[Music] Bonjour Mademoiselle Monsieur I'm very happy to be here thanks for inviting me for this this presentation and the topic is about dairy markets and outlook and how the future will look like I structured the presentation in four elements I like to first introduce the IFC n then I would like to talk about global dairy trends then I will talk about the outlook and then I like to sum up and you know the the summary of my presentation are two numbers 60 and 40 if you remember that you have understood everything in my presentation the identity of IFC and it's a global research network for dairy economic and consultancy I have developed that out of a kind of federal cultural Research Center in Germany we are now associated to a university Kiel but we are private entity and the mission is very simple to help people in the dairy world to make better decisions the network has gradually last 20 years evolved and we have now built a network of researchers economists participating in the knowledge creation then we have a network of agribusiness companies and a deseo joined last year congratulation welcome to the group and thanks for the support of our work and we have a team of around 20 people in the headquarter coordinating the work and probably with that we are the largest applied their Economic Research Center in the world there might be some large milk processors who probably have a bigger team than us but we are relatively good this is a group of kind of companies which are a member of ICN and financing our research and you see among them all major milk processors are there a lot of the feed feed additive companies are there health companies are there bond equipment companies are there banks are their genetic companies are there and what I found very interesting is all of these companies do business with the dairy farmer all of these companies want to know where the business the dairy world is in ten years because that would decide where that company is and we put these people once a year together facilitate them as knowledge and try to act as a think-tank for the global dairy world if you are not a member yet and you want to be enlightened by our knowledge like Ida zero is please contact me you are very welcome and to support our work now let's go into research results by the way I have also taken some of these maps with me this is a summary of our work and this map is usually a summary of a book we write about the dairy world once a year 200 pages and that's the shortest way we can do it good let's talk about prices I like this chart 40 years crude oil prices feed prices milk price feed price we just mix corn and soybean meal 70/30 percent and with that we get a kind of a price indicator and you see that basically we had a level shift about 15 years ago since then the world is not the same anymore and and oil is their feet has increased in milk and also a tremendous level shift on that one the blue line is now 20 years backwards and you know the interesting thing is when we do outlook work put yourself in the shoes of being back in the year 2000 what have you seen how the world looked like what have you not seen how do you prepare there's always a continuous search on that one in the new world we have much higher commodity prices and with that we have much higher volatility and if you want a manageable activity well you are definitely a winner in this industry if we look on the feed prices that's quite interesting feed price are exceptionally low and for me as a researcher and dairy economics it's always a question how long will this feed prices stay that low because this is a driver for everything what we do in dairy in terms of feeding system economics milk prices etcetera etcetera so that's a 40-year story now let's have a look on a 20-year story and the good news is in the last 20 years and this now I come to my 60% story in the last 20 years we have been growing milk production globally by 60% who in the room is now in the dairy business more than 20 years congratulation you have to be part of that 60 percent more milk on that planet in 20 years 300 million tons this is about 15 times new zealand demand wise we have been adding 1.6 billion people so half of the growth was coming from more people and the other half was coming from people drinking more milk and on another side very simple we added more cows on the planet around 78 million this is around probably 10 times the US earth population and we you know the world average milk here currently is 2.3 tonnes or five five thousand pounds and we have been increasing gradually but we grow stronger by more cows we have been adding what you probably don't know if we have adding around 20 million additional dairy farms on this planet and with that we imperii production transportation processing provides livelihood to 1 billion people on this planet so the their livestock dairy has probably the biggest social footprint in the planet and where we have doubled global dairy trade so this is anna nutshell the dairy world the last 20 years and you might ask yourself where has the gross happened whereas the milk production girls happen green countries are growing red countries are declining and the bigger the bullet is in green the bigger the milk volume is and at the moment the biggest growth of milk production happened in india where the two cow farming model why it was cost-competitive provides value for the farmers for the consumers and the model was working then we had China China was also growing like that and the gross was coming