Opportunity and Interesting Times for · 2013 U.S. UREA IMPORTS China Russia Canada 568 541 1,654...
Transcript of Opportunity and Interesting Times for · 2013 U.S. UREA IMPORTS China Russia Canada 568 541 1,654...
Opportunity and Interesting Times for
Agriculture
Brian Schouvieller
Senior Vice President, Ag Business
DTN/Progressive Farmer, Chicago, Ill.
December 2014
Farmer-owned
with global
connections.
TODAY’S TOPICS
• Global competition
• U.S. transportation system
• Global food demand
• U.S. energy boom
• Global nitrogen fertilizer production
WHO WE ARE
• Nation’s leading cooperative, owned by farmers, ranchers and
co-ops
• Core business global grains, agronomy, energy and foods
• Cenex® brand
• Focused on helping our owners grow
• More than 10,000 employees in the U.S. and 24 other countries
RECENT CHS HIGHLIGHTS
• Fiscal 2014 net income
$1.1 billion
• Fiscal 2014 net revenues
$43 billion
• 2014 patronage refund est.
$518 million
LOOKING BACK
Let the good
times roll!!
HISTORIC CORN, SOYBEAN, WHEAT
PRICES
Ethanol mandate
U.S. FARM INCOME IN BILLION DOLLARS
0
20
40
60
80
100
120
140
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*
Source: USDA ERS
FARM MACHINERY SALES
0
20
40
60
80
100
120
140
160
180
200
220
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*
(thousand units)
Tractors Combines
Source: AEM
LOOKING FORWARD
CURRENT MARKETPLACE DRIVERS
regulation
Cost of capital
Lower commodity prices
Global competition Foreign investment
Volatility
Land prices
Pricing
Counterparty risk
Transportation Currency
Weather
Energy Prices
Input costs
Global food demand
Technology
GLOBAL CORN PRODUCTION
COMPARISON - 10 YEAR CHANGE
UNITED STATES +21% +25% +52%
CHINA +52% +24% +88%
UKRAINE +310% +81% +642%
BRAZIL +27% +67% +111%
ARGENTINA +34% +16% +56%
HARVESTED
AREA YIELD PRODUCTION
GLOBAL CORN TRADE FLOWS – 10 YEAR
Fd
COST OF CORN PRODUCTION MAJOR
EXPORTERS
0
50
100
150
200
250
US C/SB US C/C UKR BRZ MG ARG
Land
Logistic
Production
192 198 216
171
216
$ p
er
ton
U.S. transportation
system takes
center stage
CURRENT RAIL SITUATION
• Drivers of performance
• Lack of resources
• Growth in all sectors
• Extreme weather
• Outcomes
• Unpredictable service
• Longer cycle times
• Higher car costs
• Outlook
• Significant investments pay off longterm
CURRENT WATERWAY SITUATION
• Weather related delays
• Growing demand in all sectors
• The waterway system is operating under capacity
• De-bottlenecking pinch points could add 50%
additional capacity
• Who will fund needed improvements
CURRENT TRUCK SITUATION
• Underinvestment in
infrastructure during recession
• More than 10% of drivers left
industry (2008 – 2012)
• Continued driver shortage
• Changing regulatory climate
• Hours of service rules adding
to capacity constraints
• Impact like reducing labor
force by 5%-10%
• Strong demand for trucking
services from all sectors
Opportunity
ahead: The world is hungry;
especially China
POPULATION GROWTH BY CONTINENT
0
2 000
4 000
6 000
8 000
10 000
12 000
Predicted Population by Continent, in millions
WORLD
AFRICA
ASIA
EUROPE
LATINAMERICA
NORTH.AMERICA
9.3B
7.1B
A GROWING MIDDLE CLASS
0
1
2
3
4
5
6
2012 2020 2030
In billions
190 million per year
1.8
3.2
4.9
Asia will account for 85% of growth
A HUNGRY CHINA
0
200
400
600
800
1,000
1,200
1,400
1,600
1960 1980 2000 2020 2040
Mil
lio
n T
on
s
Source: EPI from USDA, IMF, UNPop
Grain Consumption in China, 1960-2010, with Projection for 2035
Ea
rth
Po
lic
y In
sti
tute
- w
ww
.ea
rth
-po
lic
y.o
rg
NET GRAIN IMPORTS IN DEVELOPING
COUNTRIES
Source: FAO
Increase of 6.6 billion bushels
U.S. energy
independence,
what does it mean?
