Transcript HGCA presentation template

HGCA response to RFA call for Evidence
Alastair Dickie
Director, Crop Marketing, HGCA
Question 3: What are the relationships between demand for
biofuel feedstock, commodity prices, land conversion and
food insecurity? How might these be affected in the future
by yield improvements and other factors?
World grain demand
- demand for world grains is rising (food & fuel)
Maize demand growth
=15Mt pa (1.9%)
Wheat demand growth
=5Mt pa (0.8%)
Source: USDA
World grain production 2007
- maize dominates, wheat at mercy of weather
800
Wheat
Maize
M tonnes
700
600
500
Source: USDA (Jan 08)
World opening grain stocks
fuelling volatility and reliance on the 2008 crop
Wheat
Coarse Grains
250
M tonnes
200
150
100
50
0
Source: USDA (Dec 07)
World wheat production
– erosion of yield triggered strong buying
First estimate
Latest estimate
Demand
640
Million tonnes
620
600
580
560
540
520
500
2002
2003
2004
2005
2006 est 2007 f'cast
Source: IGC (Oct 07)
World market volatility
- rally caused by wheat supply events!
290
US SRW wheat
French wheat
US maize
270
fob/del euro per tonne
250
230
210
190
170
150
130
110
Intervention
90
70
J
2
-0
l
u
Ja
03
n
J
3
-0
l
u
Ja
04
n
J
4
-0
l
u
Ja
05
n
J
5
-0
l
u
Ja
06
n
J
6
-0
l
u
Ja
07
n
J
7
-0
l
u
Ja
08
n
Source: HGCA
Wheat shortage, not biofuel demand
- high protein wheat at a large premium
Minneapolis Wheat
Kansas Wheat
LIFFE Wheat
750
350
650
300
550
250
450
200
350
250
150
150
100
Source:
Liffe Futures Prices, £ per Tonne
US Futures Prices, $ per Tonne
CBOT Wheat
Trend Analysis
- the key markets are just unpredictable
Wheat
Bean Oil
Rice
Sugar
Chicago Corn v NY Gasoline
- some linkage in price but not always
Chicago Bean oil v NY Diesel
- demand leakage gives price influence
Main market influences
- mostly non-UK factors
Global Factors
• Wheat crops lower in main
producing countries
• World 2007/08 wheat crop
not large enough to replenish
stocks
• Quality issues in the US
and the EU
• GM-free feedgrain demand
And here in the UK
• 2007 crop 1.6Mt lower than
in 2006, at 13.14Mt
• Overall quality lower than in
2006
• Just 11% meet high quality
bread wheat specifications
compared to over 40% in
2006
Source:
HGCA.
World Grain Production Costs*
- grain & oilseeds respond to economic signals
2002/3
Index to
Average*
($/mt)
2008/9
($/mt)
Seed
9.8
13.1
Fertiliser
19.4
38.9
Protection
15.6
20.8
Contracting
5.5
7.3
Total VC
50.4
80.0
Labour
14.7
19.6
Machinery
34.4
45.7
Other
13.2
17.5
Total Costs
112.6
162.8
$100-120
$200-350
Market price
* Estimated Average for France, UK, Canada, USA, Australia,
Ukraine, Kazakhstan. Excludes rent and mortgage charges
Source: HGCA & Friends
Back to basics
- economics applies to grain markets
S
Market Drivers:
Price
Weather,
Transport Costs
Trade flows
P
D
Q
Quantity
Back to basics
- demand shift from new / expanded uses
S
Market Drivers:
Asia demand
BioFuels
Crude Oil Prices
Price
P1
D2
D1
Quantity
Q1
Q2
Back to basics
- prices rise, yield problems, low stocks, new supplies
S
Market Drivers:
Security of
u Supply
Fuel Prices
New Plantings
Substitution
Sustainability
P2
Price
P1
D2
D1
Quantity
Q1
Q2
High forward prices for grain & oilseeds
- will lead to a global supply response
Production response
World wheat price at sowing
340
30
290
20
10
240
-20
'0
8
'0
6
'0
7
'0
4
'0
5
'0
2
'0
3
'0
0
'0
1
-10
'9
8
'9
9
0
190
140
-30
-40
CBOT SRW wheat futures $ per
tonne
40
'9
6
'9
7
World wheat end stocks M tonnes
50
90
Source: USDA/IGC/HGCA
World Wheat Area
strong prices encourage plantings
235
230
225
M Ha, 220.5
Million Ha
220
215
210
205
200
195
190
Source: USDA (Dec 07)
Supply response expected in 2008
- IGC forecasts record wheat crop of 646Mt
IGC estimates 3% increase for world wheat plantings:
• EU +6% to 26.3M Ha
• Germany +6%; France +5%; UK +13%
• FSU +3% to 47.9M Ha
• Russia +3%; Ukraine +12%
• Canada +14% to 9.8M Ha
• USA +5% to 21.7M Ha
• Australia +10% to 13.5M Ha
USA is planting more!
