Outside Influences on the Grains & Oilseeds Industry: March 2020

China’s industries, including F&A, are bearing the immediate brunt of the coronavirus outbreak. The overall F&A impact – which is most severe for foodservice and on-trade channels – could be more serious and longer-lasting if the virus is not contained within Q1 2020. Disruptions are being experienced across the entire F&A supply chain, from phosphate fertilizers to animal protein and dairy to logistics and packaging.

Impact on G&O: Agri commodity prices are volatile, due to the uncertainty of the virus’s impact on trade and demand. Palm oil and soybeans were among the most volatile, due to the massive imports that move to China every year. Chinese soy oil consumption is expected to fall 6% to 8% YOY in 1H 2020 and soymeal consumption by 3% to 5%, both followed by a rebound in 2H 2020.

China’s pork production is expected to decline 15% to 20% in 2020, after a 21% decline in 2019. Hog herd restocking is being delayed, also partly due to the impact of coronavirus, and Rabobank expects the hog herd to decline further in 1H 2020 but rebound strongly in 2H 2020.

Impact on G&O: Similar to livestock, soymeal and feed usage are also estimated to decline in 1H 2020, followed by a recovery in 2H 2020. Livestock projections drive our consumption projections for a total feed recovery of 2% to 3% in the 2020 calendar year, after a 17% decline, with hog projections up 2% after a 40% fall in 2019. Chinese soymeal usage might recover to 68m metric tons in 2020, up from 66m metric tons in 2019.

China has agreed to purchase an extra USD 32bn of US agricultural products above the 2017 values over a two-year period, meaning China will have to buy large quantities of different agricultural products and not only G&O.

Impact on G&O: With ASF, coronavirus, and large Brazilian crops, it might be challenging to meet these ambitious targets, especially in the first half of 2020. Let’s see how long the US will remain patient before it increases the pressure, especially as the US election campaign progresses.

Rabobank’s industry survey reveals that food industry trends manifest themselves, and still some feel the industry is “chasing every new fad every couple of years.” The top surprises: 1) The “HypeP-O” of Beyond Meat; 2) fast-food restaurants being in the vanguard of the plant-forward trend; and 3) the “advancing reality” of cultivated meat, as “start-ups are on the edge of success and moving forward.

Impact on G&O: Traditional G&O and ingredient players are gearing up to supply the needed demand for plant-protein raw material (e.g. Cargill investing in PURIS; Ingredion and Roquette each building capacity for pulse proteins in North America; and ADM expanding production of non-GM soy protein in a Dutch oilseed plant). Cultivated meat is, in our view, an even bigger threat to the traditional feed and G&O industries, especially once costs drop significantly and product quality meets or exceeds that of conventional meat.

Sugar taxes are being implemented at an accelerating pace, and soft drink volumes are struggling across many markets in South and Southeast Asia.

Impact on G&O: Consumer trends that put soft drink volumes under pressure will impact the demand for grain-based sweeteners and the use of grains to produce them.

Corporate venture capital funds (CVC) are expected to expand and include a greater focus on acquiring new skills and consumer insights. But there is also growing discontentment and disillusionment with emerging brands.

Impact on G&O: Established G&O companies invest heavily in startups, especially in businesses that are either a natural expansion of the existing business or might evolve into potential largescale threats for the existing business models (e.g. in the alternative protein space). It allows established companies to gain insights or to broaden their product offerings.

There is a strong business case for sustainability in fresh produce, as it allows companies “to establish a long-term position as a trusted partner,” but the “benefits differ widely.”

Impact on G&O: Sustainability will remain crucial for G&O and demands will rise further.

Australia (download below): “The 2019/20 season will see a third consecutive contraction in farmgate revenues,” and “2020 will likely prove a pivotal year for the world’s transition to tackling climate change, and rebuilding a robust industry will be important for the major transition ahead.”

China (download below): Coronavirus not only drives local, but also strong global concerns for all kinds of industries.

North America (download below): While the phase-one purchase promises are a step toward normalization for US farmers and exporters, coronavirus concerns rise.

South America (download below): “2019 was spectacular for Brazilian corn and cotton,” as “Brazil became the second-largest exporter of cotton, and consolidated its positon as the second-largest corn exporter.” For the soybean sector, any recovery in revenues in 2020 is uncertain and dependent on the evolution of ASF, coronavirus, and US-Chinese trade relations.

Rabobank’s podcast channels on sectors, like Agri Commodities, Consumer Foods, and Beverages, as well as on different regions, including Australia & New Zealand, North America, and Brazil (many in Portuguese), house episodes in which analysts and industry players discuss interesting facts and thoughts that also relate to and/or impact G&O.

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