August 2012 January 2017 Industry Update Food and Agribusiness Supermarket & Restaurant Comps • Supermarket comparable sales are in the -2.0% to -1.0% range driven by -1.5% to -1.0% volume decline and -0.5% to 0.0% price. • Restaurant comparable sales are in the -1.5% to -0.5% range driven by -3.5% to -3.0% volume growth and 2.0% to 2.5% price. The restaurant comp midpoint remains -50bp below the 1Q16 average of +1.5%, driven by persistent weakness in casual-dining. Key Demand Developments • Growth in housing prices remain a positive to consumer balance sheets, with the Case-Shiller 20 city index rising +5.1% Y/Y in October. • The performance of the S&P 500 was up +9.5% YoY, a tailwind for the consumer balance sheet. • The consumer income statement is also boosted by job and wage growth as non-farm payrolls increased by +1.5% Y/Y in December and average hourly earnings increased +2.5% Y/Y, both tailwinds for the consumer income statement. • Gas prices continue to be a tailwind for the consumer; oil futures have hovered above $50/barrel, up +41% YoY. Despite YoY gains, gas prices remain -25% below the 5 year average. • The Consumer Confidence Index as measured by the Conference Board was 113.7 in December 18 points below the December 2015 reading of 96.3. Consumer and Producer Price Indices 10% CPI Food Away From Home Price & Food Inflation Developments CPI Food At Home • We maintain a constructive outlook for volumes given pricing levels below 3%. The spread between restaurant and food retail pricing continues to widen. PPI All Food 8% Y/Y Change (%) 6% • Restaurant pricing measured by the CPI food away from home index (CPI-FAFH) increased +2.3% in December Y/Y, which is flat vs. the prior month and -30bp vs. the prior year. 4% 2% 0% • Food Retail pricing measured by the CPI food at home index decreased -2.0% in December Y/Y, which is up +20bp vs. the prior month and down -150bp vs. the prior year. -2% -4% -6% -8% Jan- 12 Jul- 12 Jan- 13 Jul- 13 Jan- 14 Source: U.S. Bureau of Labor Statistics Jul- 14 Jan- 15 Jul- 15 Jan- 16 Jul- 16 • The Producer Price Index (PPI All Food) decreased -1.6% in December Y/Y, which is up +240bp vs. the prior month and up +410bp vs. prior year. Industry the Research Update: Food and Agribusiness 1 1 © 2017 Wells Fargo Bank, N.A. All rights reserved. For public use. August 2012 Grocery Department Trends: Perimeter categories continue to show volume momentum; while center of the store volumes remain weak. Pricing is decelerating in all departments. Frozen Foods Dry Grocery 6.0% 4.0% Volume Volume Price 3.0% Price 4.0% 2.0% 2.0% 1.0% 0.0% 0.0% -1.0% -2.0% -2.0% -3.0% -4.0% 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 Source: Nielsen AOC+C 1Q13 3Q13 1Q14 3Q14 1Q15 Volume Price 3Q15 1Q16 3Q16 Source: Nielsen AOC+C Deli Dairy 8.0% Volume 10.0% Price 6.0% 8.0% 4.0% 6.0% 2.0% 4.0% 0.0% 2.0% -2.0% 0.0% -4.0% -2.0% -6.0% 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 Source: Nielsen AOC+C -4.0% 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 3Q15 1Q16 3Q16 Source: Nielsen AOC+C Fresh Produce Bakery 3.0% 7.0% Volume 6.0% Volume Price Price 2.0% 5.0% 4.0% 1.0% 3.0% 2.0% 0.0% 1.0% 0.0% -1.0% -1.0% -2.0% -2.0% -3.0% -4.0% 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 Source: Nielsen AOC+C -3.0% 1Q13 3Q13 1Q14 3Q14 1Q15 Source: Nielsen AOC+C • Dry Grocery 4Q16 price/mix increased +0.9% YoY, a decrease of -30bp vs. 3Q16. Dry Grocery volumes decreased -0.7% YoY, a decrease of -40bp vs. 3Q16. • Frozen Food 4Q16 price/mix increased +0.7% YoY, a decrease of -40bp vs. 3Q16. Frozen Food volumes decreased -2.1% YoY, a decrease of -140bp vs. 3Q16. • Dairy 4Q16 price/mix decreased -3.7% YoY, an increase of +70bp vs. 3Q16. Dairy volumes decreased -2.6% YoY, a decrease of -110bp vs. 3Q16. • Deli 4Q16 price/mix decreased -1.7% YoY, a decrease of -10bp vs. 3Q16. Deli volumes increased +4.5% YoY, a decrease of -110bp vs. 3Q16. • Fresh Produce 4Q16 price/mix decreased -2.6% YoY, a decrease of -180bp vs. 3Q16. Fresh Produce volumes increased +4.4% YoY, a decrease of -160bp vs. 3Q16. • Bakery 4Q16 price/mix increased +0.1% YoY, a decrease of -60bp vs. 3Q16. Bakery volumes increased +0.8% YoY, an increase of +80bp vs. 3Q16. 2 © 2017 Wells Fargo Bank, N.A. All rights reserved. For public use. August 2012 Food Company Margin Heat Map YoY Price vs. Volume Commodities Labor Grain Protein Constructive Flat Deflationary Deflationary Food Company Input Cost Summary: • Economic Backdrop: Economic activity grows but input cost inflation handicapped by the strong dollar. • Corn, Wheat & Soy Prices: 15/16 prices reflected deflationary pressures, 16/17 forecasts continued low price levels in corn, wheat and soy on increased production across all three commodities. 