food and beverage - wells fargo · 2019-05-01 · cpi for food away from home increased 2.9% y/y,...

August 2012

Industry Research Update: Food and Agribusiness 1

March 2019

© 2019 Wells Fargo Bank, N.A. All rights reserved. For public use.1

Key Demand Developments

• Economic indicators are showing a soft start to 2019. The WellsFargo forecast sees Q1 GDP growth coming in at a scant 1.3%annualized clip, which, if realized, would be the slowest growth rate inmore than three years. The full-year growth number for 2019 is2.4%, down just a tenth of a percentage point from the Februaryforecast, and expected full-year GDP growth number for 2020 isunchanged at 2.2%. Wells Fargo still expects the FOMC’s next movewill be to raise rates, and we still expect that rate hike to be in Q3.

• A larger-than-expected widening in the trade deficit in December, toits largest in 10 years, suggests the drag from net exports in thefourth quarter might be larger than the initial 0.2 percentage pointestimate in the GDP report.

• Signs of slower growth are a continued theme across the globe. Majoreconomies in Europe, North America and Asia registered onlymarginally positive growth late last year, while China’s economyextended its ongoing gradual and orderly economic slowdown. Ontop of this, many foreign central banks are adopting a more dovishstance. Most notable the European Central Bank (ECB) has signaledthat policy rates may now be on hold through all of 2019.

• Look for monthly updates on Wells Fargo Economics:https://www.wellsfargo.com/com/insights/economics/monthly-outlook

Consumer and Producer Price Indices

The overall CPI for U.S. Food and Beverage is trending positively with a 2.0% Y/Y increase for Feb 19. CPI for Food Away from Home increased 2.9% Y/Y, and CPI Food at Home also had an increase of 1.2% Y/Y, for February.

Industry Update

Food and Agribusiness

Price and Food Inflation Developments

Food Retail SalesAccording to Nielsen, U.S. Food Retail sales continue to post consistent growth increased in dollar volume by 1.5% Y/Y, while unit sales decreased 1.9% Y/Y. According to multiple sources, online holiday sales for all categories increased over 16% to over $126B for 2018, in an overall positive shopping season up 5.1% to over $850B. While E-commerce has been most significant for non-edible categories, packaged/dry and shelf stable foods and increasingly fresh food distribution, merchandizing and delivery are expected to be impacted by these trends.

-8%

-6%

-4%

-2%

0%

2%

4%

6%

Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19

Y/Y

Cha

nge

(%)

CPI Food Away From Home CPI Food At Home PPI All Food

Source: U.S. Bureau of Labor Statistics (BLS)

Note: Due to the partial government shutdown, updated data for some charts in this publication is not available.

https://www.wellsfargo.com/com/insights/economics/monthly-outlook

August 2012

2

© 2019 Wells Fargo Bank, N.A. All rights reserved. For public use.

Grocery Department Trends: According to Nielsen data, grocery department trends continue to show strong consumer preferences for fresh and convenient, however dairy and deli may be starting to challenge long term trends.Dry Grocery Frozen Foods

Bakery

Deli

• Dry Grocery average unit price increased 1.9% Y/Y, whilevolume remained static at 0.0% Y/Y.

• Dairy volume is showing a tentative turnaround with 0.2%Y/Y, accompanied by price increase of 0.2 % Y/Y.

• Fresh Produce volume continues to lead all categories with5.3% Y/Y, with prices declining 2.0% Y/Y.

Dairy

Fresh Produce

• Frozen Food average unit price increased 0.6% Y/Y, whilevolume increased to 1.5%. Frozen food volumes increased eachquarter of 2018.

• Deli volume posted the first decline since 2015 of 0.7% Y/Y,with price increase of 2.1% Y/Y.

• Bakery volume declined 11.3% Y/Y, with price increase of 4.1%Y/Y.

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18

Volume Price

Source: Nielsen AOC+C

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18

Volume Price


-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18

Volume Price


-2%

0%

2%

4%

6%

8%

10%

1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18

Volume Price


-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18

Volume Price


-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%

15%

1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18

Volume Price


August 2012

3


Monthly avg. corn, wheat, soybeans in $/bu; broilers, shrimp in $/lb; cattle, hogs, milk in $/cwt; salmon in $/kg; gas in $/Mct; oil in $/gal; electricity in $/kWh; labor in $/h

Sources: CME, USDA, Urner Barry, EIA, BLS

• Economic Backdrop: Wells Fargo Securities forecast regardinggrowth has fallen slightly. The housing market has continued tobe a laggard, as both existing and pending home sales havestruggled.

• Corn, Wheat and Soybeans: USDA raised its corn and wheatcarryout forecasts in March, and trimmed its soybean carryout.Weather could prevent 2019 corn acres from reaching USDA’sforecast of 92 million. Corn and wheat prices fell toward year-agolevels in Feb., while soybean prices remain well below last year.

• Chicken: Production lower in February but is likely temporary;Packer margins improve on better product pricing and lowercosts; ample supply and competitive prices boost export volumesin 2018.

• Beef: Tighter beef supplies due to winter weather supportive toprices; Beef exports in 2018 close out the year with stronggrowth; packer margins remain favorable on good cutout values.

• Pork: Higher pork production pressures prices lower in February;New ASF concerns grab the hog market’s attention; 2018 sawgrowth in export volume despite trade war.