from crop farmers polka putting five cows in the backyard now since moving into progressive farms they're not growing anymore they're just replacing the small farms with large farms so gold medal goes on to India silver medal to the United States and China and then you have a category three countries bronze medal is au Brazil and probably Pakistan New Zealand interestingly countries like Australia moved backwards water challenges coming in there and some other drivers and Russia moving back what we do to the transition in the political system so what are the key drivers for production and you mentioned that you want to be cost-competitive and we want to make the farmers more cost competitive we are tracking since twenty years cost of milk production in different countries this is a survey we are doing in 50 countries based on what we call average sized farms once the country is green costs a low one the country is red costs are high once the costs are in the gray zone you are in the middle of the competitive range so western part of the u.s. very interesting whenever feed prices are low California Idaho very competitive and as competitive as New Zealand Latin America competitive but the cost leaders at the moment South Africa low yields farm existence in Africa and Belarus Ukraine and at the moment Lithuania cost leaders on the upper side Japan Canada Norway but China is also on that area cost of production have a tremendous dynamic and what we are doing here you see in the lines it's a dynamic of cost of milk production in u.s. dollar per 100 kg milk and and will it start with this line this is New Zealand using New Zealand was in the year 2000 by far the cost leader in milk production and they have increased their milk production cost by a factor of four then in the last crisis they moved back with farming systems cut costs iterated removed back to more grazing less substitute and try to do that so farming system was a key driver currency of course is another driver land prices is another driver but there a lot of dynamics in the year and this is a cost chart of an American 500 cow farm type which we are tracking stable cost with feed price increasing costs have been increasing now with feed prices going down in the last years feed prices are dropping and this is a chart of a German farm in the beginning it was a 60 Cal farm now it has been grown as an average northern German farm with hundred fifty cows and there was a time of rapid increase of cost mainly driven by currency movements and non adjustment in the quota system and once we now move out of quota these farmers are able to grow costs are coming down towards a level a little bit higher right now than in New Zealand and then 500 car Wisconsin farm and the last one is the most interesting one this is the 20 cow dairy farm in India was a cost leader similarly New Zealand but has also a similar pattern like we see in most emerging market countries tropical countries that overtime costs rise rapidly and if this farms need help these farms definitely need your help second driver Robert you asked me on that to talk about milk supply by farm sized groups and this is a key driver to understand milk supply change or the dairy sector and we have categorized the dairy world into three type of farms there are farms let's start with the blue ones blue ones I have about 1 to 10 cows per farm household farms most of the milk is consumed on the on the farm in formal markets etcetera etcetera that's household farm that's blue the second one is Green Green what we call family farms and family farms because family members do the major part of the work and that goes between ten and hundred in some cases could also go beyond hundred but the main driver is generating income for the farming families and then we have the orange and red farms what we call business farms the main driver is that there the work is done by employees and and their having a sufficient our en cashflow is a creaky element and what we have done now we have segmented looked at the farm structure statistics and what you found for example in South Asia around 90 percent of the cows are in farms in the blue segments so this is an area completely dominated by household farms then you go in the US where the dark red so the farms with more than thousand cows completely dominate the sector and then you have all the other markets in between which are partially green partially blue and partially red so this is a status quo analysis and it please don't understand me wrong it does not mean that a red farm is cost-competitive and the blue farm is bad sometimes it's really the opposite and it's depending on the structure of the country and its development and so in India currently we have two small farms because they are more cost competitive than the 500 cal farm at the moment so let's have a look on the dynamics and let's look into Island because Island is a fascinating gross country in Europe in milk production and I've choose in here the chart the red line is the growth of milk yield well done Island second driver for gross is adding cows for around three hundred thousand cows on that one the orange line is a growth of the average herd size moving from thirty in 1996 now - almost hundreds and of course the farm numbers have dropped from forty thousand to fifteen thousand usually in our developed countries we know that farm numbers go down by five to ten percent every year so that is a pattern but what's much more important is the segment of growth by size category and you see