16/17 forecasts point to supplies and improved yields across all three commodities. • Chicken: Prices are near 2015/16 levels as supplies are ample but tightening despite improving exports. • Beef: Prices are near 2016 levels despite long-term impact of increased heifer slaughter and improving exports. • Pork: Prices are near 2015/16 levels anchored by ample supplies despite solid exports. Energy Mixed Mixed Key Commodity Heat Map Commodity Price Y/Y M/M Corn $3.52 -5.2% +2.1% Wheat $4.03 -16.1% +0.2% Soybeans $10.23 +16.4% +1.4% Broilers $0.79 +5.2% +12.1% Cattle $1.14 -12.6% +6.3% Hogs $0.62 +5.5% +24.1% Milk $15.26 -8.7% +4.5% Shrimp $4.68 +7.6% -2.6% Salmon $5.35 +57.1% +4.8% • Packer Margin Environment: Chicken ratios are flat with 2015 levels, beef ratios have been steadily above 2015 levels and pork ratios have retreated off Oct16 highs. Nat. Gas $7.59 +5.3% -2.2% Electricity $9.88 -2.3% -2.2% • Seafood: Shrimp prices are above 2015 levels; salmon prices have broken out well above 2015 levels. Heating Oil $2.48 +17.5% +10.1% Rest. Labor $13.05 +3.8% +0.3% Sup. Labor $13.01 0.0% +1.9% Food Labor $16.90 +4.1% +0.8% • Dairy: Current prices are in-line with 2016 levels as supplies are ample, despite improving exports. • Specialty Crops: Current sugar, coffee and orange juice prices are inflationary YoY, while cocoa prices have been in decline since June. • Forestry Products: Strength in housing starts and remodel activity continues to support demand for framing lumber and structural panels. • Crop Inputs: Fertilizer prices remain below 2015 levels with higher than expected imports. Three of the four prices measured are well below 2015 levels. *Monthly average corn, wheat, soybeans in $/bu; broiler, shrimp in $/lb; cattle, hogs, milk in, $/cwt; salmon, cod in $/kg; gas in $/Mct; oil in $/gal; electricity in $/kWh; labor in $/hr Source: USDA; BLS; IMF; IntraFish • Energy & Labor: Global oil prices have kept energy prices in check, while we observe wage inflation gains in restaurants and food manufacturing, with declines in supermarket labor. 3 © 2017 Wells Fargo Bank, N.A. All rights reserved. For public use. August 2012 Economics: Economic activity grows but input cost inflation handicapped by the strong dollar. Voluntary Quits as % of Employment Trade Weighted Dollar vs. Ag Index 3.0% Ag Bulk Commodities 120 Trade Weighted Jan 2014=100 115 110 2.0% 105 100 95 Source: BLS, Wells Fargo 1.0% Source: USDA, Federal Reserve, Wells Fargo 90 Jan-14 Weekly Earnings Rates Weekly Wages Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Net Trade Balance Food Inflation Adjusted $900 $30.0 China HK ROW $25.0 0.7 $20.0 $850 7.1 5.3 $15.0 10.3 $10.0 $800 $0.0 -$5.0 2.6 6.5 22.7 22.0 13.8 $5.0 $750 3.9 21.6 16.3 16.1 (1.1) (6.1) (4.5) (17.9) -$10.0 $700 15.8 9.1 (20.0) -$15.0 -$20.0 Source: USDA, Wells Fargo Source: BLS, Wells Fargo $650 Mar-06 Mar-07 Mar-08 Mar-09 -$25.0 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 2007 Mar-16 Billions of Miles Driven 2008 2009 2010 2011 2012 2013 2014 2015 Jan - Nov 2016 Net Export as % of Production 300 25% Beef Pork Broiler 290 280 20% 270 15% 260 250 10% 240 5% 230 220 0% 210 200 Source: Federal Highway Admin Jan-09 Jan-10 Jan-11 -5% Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Source: USDA, Wells Fargo 2012 2013 2014 2015 2016 2017 • The November 2016 voluntary quits as a percentage of employment of 1.7% was up +0.1% vs. the Nov15 reading of 1.6%. The 12 month rolling average is approaching prerecessionary levels. • The December 2016 trade weighted dollar index value of 119.0 vs. bulk commodity dollar index value of 106.4 represents a wider gap when compared to the December 2015 values of 114.8 and 106.2 respectively. • The December 2016 weekly average earnings are growing +2.3% YoY on a nominal basis; when deflated by food & beverage CPI the Dec16 average wages of $719/week increased +2.4% vs. Dec15. The pre-recession inflation adjusted peak was $703/week in December of 2006. • The YTD 2016 net trade balance of -$4.2 billion is on pace to be the largest full year trade deficit since pre 2007. The 2015 trade deficit was -$1.6 billion largely driven by imports from countries other than China/HK. • The November 2016 monthly average miles driven of 262 billion increased +4.2% vs. Nov15 as gas prices and better employment continue to provide tailwinds. • The 2017 pork and broiler markets face a stronger headwind from dollar strengthening as net exports comprise 16.4% and 16.4% percent of total production vs. -0.2% for beef. 4 © 2017 Wells Fargo Bank, N.A. All rights reserved. For public use. August 2012 Soft Commodities Prices: 15/16 prices reflected deflationary pressures, 16/17 forecasts continued low price levels in corn, wheat and on increased production. Corn $5.50 2014 2015 2016 Futures • The December monthly average corn price of $3.52/bu increased +2.1% vs. the prior month and decreased -5.2% vs. the prior year