• Seafood: Demand for U.S. seafood is expected to remain strongin upcoming months. Lobster prices are up due to the impacts ofthe tariffs, which led to a decreased domestic supply as moreinventory was shipped to Canada to fulfill Chinese demand.

• Dairy: Milk production increased by roughly 1% Y/Y in January2019, despite a 0.5% reduction in U.S. dairy cow numbers Y/Y.Even with the increased production and higher butter and cheeseinventories, dairy product prices increased nominally in February.Cheese and butter prices have continued to strengthen in March.The futures market for milk and processed dairy productsremains bullish.

• Specialty and Non-Grain Crops: USDA’s forecast for theFlorida orange juice crop for 2018/19 remains unchanged from2017/18 at 45 million boxes. Projected fruit size is below theminimum, requiring an estimated 255 pieces of fruit to fill a 90-pound box. Projected droppage is above average at 26%.

• Nuts: Both almonds and pistachios reflect a stable market. ForPecans, the market is experiencing downward pressure from theChinese tariffs. China bought exports from South Africa andMexico to meet demand, with US pecans out of the market due totariffs. Pecan prices are down overall with oversupply being heldin cold storage despite a reduced U.S. crop from HurricaneMichael. Walnuts experienced a bright spot with above averagesales in January 2019. This has allowed handlers to movethrough their 2018 crop; one handler has reported that allChandlers are sold for 2018.

• Wine: The USDA will release the 2018 grape harvest report onApril 10. Delivery of this report was delayed due to thegovernment shutdown.

• Fruit Crops: Florida strawberries and citrus harvest areongoing. California strawberry harvest is just starting inSouthern California and is expected to move north through thestate in the coming months. Imports are still the bulk of mostfruit found in grocery stores this time of year where the majorityof fruit imports originate from Mexico and South America. Withthe seasonal rains in California, it is unclear how long the majorcrops will be delayed.

• Vegetable Crops: Leafy greens continue production in theImperial Valley and the Yuma, AZ region. Cooler than averagetemperatures in the desert have pushed the crop a few weeksbehind schedule, and rains in CA have slowed down the plantingprocess, increasing the odds for supply disruption in earlyspring. The U.S. has announced a bipartisan push to end theTomato Suspension Agreement with Mexico (May 7), allowingauthorities to investigate allegations of product being dumpedinto the US Market.

• Forest Products: Lumber prices rose 12% in January,reflecting the first increase in 8 months, while panel prices wereup 2%. Both were well below last year. Housing starts havebeen down Y/Y for 4 straight months.

• Crop Inputs: Nitrogen and phosphate prices eased in Februaryon soft demand and slow movement, while potash prices wereup slightly. Wet weather limited fertilizer application last fall,and is expected to shift some demand from ammonia to ureaand UAN.

• Energy and Labor: The Energy Information Administrationestimates Brent crude oil spot prices averaged $59 per barrel(b) in January, up $2/b from December 2018 but $10/b lowerthan the average in January of last year.

Food Company Input Cost Summary: As we end 3Q’18, commodity prices have been volatile when compared to 3Q’17 levels as well as M/M. Commodity Price* Y/Y M/M

Corn $3.74 +2.4% -1.3%HRW Wheat $4.79 +1.2% -5.0%Soybeans $9.11 -9.7% +0.2%Broilers $0.99 +5.2% +10.2%Cattle $1.27 -0.3% +1.7%Hogs $0.56 -21.9% -7.8%Class III Milk $13.89 +3.7% -0.5%Shrimp $3.88 -11.9% +0.2%Salmon $5.31 -7.7% -4.1%Natural Gas $7.75 +4.4% +5.4%Electricity $10.33 +0.5% -2.2%Heating Oil $2.93 +1.1% -0.6%Restaurant Labor $14.17 +4.3% +0.4%Supermarket Labor $13.81 +4.6% +0.4%Food Labor $17.99 +3.9% +0.7%

Key Commodity Heat Map

*All prices for February except natural gas (December), electricity(December), heating oil (January) and supermarket labor (January)

Price vs. Volume Grain Protein Labor EnergyMixed Mixed Mixed Inflationary Inflationary

Food Company Margin Heat Map Y/Y

August 2012

4


Economics: Wells Fargo Securities forecast regarding growth have fallen slightly. The housing market has continued to be a laggard, as both existing and pending home sales have struggled.

Miles Driven (Billion)

Trade Weighted Dollar vs. Ag Index

Net Exports as % of Production

Net Trade Balance

• December 2018 voluntary quits as a percentage of employment of 2.0% and had no change from the prior month.

• February 2019 weekly average earnings are growing 2.9%Y/Y on a nominal basis; when deflated by food and beverage CPI the July 2018 average wage of $817/week increased 1.8% Y/Y driven primarily by continued labor shortages.

• November 2018 miles driven of 259 billion was up 0.3% Y/Y as stronger employment offset higher gas prices.

• The February 2019 trade weighted dollar index value of 118.0 vs. bulk commodity dollar index value of 111.2 narrowed for the first time in four months, but the gap remains much wider than a year earlier at 111.0 and 110.5, respectively.

• The net trade balance for YTD November 2018 of ($15.2 billion) widened by approximately $5.8 billion compared to the ($8.6 billion) trade deficit for 2017.

