MLA cattle outlook and 101 cattle forwards20th October 2016

Presented by: Ben Thomas, MLA & Matt Dalgleish, Mecardo

Before we start

» Presentation is content rich – Charts and Figures.

» Charts will be used to show trends and tell a story don’t get too caught up on the details.

» Relevant information for strategic long-term decision making.

Ben ThomasManager, Market Information

Matt DalgleishSenior Market Analyst

Andrew WhitelawGrain Analyst & Manager, Business

Development

Mecardo – Cattle Market UpdateOctober 2016

Ben Thomas – Manager, Market Information

From dust to deluge

From one unprecedented level to another20

0120

0220

0320

04

2011

2012

2013

2014

2015

2016

2018

2019

2020

100000

110000

120000

130000

140000

150000

160000

170000

Source: MLA, rolling 12 month average eastern states cattle slaughter

Cattle herd - population changes2015-16 on 2012-13 percentage change

LegendMore than 41%

31 to 41%

21 to 30%

11 to 20%

1 to 10%

0

-1 to -10%

-11 to -20%

-21 to -30%

-31 to -41%

More than -41%

Shaded regions have greater than 20,000 head

2015-16 figures are MLA estimates based on ABS data

Percentage changes are from the national herd peak in 2012-13 (29.3 million head)

Note:

1,256,969

2,114,568781,200

161,0041,346,351

946,306

134,4012,676,644

550,6544

351,194479,409

852,221

704,392838,925127,640638,081555,381732,685115,243

453,066

406,609

227,629

329,814

57,301328,662

98,550291,121452,132

216,250

175,22520,675

28,00386,471

107,568693,162 588,446

152,641383,936

570,641

75,722869,220

362,425431,441

327,163818,357

1,094,022

Dashboard of 2016 production changes*

Adult c

attle

slaug

hter

Fem

ale sl

augh

ter

Carc

ase w

eights

-30-20-10

0

year-on-year 5 year

%

Source: ABS

* = January to July

Grainfed beef

Grassfed beef

-20-15-10-505

1015

year-on-year 5 year

%

• 10-year average grainfed proportion of production is 36.6%

• Exceeded that in wet years – with more grassfed cattle retained

• 2015/16 grainfed production was 39% - expectations for 2017 are slight reduction, to 38%, on the back of herd rebuild offset by high feeder cattle prices

Dashboard of 2016 production changes*

Source: ABS, MLA estimates* = change from 15/16 fiscal year

More US beef, pork and chicken to come

Source: September World Agriculture Supply Demand Estimates

Australia vs global beef exports

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

200

700

1,200

1,700

2,200

2,700

3,200

Brazil Australia India US

‘000

tonn

es c

we

Source: OECD

Forecast

Beef to China region* from major exporters

Mar-10

Sep-10

Mar-11

Sep-11

Mar-12

Sep-12

Mar-13

Sep-13

Mar-14

Sep-14

Mar-15

Sep-15

Mar-16

050000

100000150000200000250000300000350000400000450000

USUruguayAustraliaIndiaNZBrazil

Source: Global Trade Atlas, quarterly basis*=Direct shipments from each respective country to aggregated China, Vietnam and Hong Kong

Impact of all this on the market…

Restockers driving market more than ever

2010 2011 2012 2013 2014 2015 2016200

300

400

500

600

700

800

Feeder Processor Restocker

¢/kg

cw

t 5¢*17¢*22¢*

48¢*24¢*

10¢*

Source: MLAEYCI by buyer type, latest data includes up to 13 September 2016; *= Restocker premium over processor purchases

21¢*

US Imported 90CL vs Medium Cow*

1998 2003 2008 20130

100200300400500600700800

Medium CowCow Meat 90 CLDifference

¢/kg

Source: MLA, Steiner Consulting Group*= Medium cows are 400-520kg D3, national average across all NLRS reported saleyards

ConclusionsOn one hand:

• Tightest supply of cattle in 20 years

• Exceptional winter rainfall – set for abundant spring feed

• Restockers have entered the market in force

But on the other:

• Global beef prices have softened from the highs of 2014 and 2015

• US production and competition is on the rise

• Brazil continues to push more beef into China

• A$ strengthened in 2016

Disclaimer

Care is taken to ensure the accuracy of the information contained in this publication. However MLA cannot accept responsibility for the accuracy or completeness of the information or opinions contained in the publication. You should make your own enquiries before making decisions concerning your interests. MLA accepts no liability for any losses incurred if you rely solely on this publication.

Information contained in this publication is obtained from a variety of third party sources. To the best of MLA’s knowledge the information accurately depicts existing and likely future market demand. However, MLA has not verified all third party information, and forecasts and projections are imprecise and subject to a high degree of uncertainty.

MLA makes no representations and to the extent permitted by law excludes all warranties in relation to the information contained in this publication. MLA is not liable to you or to any third party for any losses, costs or expenses, including any direct, indirect, incidental, consequential, special or exemplary damages or lost profit, resulting from any use or misuse of the information contained in this publication.

Care is taken to ensure the accuracy of the information contained in this publication. However MLA cannot accept responsibility for the accuracy or completeness of the information or opinions contained in the publication. This information is not medical advice and you should consult a health professional before making any decisions concerning your interests

Mecardo Market View

Short term correction levels

EYCI – 90CL spread forecasts

EYCI longer term forecasts

EYCI long term forecasts

What are forward contracts & how do they work?

Overview of a forward contract

» Commitment to deliver a certain amount of a product within a certain time period.

» Settled through cash or physical delivery» Used to reduce price risk» Lock in price components in advance of

trading the physical product» Works in conjunction with trading the

physical product by locking in the overall price received for the product

Current forward products

» Direct forward contracts (tailored)» Auctions plus forward contracts

(tailored)» Riemann forward contracts

(standardised)

Riemann Cattle

» Cattle – cash settled against EYCI– 4,000 kg minimum contract with 1,000 kg

increments– Maturity dates are the second and fourth

Thursday of the first six months with maturity dates set against key saleyard selling days, and then every fourth Thursday per month for the next 18 months

– http://www.riemann.com.au/wp-content/uploads/2016/03/Riemann-Cattle.pdf

Why use a Riemann forward contract

» Helps to mitigate price risk» Licenced and regulated marketplace» Independent and transparent market for

buyers and sellers» Producers, processors and investors have

easy access to risk management tools» Participants not subject to margin

requirements

How does it differ from a physical delivery contract

» Not settled by physically delivering cattle to the buyer

» Cash settled against the EYCI» Therefore, at time of settlement the

difference in price of the EYCI must be paid by either the buyer or seller

Example

» The forward contract rate was locked in at 675c

» At maturity if the EYCI is at 660c the buyer must pay the seller the 15c difference

» OR» At maturity if the EYCI is at 680c

then the seller must pay the buyer the 5c difference

Example

• John is a cattle producer from Queensland• He is planning to sell 60 head of 500kg heavy

steers in Jan 2017

Example

• John is a cattle producer from Queensland• He is planning to sell 60 head of 500kg heavy

steers in Jan 2017

Pros and Cons

» Standardised product means increased participants

» Transparent prices » Broad based buyer/seller access» Cash settled» No physical delivery required

Pros and Cons

» Standardised product – not tailored to cattle type and exact date of sale

» Spread risk between EYCI and cattle type/location (no different to physical sales)

Q&A

Ben ThomasManager, Market Information

Matt DalgleishSenior Market Analyst

Andrew WhitelawGrain Analyst & Manager, Business

Development

More information

» Matt Dalgleish matt@agconcepts.com.au , 0439 454 557» Andrew Whitelawandrew@mecardo.com.au, 0457 054 169» Non-Mecardo subscribers will receive

one month of Mecardo premium access for free