period. $/Bushel $5.00 • The WASDE’s (World Agricultural Supply and Demand Estimates) median average farm price projection for 2016/17 is $3.40/bu, down -5.8% from $3.61/bu in 2015/16. WASDE’s prior projection for 2016/17 was $3.35/bu. $4.50 $4.00 $3.50 $3.00 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec • WASDE forecasts global corn production to be 1,038 million tons in 2016/17 which is up +8.0% vs. 2015/16. Source: FactSet Wheat 2014 $7.50 2015 2016 • The December monthly average wheat price of $4.03/bu increased +0.2% vs. the prior month and decreased -16.1% vs. the prior year period. Futures $/Bushel $6.50 • The WASDE U.S. median average farm price forecast for 2016/17 is $3.80/bu, down -22.3% from $4.89/bu in 2015/16. WASDE’s prior projection for 2016/17 was $3.70/bu. $5.50 • WASDE forecasts global wheat production to be 753 million tons for 2016/17, which is up +2.3% vs. 2015/16. $4.50 $3.50 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: FactSet Soybeans • The December monthly average soybean price of $10.23/bu increased +1.4% vs. the prior month and increased +16.4% vs. the prior year period. $16.00 2014 2015 2016 Futures $14.50 $/Bushel $13.00 • The WASDE U.S. median average farm price forecast for 2016/17 is $9.50/bu, up +6.1% from $8.95bu in 2015/16. WASDE’s prior projection for 2016/17 was $9.45/bu. $11.50 $10.00 • WASDE forecasts global soybean production at 338 million tons for 2016/17, which is up +7.9% vs. 2015/16. $8.50 $7.00 Jan Feb Mar Apr May Jun Source: FactSet Jul Aug Sep Oct Nov Dec 5 © 2017 Wells Fargo Bank, N.A. All rights reserved. For public use. August 2012 Soft Commodities Fundamentals: 16/17 forecasts point to ample corn and wheat supplies and improved yields across all three commidities. Corn 2014/2015 2015/2016E 2016/2017P 2016/2017P M/M Change Y/Y Change December January Forecast Forecast Area Planted (mm) 90.6 88.0 94.5 94.0 -0.5% 6.8% Area Harvested 83.1 80.7 86.8 86.7 -0.1% 7.4% Yield per Harvested Acre (bu) 171 168.4 175.3 174.6 -0.4% 3.7% Beginning Stocks (mm bu) Production Imports Total Supply 1,232 14,216 32 15,479 1,731 13,601 60 15,392 1,738 15,226 50 17,013 1,737 15,148 55 16,940 -0.1% -0.5% 10.0% -0.4% 0.3% 11.4% -8.3% 10.1% Exports Total Use Ending Stocks 1,864 13,748 1,731 1,825 13,685 1,708 2,225 14,610 2,403 2,225 14,585 2,355 0.0% -0.2% -2.0% 21.9% 6.6% 37.9% Stocks to Use (%) 12.6% 12.5% 16.4% 16.1% -0.3% 3.7% • The January WASDE report for the 2016/17 corn harvest year forecasts yield per acre to increase +3.7% YoY and total supply to increase +10.1% YoY. Ending stocks are expected to be up +37.9% YoY and stocks to use up +3.7% YoY. • The January WASDE report estimate for total supply decreased -0.4% vs. the prior month; the estimate for ending stocks decreased -2.0% vs. the prior month and estimated stocks to use decreased -30bp. Wheat 2014/2015 2015/2016E 2016/2017P 2016/2017P M/M Change Y/Y Change December January Forecast Forecast Area Planted (mm) 56.8 54.6 50.2 50.2 0.0% -8.1% Area Harvested 46.4 47.1 43.9 43.9 0.0% -6.8% Yield per Harvested Acre (bu) 43.7 43.6 52.6 52.6 0.0% 20.6% Beginning Stocks (mm bu) Production Imports Total Supply 590 2,026 149 2,766 752 2,052 117 2,921 976 2,310 125 3,410 976 2,310 125 3,410 0.0% 0.0% 0.0% 0.0% 29.8% 12.6% 6.8% 16.7% Exports Total Use Ending Stocks 854 2,013 753 775 1,941 980 975 2,267 1,143 975 2,224 1,186 0.0% -1.9% 3.8% 25.8% 14.6% 21.0% 37.4% 50.5% 50.4% 53.3% 2.9% 2.8% Stocks to Use (%) • The January WASDE report for the 2016/17 wheat harvest year forecasts yield per acre to increase +20.6% YoY and total supply to increase +16.7% YoY. Ending stocks are expected to be up +21.0% YoY and stocks to use up +2.8% YoY. • The January WASDE report estimate for total supply was unchanged vs. the prior month; the estimate for ending stocks increased +3.8% vs. the prior month and estimated stocks to use increased +290bp. Soybeans 2014/2015 2015/2016E 2016/2017P 2016/2017P M/M Change Y/Y Change December January Forecast Forecast Area Planted (mm) 83.3 82.7 83.7 83.4 -0.4% 0.8% Area Harvested 82.6 81.8 83.0 82.7 -0.4% 1.1% Yield per Harvested Acre (bu) 47.5 48.0 52.5 52.1 -0.8% 8.5% Beginning Stocks (mm bu) Production Imports Total Supply 92 3,927 33 4,052 191 3,929 30 4,150 197 4,361 30 4,588 197 4,307 25 4,528 0.0% -1.2% -16.7% -1.3% 3.1% 9.6% -16.7% 9.1% Crushings Exports Total Use Ending Stocks 1,875 1,843 3,861 191 1,890 1,760 3,780 370 1,930 2,050 4,108 480 1,930 2,050 4,108 420 0.0% 0.0% 0.0% -12.5% 2.1% 16.5% 8.7% 13.5% Stocks to Use (%) 4.9% 9.8% 11.7% 10.2% -1.5% 0.4% • The January WASDE report for the 2016/17 soybean harvest year forecasts yield per acre to increase +8.5% YoY and total supply to increase +9.1% YoY. Ending stocks are expected to be up +13.5% YoY and stocks to use up +0.4% YoY. • The January WASDE report estimate for total supply decreased -1.3% vs. the prior month; the estimate for ending stocks decreased -12.5% vs. the prior month and estimated stocks to use decreased -150bp. Source: USDA WASDE 6 © 2017 Wells Fargo Bank, N.A. All rights reserved. For public use. August 2012 Chicken: Prices remain near 2015/16 levels as supplies are ample but tightening despite improving exports. Cold Storage Inventories Whole Broiler Prices Chicken (Million Pounds) $1.30 Y/Y Change (%) 900 40% $1.20 850 30% $1.10 800 20% 750 10% 700 0% 650 -10% 600 -20% 550 -30% 2014 2015 2016 $/lb $1.00 $0.90 $0.80 $0.70 $0.60 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov 500 Jan-13 Jul-13 Source: USDA Dec Source: USDA -40% Jan-14 Jan-15 Jul-15 Jan-16 Jul-16 Egg Sets Boneless Skinless Breast Prices 215 $2.00 2014 Jul-14 2015 Egg Sets ( In million) 2016 210 $1.60 205 $1.40 200 $1.20 195 $1.00 190 $/lb $1.80 6% Y/Y% Change 4% 2% 0% $0.80 -4% 185 $0.60 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov 180 Jan-13 Sep-13 Source: USDA Dec Source: USDA Boneless Skinless Thigh Prices $1.50 -2% Jan-15 Sep-15 May-16 Broiler Exports 700 2014 -6% May-14 2015 2014 2016 $1.35 2015 2016 650 $/lb million lbs $1.20 $1.05 600 550 $0.90 500 $0.75 $0.60 Jan Feb Mar Source: USDA Apr May Jun Jul Aug Sep Oct Nov Dec • The December USDA broiler price of $0.840/lb increased +6.0% vs. the prior month and +2.4% vs. Dec15. • The WASDE U.S. median average price forecast for 2017 is $0.830/lb, down -1.5% from $0.843/lb in 2016. The prior projection for 2017 was $0.825/lb. Total 2016 production is estimated to be 41.58mm lbs., up +2.2% vs. 2016. • The December average breast price of $1.018/lb decreased -0.1% vs. the prior month and increased +2.3% vs. Dec15. The December average thigh price of $0.993/lb decreased -5.4% vs. the prior month and increased +32.2% vs. Dec15. 450 Jan Feb Mar Source: USDA Apr May Jun Jul Aug Sep Oct Nov Dec • Fundamentals: Cold storage decreased -10.6% in November Y/Y, which is down -750bp vs. the prior month. Egg sets increased +2.5% in December Y/Y, which is up +60bp vs. the prior month. Exports increased +11.8% in November Y/Y, which is up +310bp vs. the prior month. • The December combined regional large egg price of $1.05/dozen increased +70.2% vs. the prior month and decreased -34.5% vs. Dec15. 7 © 2017 Wells Fargo Bank, N.A. All rights reserved. For public use. August 2012 Beef: Prices are near 2016 levels despite long-term impact of increased heifer slaughter and improving exports. Live Cattle Prices $1.80 Heifer Slaughter 2014 2015 2016 30.0% Futures 2015 2016 20.0% $1.60 15.0% % Chg YoY $1.50 $/lb 2014 25.0% $1.70 $1.40 $1.30 $1.20 10.0% 5.0% 0.0% -5.0% -10.0% $1.10 -15.0% $1.00 -20.0% $0.90 Jan Feb Mar Source: FactSet Apr May Jun Jul Aug Sep Oct Nov -25.0% Dec Jan Feb Mar Source: USDA 2014 2015 270 2016 250 240 230 million lbs 255 225 210 195 Jun Jul Aug Sep Oct Nov Dec 2014 2015 Nov Dec 2016 210 190 170 180 Jan Feb Mar Source: USDA Apr May Jun Jul Aug Sep Oct Nov 150 Dec Jan Feb Mar Source: USDA Apr May Jun Jul Aug Sep Oct Monthly Cattle Processing Cold Storage Inventories 550 2,400 40% Beef (million pounds) Y/Y Change (%) Baseline Slaughter Incremental Weight 15.0% Y/Y Change (%) 30% 500 10.0% 2,200 20% 5.0% 10% 450 0% 400 -10% -20% 350 Pounds (000s) $/cwt May Beef and Veal Exports Cut Out Values 270 Apr 2,000 0.0% -5.0% 1,800 -10.0% -30% 300 Jan-13 Jul-13 Source: USDA -40% Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 • The December cattle price of $1.14/lb increased +6.3% vs. the prior month and decreased -12.6% vs. Dec15. • The WASDE U.S. median average price forecast for 2017 is $109.5/cwt, down -9.4% from $120.86/cwt in 2016. The prior projection for 2017 was $107/cwt. Total 2017 production is estimated to be 26.0mm lbs., up +2.9% vs. 2016. • The December average cut-out value increased +4.8% vs. the prior month and decreased -2.9% vs. Dec15. 1,600 Jan-13 Jul-13 Source: USDA -15.0% Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 • Fundamentals: Cold storage increased +4.1% in November Y/Y, which is down -50bp vs. the prior month. Heifer slaughter numbers increased +17.4% in November Y/Y, which is up +930bp vs. the prior month. Exports increased +25.1% in November Y/Y, which is up +770bp vs. the prior month. Cattle head processed increased +16.4% in November Y/Y which is up +1150bp vs. the prior month. Slaughter weight data indicates that heavier weights contributed to +8.1% of total slaughter volume, which decreased -50bp vs. the prior year period. 