Voluntary Quits as % of Employment

Weekly Earnings Rates

0.8%

1.2%

1.6%

2.0%

2.4%

2.8%

3.2%

Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17

Sources: BLS, Wells Fargo

$700

$750

$800

$850

$900

$950

$1,000Weekly Wages Food Inflation Adjusted

Sources: BLS, Wells Fargo

200210220230240250260270280290

Source: Federal Highway Administration

95

100

105

110

115

120

Ag Bulk Commodities Trade Weighted

Jan 2014 = 100

Sources: USDA-ERS, Federal Reserve, Wells Fargo

2.6 6.5 9.1

13.8 16.1 22.0 22.7 21.6

16.3 18.3 17.5

5.7

(6.1)

10.3 3.9

5.2 7.1

0.7

(1.1) (4.5)

(17.8)(21.6)

(26.0) (22.9)

-$28

-$21

-$14

-$7

$0

$7

$14

$21

$28

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

China & Hong Kong Rest of World

Sources: USDA-FAS, Wells Fargo

-6%

-3%

0%

3%

6%

9%

12%

15%

18%

21%

2010 2011 2012 2013 2014 2015 2016 2017 2018E2019F

Pork Chicken Beef

Sources: USDA-FAS, Wells Fargo

August 2012

5


Grain Prices: Corn and wheat prices fell toward year-ago levels in February. Soybean prices remain well below last year as U.S. ending stocks projections are large despite progress toward a trade deal with China.

• Nearby corn futures averaged $3.74per bushel in February, down 5 centsfrom January but up 9 cents Y/Y.

• USDA’s February supply and demandreport failed to provide support to cornprices, which saw spillover pressurefrom declining wheat prices during thesecond half of the month.

• USDA forecasts world corn productionup 2% in 2018/19 with increases forArgentina, Brazil and Ukraine morethan offsetting a decline in the U.S.World stocks are forecast to drop 10%to the lowest in four years.

• Nearby Kansas City wheat futuresaveraged $4.79 per bushel inFebruary. This was down 25 cents M/Mand the lowest since February 2018.

• Prices were under pressure throughoutthe month as U.S. wheat struggled tocompete for export business. Exportsales have been relatively good inearly 2019, but shipments haveremained behind the pace needed toreach USDA’s February exportforecast.

• USDA projects global wheat productiondown 4% in 2018/19 on large declinesin the EU, Russia and Australia. Globalstocks are forecast to decline 3% afterrising five straight years to a record.

Wheat

Corn

Soybeans

• Nearby soybean futures averaged$9.11 in February, up 2 cents fromJanuary but down 98 cents Y/Y.

• Confirmation of large U.S. soybeansales to China was lacking, but reportsof progress toward a trade dealunderpinned prices. The TrumpAdministration postponed tariff hikeson Chinese products that had beenplanned for March 1.

• USDA sees world soybean productionup 6% in 2018/19 with a larger 2018U.S. crop and an expected rebound inArgentina’s 2019 harvest more thanoffsetting a decline in Brazil. Worldstocks are forecast up 9% at a record.

$3.30

$3.45

$3.60

$3.75

$3.90

$4.05

$4.20

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2017 2018 2019 Futures

Source: CME

$/bu

shel

$4.00

$4.25

$4.50

$4.75

$5.00

$5.25

$5.50

$5.75


2017 2018 2019 Futures

Source: CME

$/bu

shel

$8.00

$8.40

$8.80

$9.20

$9.60

$10.00

$10.40

$10.80


2017 2018 2019 Futures

Source: CME

$/bu

shel

August 2012

6


Grain Fundamentals: USDA raised its corn & wheat carryout forecasts in March on usage cuts, and reduced its soybean carryout. Weather could prevent 2019 corn acres from reaching USDA’s forecast of 92 million.

• USDA raised its 2018/19 U.S. cornending stocks projection by 100 millionbushels to 1,835 million in March onsmaller usage. Exports were cut 75million bushels as sales havemoderated recently, while usage inethanol was trimmed 25 million as lowmargins continue to hinder production.

• At its Agricultural Outlook Forum in lateFebruary, USDA forecast 2019 cornacres up 2.9 million (3%) to 92 million.Ending stocks were forecast down 85million bushels in 2019/20. Adverseweather limited fall fieldwork and couldcause planting to start late, which mayprevent acreage from reaching USDA’sprojection.

Wheat

Corn

Soybeans

• USDA raised its 2018/19 wheat endingstocks forecast 45 million bushels to1,055 million in March. Imports wereraised 5 million bushels, food use waslowered 5 million, and exports were cut35 million bushels to 965 million.

• USDA’s marketing year average farmprice held at $5.15 per bushel.

• At its Agricultural Outlook Forum, USDAforecast 2019/20 wheat plantings at 47million acres, which would be down 0.8million (2%) from 2018/19. Exportswere projected at 975 million bushels,while ending stocks were forecast todecline by 66 million.

• USDA trimmed its 2018/19 soybeanending stocks projection 10 millionbushels to 900 million in March on anincrease in its crush forecast. USDA’sexport forecast was held at 1,875million, which is at risk of being too highunless prices are competitive with SouthAmerica during its peak export season.

• At its Agricultural Outlook Forum, USDAforecast 2019 soybean acres at 85million, down 4.2 million (5%) Y/Y.Ending stocks were forecast down only65 million bushels in 2019/20 from therecord level in 2018/19, but USDA’sexport forecast of 2,025 million assumesChina’s import tariff remains at 28%.