SHALE DEPOSITS AND HYDRAULIC
FRACKING
U.S. CRUDE OIL PRICE (WTI)
Source: EIA
$60
$70
$80
$90
$100
$110
$120
Nov-2
009
Ma
r-201
0
Jul-20
10
Nov-2
010
Ma
r-201
1
Jul-20
11
Nov-2
011
Ma
r-201
2
Jul-20
12
Nov-2
012
Ma
r-201
3
Jul-20
13
Nov-2
013
Ma
r-201
4
Jul-20
14
Nov-2
014
ADVANTAGES IN NORTH AMERICAN
ENERGY
• Cheaper fuel prices?
• Gasoline
• Diesel
• Impact on renewable fuels
• Domestic
• Export
• Nitrogen fertilizer production
• Global economy
• Oil producing economies at risk
Cheap reliable
natural gas fuels
U.S. nitrogen
fertilizer expansion
NATURAL GAS TRENDS
2013 U.S. UREA IMPORTS
China
RussiaCanada
568
5411,654
UAE
547
Quatar
1,093
Bahrain
315
Saudia Arabia
497
Oman
553
Kuwait
425
Egypt
135
Indonesia
271
Trinidad
423
United States
7,212
United States Urea Imports (2013)Thousand Tonnes
BUT UREA IMPORTS TAKE TIME
Agree to Price (5 days) Fix ship/Under load spout (10-20 days) Load ship (6 days) Sail time via Suez Canal (30-35 days) Unload ship (5 days) Barge transit to St. Paul (16 days) Unload at destination (2 days) Total time to dealer +70+ days
MENA
New Orleans
St. Paul
NITROGEN PRODUCTION PROJECTS
Medicine Hat, AB
CF Industries
1.3 million tons NH3
Beulah, ND
Dakota Gas
400K tons NH3
Borger, TX
Agrium
650K tons NH3
Enid, OK
Koch Industries
1.2 million tons NH3
Donaldsonville, LA
CF Industries
4 million tons NH3
Port Neal, IA
CF Industries
1.2 million tons NH3
Spiritwood, ND
CHS Inc.
800K tons NH3
Grand Forks, ND
Northern Plains
800K tons NH3
Weaver, IA
Orascom
2 million tons NH3
Mount Vernon, IL
Midwest Fertilizer
800K tons NH3
Proposed new facility Under construction
American Falls, ID
Magnida
800K tons NH3
Total Expansion Capacity:
6M tons
Tuscola, IL
Cronus Chemical
800K tons NH3
GLOBAL SUPPLY AND DEMAND
FORECAST
WORLD UREA COST COMPARISON
$310
$250
$177 $170 $160
$80 $124
$404
$345
$271 $250
$190 $179
$139
0
10
20
30
40
50
60
70
80
90
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
E. Europe China Russia LatinAmerica
NorthAmerica
MENA Spiritwood
M t
on
s
Pri
ce
(p
er
me
tric
to
n U
rea
)
Production Source
AdditionalCosts
Cash CostofProduction
Capacity Mtons
U.S. UREA IMPORTS VS. PRODUCTION (MILLION TONS)
0
1
2
3
4
5
6
7
8
9
10
2010 2011 2012 2013 2014 2015 2016 2017
Imports
Production
Source: Informa Economics
AMMONIA
• Tight international market
• Unrest in Ukraine
• Trinidad gas curtailments
• Trinidad is largest origin of ammonia imports to U.S.
• Government promised improvement by year-end would bode well for 2015
• Risk aversion throughout the system
• International supply picture should improve, but when?
• Phosphate curtailments help, but price is still climbing
UAN
• Big summer fill!
• Suppliers sold forward
• Still fulfilling those orders
• Buyers still waiting for
purchased tons
• Some allocation due to
lack of inventory
• Logistics will play a key
role
UREA
• Focus on late harvest, yields, grain prices, 2015 acres
• Urea is a relative bargain based on cost per unit of N
• Lack of buyer commitment suggests length in distribution chain
• Record-high fleeting and barge rates discourage trader positioning and spot vessels
• Open-origin more accepted than in the past
FINAL THOUGHTS
• Transition from a strong agricultural environment to one
that is softer
• Global demand remains strong creating a need for more
food production
• Strong United States energy markets provide United States
farmers with opportunity
FEDERAL RENEWABLE FUEL STANDARD
(2008 - 2022)
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Biomass-based Diesel 0.50 0.65 0.80 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
Non-cellulosic Advanced 0.10 0.20 0.30 0.50 0.75 1.00 1.50 2.00 2.50 3.00 3.50 3.50 3.50 4.00
Cellulosic Advanced 0.10 0.25 0.50 1.00 1.75 3.00 4.25 5.50 7.00 8.50 10.50 13.50 16.00
Conventional Biofuels 9.00 10.50 12.00 12.60 13.20 13.80 14.40 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00
Billi
on
s o
f G
all
on
s
KEYSTONE WOULD UNLEASH TRAPPED
CRUDE SUPPLIES TO THE WORLD