8 © 2017 Wells Fargo Bank, N.A. All rights reserved. For public use. August 2012 Pork: Prices are near 2015/16 levels anchored by ample supplies despite solid exports. Live Hog Prices $1.40 Sow Slaughter (3 Month Rolling Average) 10.0% 2014 $1.30 2015 2016 2014 Futures $1.20 2015 2016 5.0% $1.10 % Chg YoY $/lb $1.00 $0.90 $0.80 0.0% -5.0% $0.70 $0.60 -10.0% $0.50 $0.40 Jan Feb Mar Source: FactSet Apr May Jun Jul Aug Sep Oct Nov -15.0% Dec Jan Feb Mar Source: USDA Apr Jun Jul Aug Sep Oct Nov Dec Pork Exports Cut Out Values 600 140 2014 130 May 2015 2014 2016 2015 2016 550 120 500 million lbs 100 90 80 450 400 350 70 300 60 250 50 Jan Feb Mar Source: USDA Apr May Jun Jul Aug Sep Oct Nov Jan Feb Mar Source: USDA Dec Apr May Jun Jul Aug Sep Oct Nov Dec Monthly Processing Cold Storage Inventories 2,300 750 700 Pork (million pounds) Y/Y Change (%) Incremental Weight Y/Y Change (%) 20% 15% 650 2,100 10.0% 1,900 0.0% 1,700 -10.0% 10% 600 5% 550 0% 500 -5% 450 -10% 400 -15% 350 -20% 300 Jan-13 Jul-13 Source: USDA 20.0% Baseline Slaughter 25% -25% Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 • The December average hog price of $0.62/lb increased +24.1% vs. the prior month and increased +5.5% vs. Dec15. • The WASDE U.S. median average price forecast for 2017 is $39.5/cwt, down -14.5% from $46.2/cwt in 2016. The prior projection for 2017 was $40/cwt. Total 2017 production is estimated to be 26.2mm lbs., up +5.1% vs. 2016. • The December average cut-out value increased +5.0% vs. the prior month and increased +6.6% vs. Dec15. Pounds (000s) $/cwt 110 1,500 Jan-13 Jul-13 Source: USDA -20.0% Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 • Fundamentals: Cold storage decreased -0.8% in November Y/Y, which is up +130bp vs. the prior month. Sow slaughter increased +4.0% in November Y/Y, which is up +40bp vs. the prior month. Exports increased +18.3% in November Y/Y, which is up +830bp vs. the prior month. Hogs processed increased +8.6% in November Y/Y which is up +670bp vs. the prior month. Slaughter weight data indicates that heavier weights contributed to +3.3% of total slaughter volume, which is up +50bp vs. the prior year period. 9 © 2017 Wells Fargo Bank, N.A. All rights reserved. For public use. August 2012 Packer Margin Environment: Chicken ratios are flat with 2015 levels, beef ratios have been steadily above 2015 levels and pork ratios have retreated off Oct16 highs. Chicken 1st Q Ratio 3rd Q 25.0 2014 2015 • The December USDA monthly average chicken breast price to feed cost ratio of 12.9 decreased -0.3 vs. the prior month and increased +0.2 vs. the prior year period. 2016 20.0 • The 10 year average ratio of 15.7 places the Dec16 result in the middle 50% of the 2006-2016 monthly results 15.0 10.0 5.0 Jan Feb Mar Source: USDA Apr May Jun Jul Aug Sep Oct Nov Dec Beef 3rd Q 2.00 2014 2015 2016 • The December USDA monthly average beef cut-out to live cattle ratio of 1.72 decreased -0.02 vs. the prior month and increased +0.17 vs. the prior year period. 1.90 Ratio 1.80 • The 10 year average ratio of 1.60 places the Dec16 result in the top 25% of the 2006-2016 monthly results. 1.70 1st Q 1.60 1.50 1.40 Jan Feb Mar Source: USDA Apr May Jun Jul Aug Sep Oct Nov Dec Pork 3rd Q 1.70 2014 2015 • The December USDA monthly average pork cut-out to live hog ratio of 1.25 decreased -0.23 vs. the prior month and increased +0.01 vs. the prior year period. 2016 1.60 1.50 Ratio 1.40 • The 10 year average ratio of 1.08 places the Dec16 result in the top 25% the 2006-2016 monthly results. 1.30 1.20 1st Q 1.10 1.00 0.90 0.80 Jan Feb Mar Source: USDA Apr May Jun Jul Aug Sep Oct Nov Dec 10 © 2017 Wells Fargo Bank, N.A. All rights reserved. For public use. August 2012 Seafood: Shrimp prices are above 2015 levels; salmon prices have broken out well above 2015 levels. . Shrimp Imports – Total Volume Urner Barry Farm-Raised White Shrimp Index 65 7.5 2014 7.0 2015 2014 2016 6.5 million kg $/lb 5.5 5.0 50 45 40 4.5 35 4.0 30 3.5 Jan Feb Mar Apr Source: Urner Barry May Jun Jul Aug Sep Oct Nov Jan Dec Mar Apr May Jun Jul Aug Sep Oct Nov Dec Salmon Imports – Total Volume 36 6.0 2014 2015 2016 2014 34 5.5 2015 2016 32 5.0 million kg $/lb 30 4.5 4.0 28 26 24 3.5 22 3.0 20 18 2.5 Jan Feb Mar Apr Source: Urner Barry May Jun Jul Aug Sep Oct Nov Jan Dec Alaskan Pollock Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: NOAA Wild Alaskan Landings by Specie 2013 2014 1,200 2015 Pink Sockeye Chum Coho Chinook 1,000 3150 3100 $/Metric Ton Feb Source: NOAA Urner Barry Fresh Farmed Salmon Index 3200 2016 55 6.0 3250 2015 60 800 3050 600 3000 2950 400 2900 2850 200 2800 Jan Feb Mar Apr May Source: Undercurrent News Jun Jul Aug Sep Oct Nov Dec 0 2011 2012 2013 2014 2015 Source: Urner Barry • The December Urner Barry farm-raised white shrimp price of $4.68/lb decreased -2.6% vs. the prior month and increased +7.6% vs. the prior year period. • The November NOAA measure of total US shrimp imports was 61.8mm kg, an increase of +4.6% vs. the prior month and an increased of +5.6% vs. Nov15. • The December Urner Barry fresh farmed salmon price of $5.35/lb increased +4.8% vs. the prior month and increased +57.1% vs. the prior year period. • The November NOAA measure of total US salmon imports was 27.8mm kg, a decrease of -8.1% vs. the prior month and -3.6% vs. Nov15. • The Undercurrent News 2H15 Alaskan Pollock price of $3000/metric ton decreased -1.6% vs. the 1H15 price of $3050/metric ton. 2015 Prices remained roughly steady with 2H14 pricing. The pollock marker received a modest boost in 2H14 and early 2015 from stronger surimi pricing. Further price increases are unlikely due to a 7% increase in 2016 catch quotas. • 2015 wild Alaskan landings by specie increased +49.5% vs. 2014 and was slightly above 2013 total landings. The increase in landings was led by a +98% rise in pink salmon. 