Source: USDA WASDE

Source: USDA WASDE

Source: USDA WASDE

2016/17 2017/18 2018/19F 2018/19F M/M Change Y/Y ChangeFebruary March 18/19 Forecast 18/19 Forecast

Acres Planted (mm) 94.0 90.2 89.1 89.1 0.0 -1.1Acres Harvested 86.7 82.7 81.7 81.7 0.0 -1.0Yield per Harvested Acre (bu) 174.6 176.6 176.4 176.4 0.0 -0.2

Beginning Stocks (mm bu) 1,737 2,293 2,140 2,140 0 -153Production 15,148 14,609 14,420 14,420 0 -189Imports 57 36 40 40 0 4Total Supply 16,942 16,939 16,600 16,600 0 -339

Feed and Residual 5,470 5,304 5,375 5,375 0 71Food, Seed & Industrial 6,885 7,056 7,040 7,015 -25 -41Ethanol 5,432 5,605 5,575 5,550 -25 -55Total Domestic 12,355 12,360 12,415 12,390 -25 30Exports 2,294 2,438 2,450 2,375 -75 -63Total Use 14,649 14,799 14,865 14,765 -100 -34Ending Stocks 2,293 2,140 1,735 1,835 100 -305

Stocks to Use (%) 15.7% 14.5% 11.7% 12.4% 0.8% -2.0%

Average Farm Price ($/bu) $3.36 $3.36 $3.60 $3.55 -$0.05 $0.19


Acres Planted (mm) 50.1 46.1 47.8 47.8 0.0 1.7Acres Harvested 43.8 37.6 39.6 39.6 0.0 2.0Yield per Harvested Acre (bu) 52.7 46.4 47.6 47.6 0.0 1.2

Beginning Stocks (mm bu) 976 1,181 1,099 1,099 0 -82Production 2,309 1,741 1,884 1,884 0 143Imports 118 157 140 145 5 -12Total Supply 3,402 3,079 3,123 3,128 5 49

Food 949 964 970 965 -5 1Seed 61 63 63 63 0 0Feed and Residual 160 51 80 80 0 29Total Domestic 1,171 1,079 1,113 1,108 -5 29Exports 1,051 901 1,000 965 -35 64Total Use 2,222 1,980 2,113 2,073 -40 93Ending Stocks 1,181 1,099 1,010 1,055 45 -44

Stocks to Use (%) 53.2% 55.5% 47.8% 50.9% 3.1% -4.6%

Average Farm Price ($/bu) $3.89 $4.72 $5.15 $5.15 $0.00 $0.43


Acres Planted (mm) 83.5 90.2 89.2 89.2 0.0 -1.0Acres Harvested 82.7 89.5 88.1 88.1 0.0 -1.4Yield per Harvested Acre (bu) 51.9 49.3 51.6 51.6 0.0 2.3

Beginning Stocks (mm bu) 197 302 438 438 0 136Production 4,296 4,412 4,544 4,544 0 132Imports 22 22 20 20 0 -2Total Supply 4,516 4,735 5,002 5,002 0 267

Crushings 1,901 2,055 2,090 2,100 10 45Exports 2,166 2,129 1,875 1,875 0 -254Seed 105 104 96 96 0 -8Residual 42 9 31 31 0 22Total Use 4,214 4,297 4,092 4,102 10 -195Ending Stocks 302 438 910 900 -10 462

Stocks to Use (%) 7.2% 10.2% 22.2% 21.9% -0.3% 11.7%

Average Farm Price ($/bu) $9.47 $9.33 $8.60 $8.60 $0.00 -$0.73

August 2012

7


Chicken: Production lower in February but is likely temporary; Packer margins improve on better product pricing and lower costs; Ample supply and competitive prices boost export volumes in 2018.

Whole Broiler Prices Cold Storage Inventories

Egg Sets

Broiler Exports

• The February USDA broiler price of $0.90/lb. is down 10% vs. the prior month and up 5% vs. February 2018. . The lower price in February is counter-seasonal. Whole broiler prices typically advance in the spring due to increased grilling demand.

• The February average breast price of $1.16/lb. increased 8% vs. the prior month and increased 5% vs. February 2018. Low prices continue to attract buying and retail featurings are increasing.

• The February average thigh price of $1.17/lb. increased 3% vs. the prior month and decreased 3% vs. February 2018.

• Broiler production in February is estimated lower based on a decline in slaughter and lighter weights. However, production is expected to trend higher as producers increase supply to meet the expansion in processing capacity for late 2019.

• The recent WASDE report left production estimates for 2019 unchanged. Production in 2019 is estimated up 1.3% Y/Y. The 2019 annual broiler price forecast is slightly lower to $.93 to $.99 per lb. on lower-than-expected wholesale prices in February.

• Annual data showed 2018 broiler export volume growth of 4% Y/Y, the third consecutive year of higher exports. Competitive/lower pricing contributed to the higher volume of exports.

