global poultry perspectives

Global Poultry

Perspectives

Will Sawyer

Executive Director

Rabobank International

Rabobank is the financial link in the global animal protein chain

Clients around the globe

14 of the Top 20 global Animal Protein companies are Rabobank clients

in commitments to the global Animal Protein industry

EUR 12 billion

150

14/20

60Pork & Beef

47

43

Poultry

Seafood

Global animal protein coverage & research team

Pablo Sherwell

Senior Analyst

Don Close

Senior Analyst

Beef

Will Sawyer

Senior Analyst

Pork and Poultry

Adolfo Fontes

Senior Analyst

Justin Sherrard

Global SectorStrategist

Nan-Dirk Mulder

Senior Analyst

Gorjan Nikolik

Senior AnalystSeafood

Lian Heinhuis

Analyst

Seafood

Albert Vernoij

Analyst

Pawan KumarSenior Analyst

Chenjun PanSenior Analyst

Matthew Costello

Analyst

Angus Gidley-Baird

Senior Analyst

Atlanta

Mexico

Sao Paulo

Sydney

Utrecht

Hong Kong

Singapore

Bill Cordingley

Global Sector Head Animal protein

Luca PardolesiHead of Animal protein M&A

Europe

Emma HigginsAssociate Analyst

Christchurch

Sector coverage

Sector research

New York

St. Louis

Adriaan Weststrate

Vice Chairman

Animal protein

Anything Can Happen, Including Global Poultry

Source: New York Times

The day that set a new course for global poultry

December 1st, 2014

H5N2 is discovered on two poultry farms (broilers,

turkeys) in British Columbia, Canada

Global Poultry Perspectives

An Outlook Shaped by Disease, Trade, and War

Chapters

1: AI in North America

2: Trade flows interrupted

3: China’s poultry gap

4: Currency Wars

5: Brazil fills the void

6: Global outlook

In the first six months of 2015, AI spread to 22 US states and affected over 50 million birds

• Source: Watt Poultry

Egg and Turkey Margins Climbed to Historic Highs

• Source: Informa Economics• Source: Informa Economics

Turkey Margin (cents per pound)Egg Margin (cents per pound)

-20

0

20

40

60

80

100

120

2007200820092010201120122013201420152016-20

0

20

40

60

80

100

120

2007200820092010201120122013201420152016

The US’ Primary Broiler Region was Spared

• Source: USDA, Rabobank Estimates

US Migratory Bird Flyways and Broiler Slaughter by State

Primary Production States

Secondary Production States

No Major Production

(591.8)

(727.2)

(181.3)

(75.6)

(53.4)

(46.8)

(288.5)

(969.8)(205.3) (232.5)

(795.2)

(180.6)

(1,324.2)

(1,061.5)

(262)

(66.7)

DE (244.1)

MD (287.8)(95.3)

(308)

Mississippi Flyway

Atlantic Flyway

Banned States



Chapters




4: Currency Wars


6: Global outlook

No Ban

State/County Ban

US Ban

US Poultry Exports Faced Many Bans and Some Are Still in Place

• Notes: The top 40 markets for US chicken exports including the EU• Source: USAPEEC, May 2015

0

10

20

30

40

50

60

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Leg Quarter Values Fell to Mutli-Year Lows

• Source: USDA, Rabobank Estimates

Estimated Render Value

Aug-2008Russia ban due to

war in Georgia

Sep-2005Decline due to fears

over bird flu

Jan-2010Russia ban due to

use of chlorine

Aug-2014Russia ban due to actions in Ukraine



Chapters




4: Currency Wars


6: Global outlook

Meanwhile China is Facing HPAI issues of its Own, Plus Food SafetyHuman Cases of H7N9

YUM Same Store Sales China Division

-30%

-20%

-10%

0%

10%

20%

30%

Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15

(12)

(8)

(4)

0

4

8

12

16

20

Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16

China’s Poultry Producers Have Lost Money Off-and-On for 4 Years

• Source: Rabobank Estimates

Gross Margin Rmb/bird

China Bans All US Poultry

Imports

With AI in the US and France, China’s Genetic Supply is Drying Up

• Source: MOA, Boyar, Rabobank, 2015

0.75

0.92 0.94

1.21

1.32

1.54

1.19

0.70

0.40

0

0.5

1

1.5

2

2008 2009 2010 2011 2012 2013 2014 2015 2016f

China’s annual imports of grand parent stock

(in millions)

China is Developing a Massive Poultry Supply Gap

• Source: USDA, Rabobank Estimates• Source: USDA, Rabobank Estimates

China Chicken Imports (000s tons)China Chicken Production (000s tons)

7,000

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000

0

100

200

300

400

500

600



Chapters




4: Currency Wars


6: Global outlook

Currency Wars Are Shaping Meat Trade Flows

• Source: USDA PSD• Source: USDA PSD

USD / Japan YenChina RMB / USD

5.6

5.8

6.0

6.2

6.4

6.6

6.8

7.0

60

70

80

90

100

110

120

130

The US is at the Center of a Global “Flight to Safety”