11 © 2017 Wells Fargo Bank, N.A. All rights reserved. For public use. August 2012 Dairy: Current prices are in-line with 2016 levels as supplies are ample, despite improving exports. Class I Milk Milk Production 26 2014 2015 19,000 2016 24 million lbs 20 18 16 14 12 Apr May Jun Jul Aug Sep Oct Nov Dec 3% 2% 17,000 1% 16,500 0% 16,000 -1% 15,500 -2% 15,000 -3% 14,500 -4% 14,000 Jan-13 Jul-13 Source: USDA -5% Jan-14 16 Jan-15 Jul-15 Jan-16 Jul-16 Aug Sep Oct Nov -20% 2 -30% 0 -40% Dec Source: USDA Cheddar Cheese, 40lb. block Butter Prices Grade AA 2.6 2014 2Q17F Jul 4 1Q17F Jun -10% 3Q16 May 0% 6 4Q16F Apr 8 1Q13 12 10% 2Q16 14 10 1Q16 16 20% 4Q15 18 30% 12 3Q15 20 40% Y/Y Change (%) 14 2Q15 22 Milkfat 1Q15 Bn lbs milk equivalent 24 Skim solids 4Q14 Futures 3Q14 2016 2Q14 2015 1Q14 2014 4Q13 26 2015 2014 3.0 2016 2.2 2015 2016 2.5 $/lb $/lb Jul-14 Dairy Exports Class III Milk Jan Feb Mar Source: USDA 4% 17,500 3Q13 Jan Feb Mar Source: USDA Y/Y Change (%) 18,000 2Q13 $/cwt 22 $/cwt 5% Production (mil lbs) 18,500 1.8 1.4 2.0 1.5 1.0 Jan Feb Mar Source: USDA Apr May Jun Jul Aug Sep Oct Nov Dec • The January USDA class I milk price of $17.45/cwt increased +3.4% vs. the prior month and +8.8% vs. Jan16. The December average class III milk price of $17.40/cwt increased +3.8% vs. the prior month and +20.5% vs. Dec15. • The WASDE U.S. median average price forecast for 2017 is $18.00/cwt, up +11.1% from $16.20/cwt in 2016. The prior projection for 2017 was $17.25/cwt. Total 2017 production is estimated to be 217.1bn lbs., up +2.2% vs. 2016. • The December USDA average cheese price of $1.73/lb decreased -7.7% vs. the prior month and increased +18.6% vs. Dec15. 1.0 Jan Feb Mar Source: USDA Apr May Jun Jul Aug Sep Oct Nov Dec • Fundamentals: Milk production increased +2.5% in November Y/Y, which was unchanged vs. the prior month. The milk cow herd size was up +20bp vs. the prior year period. Total milkfat and skim solid exports are expected to increase +18.1% in 4Q16 Y/Y, which is up +740bp vs. the prior quarter. • December average USDA Grade AA butter prices of $2.18/lb increased +9.4% vs. the prior month and decreased -6.7% vs. Dec15. 12 © 2017 Wells Fargo Bank, N.A. All rights reserved. For public use. August 2012 Specialty Crops: Current sugar, coffee and orange juice prices remain inflationary YoY, while cocoa prices have been in decline since June. Sugar #16 Prices Sugar #11 Prices 24 31 2015 2014 2016 22 27 20 25 18 c/lb c/lb 2014 29 23 14 19 12 17 Apr May Jun Jul Aug Sep Oct Nov 10 Dec Jan Feb Mar Source: ICE Apr May Jun Jul Aug Sep Oct Nov Dec Cotton Orange Juice 2.40 0.95 2014 2015 2016 2014 0.90 2.20 2015 2016 0.85 2.00 0.80 $/lb 1.80 $/lb 2016 16 21 Jan Feb Mar Source: ICE 2015 1.60 0.75 0.70 0.65 1.40 0.60 1.20 0.55 0.50 1.00 Jan Feb Mar Source: ICE Apr May Jun Jul Aug Sep Oct Nov Jan Feb Mar Source: FactSet Dec Cocoa Apr May Jun Jul Aug Sep Oct Nov Dec Sep Oct Nov Dec Coffee 2.20 3,450 2014 3,300 2015 2014 2016 2015 2016 2.00 3,150 1.80 $/lb $/MT 3,000 2,850 2,700 1.60 1.40 2,550 1.20 2,400 2,250 Jan Feb Mar Source: FactSet Apr May Jun Jul Aug Sep Oct Nov Dec 1.00 Jan Feb Mar Source: Factset Apr May Jun Jul Aug • The December ICE sugar #16 average price of $0.293/lb increased +1.7% vs. the prior month and increased +13.0% vs. the prior year period. • The December ICE sugar #11 average price of $0.188/lb decreased -9.5% vs. the prior month and increased +25.5% vs. the prior year period. • The December ICE orange juice average price of $2.04/lb decreased -12.0% vs. the prior month and increased +40.1% vs. the prior year period. • The December average cotton price of $0.71/lb increased +0.5% vs. the prior month and increased +11.0% vs. the prior year period • The December cocoa average price of $2,269/MT decreased -8.3% vs. the prior month and decreased -31.2% vs. the prior year period. • The December average coffee price of $1.41/lb decreased -13.1% vs. the prior month and increased +15.7% vs. the prior year period. 