Boneless Skinless Breast Prices

Packer Margins

$0.80

$0.85

$0.90

$0.95

$1.00

$1.05

$1.10

$1.15

$1.20

$1.25


$/lb

2017 2018 2019

Source: USDA-AMS

$0.85

$0.95

$1.05

$1.15

$1.25

$1.35

$1.45

$1.55

$1.65


$/lb

2017 2018 2019

Source: USDA-AMS

-20%

-10%

0%

10%

20%

30%

40%

400

500

600

700

800

900

1,000

Jan-15 Jan-16 Jan-17 Jan-18 Jan-19

Million Pounds Y/Y Change (%)

Source: USDA-ERS

-2%

0%

2%

4%

6%

8%

10%

180

190

200

210

220

230

240


Million Y/Y% Change

Source: USDA-NASS

475

500

525

550

575

600

625

650

675


mill

ion

lbs

2016 2017 2018

Source: USDA-ERS

11

12

13

14

15

16

17

18

19

20


1st

Q R

atio

3rd

Q

2017 2018 2019

Sources: USDA-AMS, CME

August 2012

8


Beef: Tighter beef supplies due to winter weather supportive to prices; Beef exports in 2018 close out the year with strong growth; packer margins remain favorable on good cutout values.

Cut Out Values

Packer Margins

Live Cattle Prices

Beef and Veal Exports

Cold Storage Inventories

Monthly Cattle Processing

• The February average beef cutout value increased 1% vs. the prior month and increased 2% from February 2018. Price strength in the cutout was supported by tighter beef supplies and solid demand.

• Live cattle prices moved higher 2% February versus the prior month and were near year ago levels at an average of $127 per cwt.

• Beef supply was lower than anticipated in February. Slaughter levels were below year ago levels and muddy feedlots kept carcass weights lighter.

• The recent WASDE report lowered beef production estimates in 2019 on smaller fed-cattle slaughter and lower than expected marketings in mid-2019. Production in 2019 is now estimated up 1.6% Y/Y versus the previous estimate of a 2.9% Y/Y.

• Annual data showed 2018 beef export volume up 10% Y/Y, the third consecutive year of higher exports. Import volume in 2018 was unchanged from Y/Y levels.

• Beef packer margins dipped slightly lower in February from the previous month, but were 2% higher Y/Y. Packer margins expected to remain good on upcoming seasonal spring demand strength.

$1.00

$1.05

$1.10

$1.15

$1.20

$1.25

$1.30

$1.35


$/lb

2017 2018 2019 Futures

Source: CME

185

195

205

215

225

235

245

255


$/cw

t

2017 2018 2019

Source: USDA-AMS -20%

-10%

0%

10%

20%

30%

40%

50%

300

350

400

450

500

550

600

650



Source: USDA-NASS

170

190

210

230

250

270

290

310


mill

ion

lbs

2016 2017 2018

Source: USDA-ERS

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

1.35

1.50

1.65

1.80

1.95

2.10

2.25

2.40

2.55

Jan-15 Jan-16 Jan-17 Jan-18

mill

ion

lbs

Baseline Slaughter Incremental WeightY/Y Change (%)

Source: USDA-ERS

1.50

1.60

1.70

1.80

1.90

2.00

2.10

2.20


1st

Q 3r

d Q

R

atio

2017 2018 2019


August 2012

9


Pork: Higher pork production pressures prices lower in February; New ASF concerns grab the hog market’s attention; 2018 saw growth in export volume despite trade war.

Cut Out Values

Packer Margins

Lean Hog Prices

Cold Storage Inventories

Pork Exports

Monthly Processing

• Nearby lean hog futures averaged $0.56/lb. in February. This decreased 8% from January and decreased 22% Y/Y.

• The February cutout value decreased 5% from the prior month and was down 16% Y/Y.

• Higher pork production due to heavier hog weights and higher slaughter levels contributed to the downward pressure on hog and cutout values. Prices are expected to remain under pressure in upcoming months due to large forecasted supplies.

• The recent WASDE report slightly increased 2019 production estimates. USDA is now forecasting 2019 production up 4.2% Y/Y versus the previous estimate of 3.9% Y/Y.

• African Swine Fever (ASF) jumped back in the headlines this month. Vietnam reported their first case of ASF in February and has since reported 79 cases. China has also reported significant declines in their sow herd since November, which will lower future pork availability in the country.

• Annual data showed 2018 pork export volume up 4% Y/Y despite trade headwinds from China and Mexico retaliatory tariffs. Low prices and large supply boosted export volume.

$0.40

$0.50

$0.60

$0.70

$0.80

$0.90

$1.00


$/lb

2017 2018 2019 Futures

Source: CME

60

70

80

90

100

110


$/cw

t

2017 2018 2019

Source: USDA-AMS -20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

300

350

400

450

500

550

600

650

700

750



Source: USDA-NASS

360

390

420

450

480

510

540

570


mill

ion

lbs

2016 2017 2018

Source: USDA-ERS

-12%

-6%

0%

6%

12%

18%

24%

1.3

1.5

1.7

1.9

2.1

2.3

2.5

Jan-15 Jan-16 Jan-17 Jan-18

mill

ion

lbs

Baseline Slaughter Incremental WeightY/Y Change (%)

Source: USDA-ERS

1.00

1.05

1.10

1.15

1.20

1.25

1.30

1.35


1st

Q

3rd

Q

Rat

io

2017 2018 2019


August 2012

10


Seafood: Demand for U.S. seafood is expected to remain strong in upcoming months. Tariffs alter trade flows of North American lobster. Lobster prices are up due to the impacts of the tariffs, which led to a decreased domestic supply as more inventory was shipped to Canada to fulfill Chinese demand.

