Singular Sensation or Thrilling Combination MFS Nimmitabel Georgia Twomey September 2017
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Australia New Zealand Sector specialists RaboResearch Sector specialists across all major F&A sectors in Australia and New Zealand Part of global teams Across a number of locations in Australia and New Zealand Engage throughout the supply chain 3
Singular Sensation to Thrilling Combination Wool and lamb market performance riding high Speedbumps ahead for wool? Discussion: Where to next for the Australian Merino
Report Card 5
AUD c/kg Australian wool prices surge through records Australian Eastern Market Indicator 1700 1600 1500 1400 1300 1200 1100 1000 900 800 2013/14 2014/15 2015/16 2016/17 2017/18 5 Year Average 10 Year Average Source: Bloomberg, Rabobank 2017
Micron Supply did remain fairly steady and rebalance of micron profile began 31 30 27-28 25 24 23 22 21 20 19 18 17 16-10% -5% 0% 5% 10% 15% 20% 25% 30% YOY Change Source: AWTA, 2017 7
Price relativities certainly responded 1400 Micron Premiums 1200 1000 800 600 400 200 0 19-21 premium 18-21 premium 17-21 premium Source: Bloomberg, Rabobank 2017
USD Currency was due to be supportive which it was - for a month 0.85 0.80 0.75 0.70 AUD/USD Source: Bloomberg, Rabobank 2017
What did we miss? MC 32 (S) 28 (S) 21 19 China s buying shift out of the broad into the fine. 18 17-40% -20% 0% 20% 40% 60% Source: AWIS, Rabobank 2017
c/kg cwt c/kg cwt The lamb market also outperformed on expectation Restocker/feeder lamb 800 750 700 650 600 550 500 450 400 350 300 Export lamb 22kg+ 800 750 700 650 600 550 500 450 400 350 300 2015 2016 2017 5 yr ave 2015 2016 2017 5 yr ave Source: MLA, Rabobank 2017 11
On the surface Australian supply to remain steady in 2017/18 Source: Bloomberg, Rabobank 2017
c/kg clean Lack of currency support has seen USD prices rise strongly through the last 12 months 2400 1900 1400 900 400 1600 1500 1400 1300 1200 1100 1000 900 800 700 Source: Bloomberg, Rabobank 2017 EMI AUD v USD Merino Prices USD 17 Micron 18 Micron 19 Micron 21 Micron EMI AUD EMI USD EMI USD 5 year Average EMI AUD 5 year average Currency strength lifting wool price in USD terms - Historically high prices in USD terms - Currency forecast still for depreciation in next 12 months?
This strengthening has contributed to a widening gap with competing fibres 160 150 140 130 120 110 100 90 AWOLRIE Index (USD) COTLOOKA Index AWOLN18 Index Source: Bloomberg, Rabobank 2017
USc / pound Which are expected to remain under some pressure 90 85 80 75 70 65 60 Bearish outlook on ICE #2 Cotton, but only once US weather risk dissipates and yields are confirmed 55 ICE NY No. 2 Cotton Previous forecast Rabobank forecast Brent crude to range trade but remain subdued Source: Bloomberg, Rabobank 2017 15
Million kg Million kg Can China s demand for fine wool be sustained at current levels? <19m 180 160 140 120 100 80 60 40 20-07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 16-17 100% 95% 90% 85% 80% 75% 70% 65% 60% 55% 50% China s share of fine wool imports has risen from 63% - 88% in the last decade exports to China wool tested export share to China 20-23m Mid micron wool has tracked closer to supply changes 250 200 150 100 50-07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 16-17 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Source: AWIS, AWTA Rabobank 2017 exports to China wool tested export share to China
When key product segment exports have weakened YOY? -7% -3% 29% -15% -6% Source: UN Comtrade, Rabobank 2017
Market Outlook Beyond the EMI - Fine wool price levels high in USD terms - Competitiveness a risk factor and outlook for other fibres not supportive - Supply balance in Australia will continue to play an important role in price relativity of the various types - Some upside potential for broader wool although not expected to be a sharp turnaround
Singular Sensation to Thrilling Combination Discussion: Where to next for the Australian Merino?
1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Slaughter (million head) Inventory (million head) Changing flock dynamics over a sustained period poised for change? Still 25 20 15 10 5 0 180 160 140 120 100 80 60 40 20 0 Lamb slaughtered Sheep slaughtered Sheep inventory 20
'000 tonnes 000 tonnes Both sheepmeat and wool small players in big fields getting production right is important World textile fibre demand World meat demand 70000 60000 45000 40000 50000 40000 30000 1.3% of major global textile fibre consumption 35000 30000 25000 20000 2% of global meat consumption 20000 15000 10000 10000 5000 0 2015 Wool Cotton Synthetic 0 Beef and veal Pork Poultry meat Sheepmeat Source: ICAC, Rabobank 2016 Source: OECD, Rabobank 2016
Building the case for change? Dollars and cents Technology Customer oversight
Jan-00 Oct-00 Jul-01 Apr-02 Jan-03 Oct-03 Jul-04 Apr-05 Jan-06 Oct-06 Jul-07 Apr-08 Jan-09 Oct-09 Jul-10 Apr-11 Jan-12 Oct-12 Jul-13 Apr-14 Jan-15 Oct-15 Jul-16 Apr-17 Kg cwt Making cents of the demand 27.00 25.00 23.00 21.00 19.00 17.00 15.00 NZ carcase weights lamb average carcase weight Sheep average carcase weight 12 per. Mov. Avg. (lamb average carcase weight) 12 per. Mov. Avg. (Sheep average carcase weight) 23
Decisions Decisions Decisions
Thank you!!! Georgia Twomey Commodity Analyst Food & Agribusiness Research and Advisory Australia and New Zealand t. +61 2 8115 2446 e. Georgia.twomey@rabobank.com Meet the FAR Australia & New Zealand research team Tim Hunt, General Manager Food & Agri Research Australia and New Zealand Angus Gidley-Baird, Senior Analyst (Beef) Blake Holgate, Analyst (Animal Proteins) Michael Harvey, Senior Analyst (Dairy/Farm Inputs) Cheryl Kalisch-Gordon, Senior Analyst (Grains & Oilseeds) Wesley Lefroy, Analyst (Grains & Oilseeds) Emma Higgins, Analyst (New Zealand Dairy) Catherine Keo, Business Coordinator
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