13 © 2017 Wells Fargo Bank, N.A. All rights reserved. For public use. August 2012 Specialty Crops: Growers anticipate improved yields in 2016 while keeping an eye on opportunities to improve both foreign and domestic shipments. Pistachio Prices Almond Prices $4.50 $4.00 $/Pound $4.00 $/Pound $3.50 $3.50 $3.00 $3.00 $2.50 $2.50 $2.00 $2.00 $1.50 $1.50 $1.00 $1.00 $0.50 $0.50 $0.00 $0.00 '07 '08 '09 '10 '11 '12 '13 '14 '15 '03 '04 '05 Source: USDA '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 Pistachio Acres & Yield Almond Acres & Yield 2,400 650 3,000 Millions Pounds 4,000 Millions Pounds Yield Per Acre Yield Per Acre 3,500 550 1,600 2,200 Pounds million lbs 2,600 2,500 350 2,000 1,800 800 1,400 150 1,000 50 400 '03 '05 Source: USDA '07 '09 '11 '13 3,000 450 1,200 250 1,500 1,000 500 '03 '05 Source: USDA '15 Walnut Prices '09 '11 '13 '15 1,400 $2.00 4,100 Millions Pounds $/Pound Yield Per Acre 1,200 $1.60 $1.20 $0.80 3,700 1,000 3,300 800 2,900 600 $0.40 400 $0.00 '03 '04 '05 Source: USDA '07 Walnut Acres & Yield million lbs million lbs 2,000 Pounds '06 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 2,500 '03 '05 Source: USDA '07 '09 '11 '13 '15 • The 2015 USDA average grower price for almonds of $2.84/lb decreased -29.0% vs. the 2014 average price of $4.00/lb. • The 2015 USDA average grower price for pistachios of $2.48/lb decreased -30.5% vs. the 2014 average price of $3.57/lb. • The 2015 total annual almond production of 1,900 million pounds increased +1.6% vs. the 2014 annual production of 1,870 million pounds. The 2015 average yield per acre of 2,130 pounds decreased -0.9% vs. the 2014 average of 2,370 pounds. • The 2015 total annual pistachio production of 270mm pounds decreased -48.0% vs. the 2014 production of 519mm pounds. The 2015 average yield per acre of 1,160 pounds decreased -50.2% vs. the 2014 average of 2,330 pounds. • The 2015 USDA average grower price for walnuts of $0.81/lb decreased -51.5% vs. the 2014 average price of $1.67/lb. • The 2015 total annual walnut production of 1,206mm pounds increased +5.6% vs. the 2014 production of 1142mm pounds. The 2015 average yield per acre of 4,020 pounds increased +2.0% vs. the 2014 average of 3,940 pounds. 14 © 2017 Wells Fargo Bank, N.A. All rights reserved. For public use. Pounds '03 '04 '05 Source: USDA August 2012 Forestry Products: Strength in housing starts and remodel activity continues to support demand for framing lumber and structural panels. U.S. Housing Starts Framing Lumber Index $450 2014 2015 1,400 2016 Y/Y Change (%) 1,300 Thousand Units $400 $/Thousand Sq Ft 60% New Units $350 $300 40% 1,200 20% 1,100 1,000 0% 900 $250 -20% 800 $200 Jan Feb Mar Apr May Source: Random Lengths Jun Jul Aug Sep Oct Nov 700 Jan-13 Jul-13 Jan-14 Source: US Fed Dec 315 $420 2015 2016 Jul-15 Jan-16 Jul-16 $ Billions Spent Y/Y Change (%) 10% 9% 295 $400 8% 275 $380 $ Billions $/Thousand Sq Ft Jan-15 Repair & Remodel Expenditures (LTM total) Structural Panel Index 2014 -40% Jul-14 $360 $340 7% 6% 255 5% 235 4% 3% 215 $320 195 $300 175 Jan Feb Mar Apr May Source: Random Lengths Jun Jul Aug Sep Oct Nov Dec 2% 1% 0% 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 Source: jchs.harvard.edu • The December Framing Lumber Composite Index of $359/thousand sq ft increased +3.8% vs. the month prior and increased +13.6% vs. the prior year period. • The November U.S. Housing Starts of 1.09 million units decreased -18.7% vs. the prior month and decreased -6.9% vs. the prior year period. • The December Structural Panel Composite Index of $367/thousand sq ft increased +0.8% vs. the prior month and increased +2.8% vs. the prior year period. • The 3Q16 LTM repair and remodel total expenditure of $303.7Bn increased +2.2% vs. the prior quarter and +6.6% vs. the prior year period. 15 © 2017 Wells Fargo Bank, N.A. All rights reserved. For public use. August 2012 Crop Inputs: Fertilizer prices remain under pressure with higher than expected imports. Three of the four prices measured are well below 2015 levels. Urea Potash and Phosphate 450 120 2015 2016 2014 110 350 100 $/ST $/ST 2014 400 300 2015 2016 90 250 80 200 70 60 150 Jan Feb Mar Source: FactSet Apr May Jun Jul Aug Sep Oct Nov Jan Feb Mar Source: FactSet Dec Apr May Jun Jul Aug Sep Oct Nov Dec Oct Nov Dec Ammonia DAP 600 630 2014 2015 2016 2014 580 550 2015 2016 530 480 $/ST $/ST 500 450 400 430 380 330 280 350 230 300 180 Jan Feb Mar Source: FactSet Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Source: FactSet May Jun Jul Aug Sep • The December average urea index price of $236.0/ST increased +18.3% vs. the prior month and increased +4.2% vs. the prior year period. • The December average potash and phosphate index price of $67.0/ST increased +1.4% vs. the prior month and decreased -16.3% vs. the prior year period. • The December average DAP index price of $332.5/ST was unchanged vs. the prior month and decreased-26.9% vs. the prior year period. • The December average ammonia index price of $207.0/ST increased +6.7% vs. the prior month and decreased -43.5% vs. the prior year period. Gasoline Prices Diesel Fuel Prices $4.00 $4.20 2014 2015 2014 2016 $3.80 $3.60 $3.40 $3.20 $\Gallon $\Gallon Apr $3.00 $2.60 2015 2016 $2.80 $2.40 $2.00 $2.20 $1.60 $1.80 Jan Feb Mar Source: EIA Apr May Jun Jul Aug Sep Oct Nov Dec • The December average diesel fuel price of $2.51/gal increased +2.9% vs. the prior month and increased +8.7% vs. the prior year period. Jan Feb Mar Source: EIA Apr May Jun Jul Aug Sep Oct Nov Dec • The December average regular grade gasoline price of $2.25/gal increased +3.3% vs. the prior month and increased +10.6% vs. the prior year period. 