• The UB farm-raised white shrimp index in February was $3.88/lb., down 12% Y/Y. Shrimp imports in 2018 were 1,537MM lbs., up 5% Y/Y. Low prices in the 2nd half of 2018 attracted buyers, increasing the volume of imports.

• The UB fresh-farmed salmon index decreased in February to $5.31/lb., which is a 4% decrease Y/Y. Atlantic salmon imports in 2018 totaled 721MM lbs., up 9% Y/Y. Domestic demand for salmon remains strong.

• 2018/2019 season U.S. scallop landings are 17% above the prior year at 54MM lbs. with roughly one month left in the season. Wholesale prices are trading slightly below the 3- year average level for all items, although the price of U10 Domestic dry scallops is nominally higher.

Urner Barry Fresh Farmed Salmon Index

Urner Barry Farm-Raised White Shrimp Index Shrimp Import Volume

Alaskan Pollock Prices

Atlantic Salmon Import Volume

• Maine lobster landings increased nearly 8% Y/Y to nearly 120 million lbs. 2018 landings were the 5th highest in the last six years. Maine lobster landings peaked at 132 million in 2016.

• Imports of North American lobster products from Canada declined a sharp 24.7% in the quarter and were 2.8% lower for 2018. Tariff changes altered trade flows of N. American lobster. While U.S. lobster exports to all destinations were up 7.5%, exports to Canada increased nearly 18% and 8.8% to China Y/Y. U.S. lobster exports to France and Italy declined sharply as Canada now has a tariff advantage over the U.S. into EU countries due to CETA.

Scallop and Lobster Prices

3.50

3.75

4.00

4.25

4.50

4.75

5.00


$/lb

2017 2018 2019

Source: Urner Barry

4.00

4.50

5.00

5.50

6.00

6.50

7.00


$/lb

2017 2018 2019

Source: Urner Barry

0.60

0.75

0.90

1.05

1.20

1.35

1.50

1.65

Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19

$/lb

Single Freeze Alaskan Minced

Source: Urner Barry

30

40

50

60

70

80


mill

ion

kg

2016 2017 2018

Source: NOAA

2021222324252627282930


mill

ion

kg

2016 2017 2018

Source: NOAA

56789

10111213141516

Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19

$

Scallops (US Natural, 10/20 ct)Live Lobster (1 1/4 lb)

Source: Urner Barry

August 2012

11


Dairy: Milk production increased by roughly 1% Y/Y in January 2019, despite a .5% reduction in U.S. dairy cow numbers Y/Y. Even with the increased production and higher butter and cheese inventories, dairy product prices increased nominally in February. Cheese and butter prices have continued to strengthen in March. Class I Milk

Cheddar Cheese, 40-lb. block

Milk Production

Dairy Product Exports

• The February USDA Class I milk price of $15.30/cwtincreased vs. the prior month and increased 7% vs.February 2018.

• The February average Class III milk price of $13.86/cwt.decreased 1% vs. the prior month and was 4% higher Y/Y.

• The recent WASDE report slightly lowered 2019 productionestimates based on smaller expected dairy cow numbers.Production in 2019 is estimated up 1.0% Y/Y. The 2019 allmilk price forecast is raised slightly to $17.00 to $17.60 percwt.

• Dairy product exports were up 9.5% by volume in 2018.Strong foreign demand despite tariff headwinds in the 2ndhalf of the year helped boost exports.

• Low cheese prices spurred buying interest and helped pushClass III futures prices higher in February and March.However, cheese inventory levels still remain large and couldlimit upward movement of prices.

Class III Milk

Butter Prices, Grade AA

13

14

15

16

17

18


$/cw

t

2017 2018 2019

Source: USDA-AMS

12

13

14

15

16

17

18


2017 2018 2019 Futures


$/cw

t

1.3

1.4

1.5

1.6

1.7

1.8


$/lb

2017 2018 2019

Source: USDA-AMS

-1%

0%

1%

2%

3%

4%

15

16

17

18

19

20


billi

on lb

s


Source: USDA-NASS

2.0

2.1

2.2

2.3

2.4

2.5

2.6

2.7


$/lb

2017 2018 2019

Source: USDA-AMS

300

350

400

450

500

550


mill

ion

lbs

2016 2017 2018

Source: USDA-FAS

August 2012

12


Specialty and Non-Grain Crops: The USDA forecast for the Florida orange juice crop for the 2018/19 season remains unchanged from 207/18 at 45 million boxes. Projected fruit size is below the minimum, requiring an estimated 255 pieces of fruit to fill a 90-pound box. Projected droppage is above average at 26%.

Sugar, #16 (U.S.)

Cocoa

Sugar, #11 (World)

CottonOrange Juice

Coffee

• The February ICE sugar #16 average price of $0.26/lb.increased 1% vs. the prior month and remained flat vs. theprior year.

• The February average orange juice price of $1.19/lb.decreased 1% vs. the prior month and decreased 19% vs.the prior year.

• The February average cocoa price of $2,248/MT decreased3% vs. the prior month and increased 7% vs. the prioryear.

• The February ICE sugar #11 average cocoa price of$0.13/lb. increased 2% vs. the prior month anddecreased 5% vs. the prior year.

• The February average cotton price of $0.72/lb.decreased 2% vs. the prior month and decreased 8%vs. the prior year.

• The February average coffee price of $1.00/lb.decreased 4% vs. the prior month and decreased 17%vs. the prior year.