90

100

110

120

130

140

150

160

170

180

Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16

USD Index Brazilian real Euro Mexican peso Canadian dollar

Currency is Also Reshaping Production Costs

$2

$3

$4

$5

$6

$7

$8

$9

$10

$11

2008 2009 2010 2011 2012 2013 2014 2015 2016

(US

Do

llar

pe

r B

ush

el)

US - Gulf Region Japan China - Jilin Brazil - Parana



Chapters




4: Currency Wars


6: Global outlook

Despite Expanding Consumption and Exports, Producers Have Struggled

Brazil Poultry Consumption and Exports (million tons)Brazil Production Margin (real per kilo)

• Source: Rabobank Estimates, USDA

-5

0

5

10

15

20

25

30

35

40

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Jan

-15

Jul-

15

Jan

-16

Jul-

16

2.52.9 3.2 3.2 3.3 3.4 3.5 3.5 3.6 3.8 4.2 4.4

6.9

7.4

7.8 7.8

9.09.4 9.1 8.8

9.19.3

9.59.7

0

2

4

6

8

10

12

14

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017F

Exports Domestic Consumption

The Domestic Economy Looks to Rebound in 2017, But Unemployment Remains an Issue

The Incentive to Expand Exports is Clear

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

2009 2010 2011 2012 2013 2014 2015 2016

BR

L/kg

Brazil Gross Broiler Margin Comparison

Domestic Export

With the US Facing AI and FX Headwinds, Brazil is Winning

691 760

265380

187215360

380144

160113

122112

123

H1 2015 H1 2016

Brazil Chicken Exports in First-Half 2016 versus 2015

SouthAfricaEU

UAE

SaudiArabia

1.87 million tons2.14 million tons

As China’s Poultry Imports Rise, Brazil is the Only Real Option

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

United States Argentina Chile France Brazil Others

Poultry imports by countries 2009-Jul 2016Tonnes



Chapters




4: Currency Wars


6: Global outlook

Poultry Consumption in Developed Markets Shouldn’t Be Ignored

0

10,000

20,000

30,000

40,000

50,000

60,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Developed World

Rest of World

4.2%

2.6%

5.7%

1.3%2.6%

2.3%

Profit Margins In Global Poultry is a Mixed Bag

• Source: Public company filings for relevant operating segment.

13.4%

14.1%

3.0%

0.1%

6.1%

20.4%

7.2%

11%4.7%

Global Animal Protein Consumption Growth:Poultry to Overtake Pork by 2021

Global Animal Protein Consumption (million tons) and CAGR

+0.8%

+3.8%

+0.7%+1.3%

+2.1%

+4.2%

+1.9%

+1.6%

+2.1%

Source: OECD-FAO

+1.1%

+2.2%

+1.1%

+1.2%

+1.8%

+0.7%

50.0

60.0

70.0

80.0

90.0

100.0

110.0

120.0

130.0

140.0

2015: +1.8%

Projected global production growth2015 and 2016

2016f: +1.6%

Brazil

Canada

ChinaEU-27

Australia

India

US

Japan

Mexico

Argentina

Russia+2.6%

+0.7%

+2.6%

+3.5%

+3.4%

+0.2%+9.1%

+0.7%

+2.5%

+8.9%

Source: Rabobank analysis based on USDA and regional data, 2016

Thailand

+5.1%

Indonesia

+6.0%

South Africa

+2.0%

Ukraine

+1.1%

Turkey

+1.2%

Colombia

+7.7%

+1.2%

+1.8%

+3.1%

+2.3%

+1.2%

+3.5%

+0.7%

+1.2%

+4.5%

-2.5%

+0.5%

+0.0%

+6.7%

+3.9%

+3.5%

Global poultry production growth in 2015 and 2016f: Where is the current industry growth?

+1.9%

+3.5%

+4.7%

+0.7%

AI

AIAI

AIAI

AI

AI

AI

AI

AI

+6.4%+6.1%

Sub Saharan Africa

The Global Presence of AI in Important Production and Consumption Regions

Source: Company filings, Annual Reports and Investor Presentations

2011 figures represent the latest available data reported,McDonald’s figures estimated based on historical performance and guidance from available press releases

YUM!®

6,853

2,300

500 350

10,000

4,150

3,000

1,000

-

2,000

4,000

6,000

8,000

10,000

12,000

2015 2020F 2015 2020F 2015 2020F 2015 2018F

Western QSR outlets in China

2,300

700 664 346

10,000

2,000

1,000 1,000

-

2,000

4,000

6,000

8,000

10,000

12,000

2015 2020F 2015 2020F 2015 2020F 2015 2020F

Local QSR outlets in China

QSR remains the major driver for the

global poultry market

ConclusionsDisease

•The possible spread of avian influenza remains a key risk to global poultry production and trade flows.

China•As China enters a period of diminished genetic stock and limited options for imports, Brazil will

enjoy sharply higher exports through 2017.

Brazil•With a questionable macro outlook and a weak domestic economy poultry should enjoy improved

consumption and exports. This will likely also lead to consolidation of the 2nd and 3rd tier players

Global•As feed costs remain low in most regions of the world, global production and demand for poultry

will be strong benefitting producers and margins

global poultry perspectives

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