16 © 2017 Wells Fargo Bank, N.A. All rights reserved. For public use. August 2012 Energy and Labor: Global oil prices have kept energy prices in check, while we observe wage inflation gains in restaurants and food manufacturing, with declines in supermarket labor. Natural Gas Retail Prices Restaurant Hourly Earnings $10.50 2014 $10.00 2015 2016 Y/Y Change % 4.0% $9.50 3.0% $/tcf $9.00 2.0% $8.50 $8.00 1.0% $7.50 0.0% $7.00 $6.50 Jan Feb Mar Source: EIA Apr May Jun Jul Aug Sep Oct Nov Dec -1.0% Jan-13 Jul-13 Source: BLS Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Supermarket Hourly Earnings (3 Month Rolling Average) Heating Oil Retail Prices 5.0% $4.20 2014 $3.90 $\Gallon Jan-14 2015 2016 $3.60 3.0% $3.30 2.0% $3.00 1.0% $2.70 0.0% $2.40 -1.0% $2.10 -2.0% $1.80 Jan Feb Mar Source: EIA Apr May Jun Jul Aug Y/Y Change % 3 Month Avg 4.0% Sep Oct Nov Dec -3.0% Jan-13 Jul-13 Source: BLS Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Food Manufacturing Hourly Earnings Commercial Electricity Prices 5.0% 11.4 2014 11.2 2015 Y/Y Change % 2016 4.0% 11.0 3.0% cents/kwh 10.8 2.0% 10.6 10.4 1.0% 10.2 0.0% 10.0 9.8 Jan Feb Mar Source: BLS Apr May Jun Jul Aug Sep Oct Nov Dec -1.0% Jan-13 Jul-13 Source: BLS Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 • The December average natural gas price of $7.59/Mcf decreased -2.2% vs. the prior month and increased +5.3% vs. the prior year period. • The restaurant labor index increased +3.8% Y/Y in December, which was up +10bp vs. the prior month and up +150bp vs. the prior year period. • The December average heating oil price of $2.48/gal increased +10.1% vs. the prior month and increased +17.5% vs. the prior year period. • The supermarket labor index decreased -2.5% Y/Y in November, which was up +50bp vs. the prior month and -630bp vs. the prior year period. • The December average electricity price of $0.0988/kWh decreased -2.2% vs. the prior month and decreased -2.3% vs. the prior year period. • The food manufacturing labor index increased +4.1% Y/Y in December, which was up +10bp vs. the prior month and up +90 vs. the prior year period. 17 © 2017 Wells Fargo Bank, N.A. All rights reserved. For public use. August 2012 Food and Agribusiness Industry Advisors Colin Guheen, CFA Packaged Food, Restaurant and Food Retail Industry Risk Consultant [email protected] 212-214-3524 Christopher Innes, CFA Packaged Food, Restaurant and Food Retail Industry Risk Analyst [email protected] 212-214-7823 Kevin Bergquist Forest Products Sector Manager [email protected] 503-886-4148 Michael Swanson, Ph.D. Chief Agriculture Economist [email protected] 612-667-5136 David Branch Specialty and Non-Grain Crop Sector Manager [email protected] 704-410-8997 Denise Cahill Industry Advisors Group Manager [email protected] 559-622-3012 Matt Dusi Specialty and Non-Grain Crop Sector Manager [email protected] 559-203-2994 Karol Aure-Flynn Specialty Crops Analyst, Analyst Team Lead [email protected] 559-622-3045 Scott Etzel Protein - Seafood Sector Manager [email protected] 503-886-4164 Chris Eggerman Sector Analyst, Grains, Crop Inputs, Forest Products [email protected] 913-234-7702 Rob Fox Dairy Sector Manager [email protected] 312-845-9743 Courtney Schmidt Sector Analyst, Protein, Dairy [email protected] 361-574-5207 Tim Luginsland Grain & Oilseed Sector Manager [email protected] 913-234-2921 Lee Ann Pearce Specialty and Non-Grain Crop Sector Manager [email protected] Matt Stommes Protein - Poultry & Beef Sector Manager [email protected] 612-316-3724 Lon Swanson Crop Inputs/Feed Sector Manager [email protected] 913-234-2922 General disclosures The views expressed are intended for Wells Fargo customers only. They present the opinions of the authors on prospective trends and related matters in food and agribusiness as of this date, and do not necessarily reflect the views of Wells Fargo & Co., its affiliates and subsidiaries. Opinions expressed are based on diverse sources that we believe to be reliable, though the information is not guaranteed and is subject to change without notice. This is not an offer to sell or the solicitation to buy or sell any security or foreign exchange product. 18 © 2017 Wells Fargo Bank, N.A. All rights reserved. For public use.
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