- but will there be enough maize, beans, or wheat?
% Change in US Plantings 2008?
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
R
W
S
he
at
U
A
re
S
a
M
ai
ze
A
U
re
S
a
B
ea
n
To
A
ta
re
lC
a
ro
p
A
re
a
H
S
U
W
R
S
R
H
-10.0%
W
-5.0%
W
W
0.0%
Source: USDA/ La Salle.
and EU-27 wheat production is rising
- area increase to boost output by maybe 17Mt in ‘08
2004/05
M Tonnes
40
2005/06
2006/07
2007/08
2008/09
+ 5.9Mt
30
+
3.4Mt
20
+3.3Mt
10
France
Germany
UK
Source: Strategie Grains
EU plants more Maize
- to address the feedgrain shortage
2008 Change in EU Maize Plantings
Po
la
nd
Hu
ng
ar
y
Ro
m
an
ia
Bu
lg
ar
ia
EU
TO
TA
L
UK
Fr
an
ce
Sp
ai
n
G
er
m
an
y
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
Source: Strategie Grains
HGCA Internal Study
- the analysis suggests a lot more wheat
UK Crop Estimates
Area
Yield
Production
(‘000 Ha)
(tonnes/Ha)
(‘000 Tonnes)
Wheat - Typical
1,800
7.90
14,220
Wheat - Zero Setaside
2,163
7.85
16,980
Expected Increase 2008
363
Ref: Strategy Graines
2050
2,760
8.02
16,441
Source: HGCA
Fob Vegetable Oil Prices
- soft oil demand boosts sun and rape oils
1700
Soya oil
Palm oil
1500
Rape oil
Sun oil
1100
900
700
500
2003/04
2004/05
2005/06
D
N
O
S
J
A
J
A
M
J
F
M
N
D
O
J
A
S
J
A
M
J
F
M
D
N
O
300
J
A
S
FOB $ / tonne
1300
2006/07
Source: Oilworld.
We know that Asia’s Veg Oil Needs are expanding
- both China & India are dependent on imports……
China
India
30
25
Production
Consumption
Production
Consumption
25
20
M tonnes
M tonnes
20
15
15
10
10
5
5
0
0
2003/04
2004/05
2005/06
2006/07
2007/08
2003/04
2004/05
2005/06
2006/07
2007/08
Source: USDA.
..but the EU also needs more oil
-and is also dependent on imports
EU Vegetable Oil Imports
‘000 ts
Palm Oil
Soya Oil
Rape Oil
5000
4000
3000
2000
1000
/0
8
20
07
/0
7
20
06
/0
6
20
05
/0
5
20
04
/0
4
20
03
20
02
/0
3
0
Source: Oilworld, www.oilworld.biz.
World Oilseed Production & Stocks
- sharp fall in carry-over stocks for next year
2008/09 beginning stocks down by 16Mt
80
450
Beginning Stocks
Production
70
400
250
40
200
30
150
/0
9
20
08
/0
8
20
07
/0
7
20
06
/0
6
20
05
/0
5
04
20
03
20
02
20
01
20
00
20
99
19
98
*
/0
4
0
/0
3
0
/0
2
50
/0
1
10
/0
0
100
/9
9
20
19
M Tonnes
300
50
M Tonnes
350
60
Source: USDA.
UK Household Expenditure
- more leisure and motoring
100
90
Leisure
80
Motoring expenditure
70
Clothing and footw are
60
%
Tobacco
50
Alcoholic Drink
40
Food
30
Pow er
20
Housing
10
0
1984
1994
2004
Raw Material costs are not the issue
- developed countries pay for added value
Costs as % of final price
Raw Material costs are not the issue
- managing costs is the issue
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Brand Marketing/Advert
Distribution
Secondary Processing
Distribution
Primary Processing
Haulage
Ex Farm Grain Price
1977 Profile
2007 Profile
Food Waste or Food Security
- less waste to release resources to tackle climate change
… let’s work together to improve our world
Thank you