24

25

26

27

28

29

30

31


c/lb

2017 2018 2019

Source: ICE

1.10

1.20

1.30

1.40

1.50

1.60

1.70

1.80

1.90


$/lb

2017 2018 2019

Source: ICE

1,800

1,950

2,100

2,250

2,400

2,550

2,700

2,850


$/M

T

2017 2018 2019

Source: ICE

10

12

14

16

18

20

22


c/lb

2017 2018 2019

Source: ICE

0.65

0.70

0.75

0.80

0.85

0.90

0.95


$/lb

2017 2018 2019

Source: ICE

0.90

1.00

1.10

1.20

1.30

1.40

1.50


$/lb

2017 2018 2019

Source: ICE

August 2012

13


140

160

180

200

220

240

260

Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul

mill

ion

lbs

2016/17 2017/18 2018/19

Source: Almond Board of California

0

1

2

3

4

5

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

mill

ion

tons

Grape Crush Trends, 2008 - 2017

Raisin Table Red White

Specialty and Non-Grain Crops: Shipments and sales are top of mind, as retaliatory tariffs continue to impact tree nut markets. Almonds and pistachios reflect steady shipments despite tariffs.

Almond Shipments

Walnut Shipments Bearing Acres

• Almonds shipments in January accounted for 186.9MMpounds, down 1.7% Y/Y. China imports were down 10MMpounds, but the shortfall was made up with sales to Indiaand the Middle East.

• Almond shipments are holding at higher rates than theindustry anticipated. Prices are stable. China appears to bebuying nuts from Australia.

• February continued above average sales for Walnuts asstrong exports moved net shipments up 5.4%, Y/Y. TheMiddle East continues their buying spree for lots of U.S.Walnuts.

• 2018/19 pistachio crop continues strong shipments with15% growth, Y/Y. China and Hong Kong continue to bestrong buyers of pistachios.

• Pistachio shipments are following the same Y/Y trends, butvolumes of sales have increased. Tariffs are not impactingpistachios.

• Tariffs have impacted Pecans with Chinese exports down73%, Y/Y. The U.S. is working to open new markets withtheir Federal Marketing Order to help export sales. Mexicohas capitalized on the Chinese tariffs and is supplyingChinese demand.

Pistachio Shipments

2018 Grape Crush Results • Due to the government shutdown, the California Grape Crush

report has been delayed by the USDA until April 10th.

• Turrentine estimates the industry will experience a record crop at4.4MM tons.

• Bulk wine producers are long on Cabernet Sauvignon, Chardonnay,and Pinot Noir with some bulk wine producers still holding 2016vintages in tanks.

• Industry is experiencing downward pressure with oversupply andhigh inventories. Buyers will have the upper-hand and it is a goodtime to launch new programs with lower risk/prices from bulk wineinventories.

Source: Gomberg Fredrikson and Wine Institute

0

200

400

600

800

1,000

1,200

2005 2008 2011 2014 2017

1,00

0 ac

res

Almonds Walnuts Pistachios

Source: USDA-NASS

0

20

40

60

80

100

120

140

Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug

mill

ion

lbs

2016/17 2017/18 2018/19

Source: Administrative Committee for Pistachios

0

20

40

60

80

100

120

140

Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug

1,00

0 to

ns

2016/17 2017/18 2018/19

Source: California Walnut Board

August 2012

14


Framing Lumber Index U.S. Housing Starts

Repair & Remodel Expenditures (LTM total)

• The Framing Lumber Composite Index of $374/thousandsq. ft. for February was up 12% from January, reflectingthe first increase in 8 months. Although this was down 25%from February 2018 due to the sharp decline in the secondhalf of last year, it was down only 5% from two years ago.

• The Structural Panel Composite Index increased 2% inFebruary to $377/thousand sq. ft. This was down 27% Y/Yand below most of 2017 and 2018, but was slightly abovethe 2016 average of $370.

• U.S. housing starts of 1.23 million units in January werewell above December’s low total, but were down 8% fromJanuary 2018. This was the 4th consecutive month of a Y/Ydecline. Single-family homes increased 5% Y/Y in January,but that was more than offset by a sizable decline in multi-family units.

• LTM repair and remodel expenditures of $336.9 billionduring 4Q’18 were up 2% from the previous quarter andup 7% Y/Y, reflecting the largest Y/Y increase since 2007.

Structural Panel Index

Forest Products: Lumber prices rose 12% in January, reflecting the first increase in 8 months, while panel prices were up 2%. Both were well below last year. Housing starts have been down Y/Y for 4 straight months.

$320

$360

$400

$440

$480

$520

$560

$600


$/1,

000

sqft

2017 2018 2019

Source: Random Lengths

$320

$360

$400

$440

$480

$520

$560

$600


$/1,

000

sqft

2017 2018 2019

Source: Random Lengths

0%

1%

2%

3%

4%

5%

6%

7%

8%

200

220

240

260

280

300

320

340

1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 1Q18

billi

on $

Billion $ Y/Y Change (%)

Source: Harvard Joint Center for Housing Studies

-20%

-10%

0%

10%

20%

30%

40%

800

900

1,000

1,100

1,200

1,300

1,400


1,00

0 un

its

New Units Y/Y Change (%)

Source: U.S. Fed

August 2012

15


Crop Inputs: Nitrogen and phosphate prices eased in February on soft demand and slow movement, while potash prices were up slightly. Wet weather limited fertilizer application last fall, and is expected to shift some demand from ammonia to urea and UAN. Diesel prices are narrowly below last year.Ammonia DAP

Urea Potash

• Ammonia prices in the Corn Belt averaged $495/ton inFebruary. This was down 1% M/M, but was up 16% Y/Y dueto strength in prices during the second half of 2018.

