hope that's light at the end of the tunnel

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.



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.



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.

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


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


-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


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


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)


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)


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)


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

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


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


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

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

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


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


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)


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)


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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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


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


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


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.


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.


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.


8

Global Economic & Markets Research Stephen Halmarick Chief Economist - Head of Global Economic & Markets Research +612 9303 3030 [email protected]

Commodities Telephone Email Address

Vivek Dhar

Tobin Gorey

Mining & Energy Commodities

Agri Commodities Strategist

+613 9675 6183

+612 9117 1130

[email protected]

[email protected]

Economics Telephone Email Address

Gareth Aird

Kristina Clifton

Belinda Allen

Nicolas Guesnon

Head of Australian Economics

Senior Economist

Senior Economist

Associate Economist

+612 9118 1100

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Fixed Income & Currency Strategy Telephone Email Address

Martin Whetton

Philip Brown

Tally Dewan

Elias Haddad

Joyce Yu

Belinda Cheung

Head of Fixed Income & Currency Strategy

Senior Fixed Income Strategist

Senior Securitisation Strategist

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International Economics Telephone Email Address

Joseph Capurso

Kim Mundy

Kevin Xie

Carol Kong

Head of International Economics

International Economics & Currency Strategy

China Economist

Associate International Economics and Currency Strategy

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Ai-Quynh Mac

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Sales

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