports distributed to retail investors. This notice serves to inform you of the US Broker-Dealer's intent to distribute Institutional Debt Research to you while relying on the exemption provided under FINRA Rule 2242. You have separately certified that:
1. You are, or you are authorized to act on behalf of, a Qualified Institutional Buyer (as defined under Rule 144A of the Act).
2. You: (1) are capable of evaluating investment risks independently, both in general and with regard to particular transactions and investment strategies involving a security or securities (including a
debt security or debt securities); and (2) are exercising independent judgment in evaluating the recommendations of the US Broker-Dealer pursuant to FINRA Rule 2111.
3. You agree to promptly advise the US Broker-Dealer if any of the representations or warranties referred to in this notice ceases to be true. Based on the aforementioned certifications by you, the US
Broker-Dealer is permitted to provide Institutional Debt Research to you under the exemptions provided by FINRA 2242(j). Unless notified by you in writing to the contrary prior to your receipt of our
Institutional Debt Research, the Bank will consider you to have given your consent to the receipt of such Institutional Debt Research.
Global Economic & Markets Research | Commodities: Ag Quarterly
7
The Bank is a swap dealer provisionally registered with the US Commodity Futures Trading Commission and is a member of the National Futures Association in such capacity (NFA ID 0249150). In the United States, swaps, and products and strategies involving swaps are not suitable for investment by counterparties that are not "el igible contract participants"(as defined in the US Commodity Exchange Act ("CEA")) and the regulations adopted thereunder; or (ii) entities that have any investors who are not "eligible contract participants." Each hedge fund or other investment vehicle that purchases the products must be operated by a registered commodity pool operator as defined under the CEA and the regulations adopted thereunder or a person who has qualified as being exempt from such registration requirement.
Global Economic & Markets Research | Commodities: Ag Quarterly
8
Global Economic & Markets Research Stephen Halmarick Chief Economist - Head of Global Economic & Markets Research +612 9303 3030 [email protected]
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