• Urea prices in the Corn Belt averaged $286/ton in February.This was in line with the past 2 years, but down 6% M/M withdemand staying soft amid winter in the Northern Hemisphere.

• DAP prices in the Corn Belt averaged $409/ton in February.This was up 3% Y/Y, but down 3% M/M with interior demandsoft and movement limited by flooding on several major rivers.

• Potash prices in the Corn Belt averaged $319/ton in February.This was up <1% M/M and up 15% Y/Y after North America’stwo main producers raised price last fall and again in January.

Diesel Fuel Prices Gasoline Prices

• The U.S. on-highway diesel price averaged $3.00/gallon inFebruary. This was up 2 cents (1%) from January, but was 5cents (2%) below the previous year.

• Retail U.S. gasoline prices averaged $2.31 in February. Thiswas up 6 cents (3%) M/M, but was down 28 cents (11%)from February 2018 due to the sharp decline in late 2018.

280

320

360

400

440

480

520

560


$/to

n

2017 2018 2019

Source: Green Markets

200

225

250

275

300

325

350

375


$/to

n

2017 2018 2019


320

340

360

380

400

420

440

460


$/to

n

2017 2018 2019


240

255

270

285

300

315

330


$/to

n2017 2018 2019


$2.40

$2.60

$2.80

$3.00

$3.20

$3.40

$3.60


$/ga

llon

2017 2018 2019

Source: EIA$2.00

$2.20

$2.40

$2.60

$2.80

$3.00


$/ga

llon

2017 2018 2019

Source: EIA

August 2012

16


9.8

10.0

10.2

10.4

10.6

10.8

11.0

11.2


cent

s/kw

h

2016 2017 2018

Source: EIA

Supermarket Hourly Earnings

0%

1%

2%

3%

4%

5%

6%

11.50

12.00

12.50

13.00

13.50

14.00

14.50


$/Hour Y/Y Change %

Source: BLS

$6.50

$7.00

$7.50

$8.00

$8.50

$9.00

$9.50


$/tc

f

2016 2017 2018

Source: EIA

Energy and Labor: The Energy Information Administration estimates Brent crude oil spot prices averaged $59 per barrel (b) in January, up $2/b from December 2018 but $10/b lower than the average in January of last year.

Natural Gas Retail Prices Restaurant Hourly Earnings

Heating Oil Retail Prices

Commercial Electricity Prices Food Manufacturing Hourly Earnings

• The U.S. average retail price for natural gas increased 5% inDecember, and was up 4% from the prior year.

• The U.S. average heating oil retail price of $2.93/gallon inJanuary was down 1% from December, and up 1% Y/Y.

• The U.S. average retail electricity price of $10.33/kWh duringDecember was down 2% from November, and remained flatfrom the prior year.

• The restaurant labor index was up 4.6% Y/Y in February,and increased 0.3% from the prior month.

• The supermarket labor index was up 3.8% Y/Y in January,and down 0.3% from December.

• The food manufacturing labor index in February was up4.2% Y/Y, and decreased 0.6% from January.

$2.00

$2.25

$2.50

$2.75

$3.00

$3.25

$3.50


$/ga

llon

2017 2018 2019

Source: EIA -6%

-4%

-2%

0%

2%

4%

6%

8%

11.00

11.50

12.00

12.50

13.00

13.50

14.00

14.50


$/Hour Y/Y Change %

Source: BLS

0%

1%

2%

3%

4%

5%

14

15

16

17

18

19


$/Hour Y/Y Change %

Source: BLS

August 2012

17


Food and Agribusiness Industry Advisors

General disclosuresThe views expressed are intended for Wells Fargo customers only. They present the opinions of the authors on prospective trends and related matters in food and agribusiness as of this date, and do not necessarily reflect the views of Wells Fargo & Co., its affiliates and subsidiaries. Opinions expressed are based on diverse sources that we believe to be reliable, though the information is not guaranteed and is subject to change without notice. This is not an offer to sell or the solicitation to buy or sell any security or foreign exchange product.

Karol Aure-FlynnSector Analyst: Packaged Foods, Ag TechSector Analyst Team [email protected]

Chris EggermanSector Analyst: Grains, Crop Inputs, Forest [email protected]

Lakiesha McCainProject [email protected]

Brad RubinSector Analyst: Specialty [email protected]

Courtney SchmidtSector Analyst: Protein, [email protected]

Michael Swanson, Ph.D.Chief Agriculture [email protected]

Kevin BergquistSector Manager: Forest Products, Poultry, [email protected]

Matt DusiSector Manager: Fruits, Vegetables, [email protected]

Scott EtzelSector Manager: Dairy, Seafood, [email protected]

Tim LuginslandSector Manager: Grains, Oilseeds, [email protected]

Lee Ann PearceSector Manager: Tree Nuts, Vineyards, Wineries, Spices, Cocoa, CoffeeSector Manager Team [email protected]

Lon SwansonSector Manager: Crop Inputs/Feed, Beef, [email protected]

food and beverage - wells fargo · 2019-05-01 · cpi for food away from home increased 2.9% y/y,...

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