here for example in Ireland the blue segment this is a segment of very small farms it's not there in Ireland it's gone already because we have only green farms and the green farms are the farms between here and 20 and hundred cows but they are constantly declining and nothing can stop such a trend of small farms going out except you cut salaries in that country by 50% then you would stop farm structure change so what happens cows move out of this segment and we have been moving around 600,000 cows into the larger size category and the average rate of growth of a milk production farm which stays in business in Europe and US is 8 percent every farm who stays in business grows 8 percent per year in additional milk production so the farms who stay in business are almost double-digit growth companies which need substantial support and high-tech systems what you see in Ireland at the moment that 500 plus cows are not existent at the moment the system large scale system does not fit or no one has made it work so to drive us on the production growth on that one now let's go to the outlook and let's start with the easy one the 2040 outlook yeah please consider how old will you be in 2014 well I will be 75 there's a chance that I will be here that you invite me again or do we check but the chance that you remember that I was here was no that's not that strong so that's a very safe forecast what I'm doing nevertheless this is now important for strategic thinking and once you do such a long outlook the most important thing is to consider what are the biggest impactful and biggest uncertain drivers and the first one is the demand perception of consumers for their effect and tere protein it can be strong and they like dairy fat more than plant fat and that happened with eat more butter strategy we have been increasing the power consumption tremendously so we have been moving this direction in the past five years but it could be also that more dairy free diets win that we have technical progress that we reduce food waste etc then you would be on the opposite of this gross driver so this is uncertainty number one and the uncertainty number two is policy GDP gross open trade and peace I just recently got a very interesting number 70% of world's population live on less than $10 a day so GDP growth drives consumption so if you make the spread here you have basically three scenarios you have a pro Terry scenario where we continue the growth story of the area like we did in the past we have a rich and picky scenario where the people have the money to buy dairy but they choose for something else for whatever reason then we have the income restricted the people like to eat dairy but they don't have the money for it and we can have the stagnation scenario where both things come in and whenever you develop a company's strategy better look on these things and define a plan a for the loss your most likely scenario and the plan B for the other one I tell you that the rich and picky is probably the one for all developed countries with a relatively high chance to come we have been working on a protein because we are optimists and we think that the dairy industry could make their home work and then the story would look like that forty five percent additional milk produced and consumed 400 million tons about three times the EU or four times America as milk production around 20 times New Zealand 1.7 billion more people and we add a little bit that per capita consumption and to a level of 140 liters and 40 liters means in milk equivalent you drink milk you eat cheese butter etc and we turned all back that back in milk equivalent and 140 liter is basically a little bit more than a glass per day the Europeans consume almost 300 yeah so that is a demand-side production side we still think that people add cows on the planet because I have have not seen any major sufficient can program which is target efficiency grows from our world average farm moving it substantially in developing countries from around 2,500 litres substantially upwards so that's a 2040 scenario we have a database for every country in here and but that's the presentation by itself now let's go into a 2020 outlook Robert you asked me to talk about more so short I'm saying that's a that helps you to make your budget and let's have a look on the mid prices currently you see all the lines is that the major prices for dairy products cheese whey ohmic powdered skim milk powder butter and you see they somehow fluctuate together two points we need we need to know 2007 was the level shift where the price almost doubled and 2016 was the year where fat was suddenly much more valuable in a dairy product than protein we have been breeding animals for less fat and high protein for 25 years and suddenly the fat is the king and the protein is the leftover interestingly I'm not sure how long that lasts but that is that was the driver for that was basically the consumer perception to what fat come butter fat compared to margarine so what we are doing to make this as an easy indicator to relate to a farm gate price we turn all these commodity prices in something what we call world market price of milk so the red line represents a price in hundred kg US dollar per 100 kg milk solid corrected milk 4% fat 3.3 percent protein which approach that could pay if he sells products on the world market at that price and then what you see I put here on the right for you on Euro terms what the current euro values are on that one the word market price has been for a very long time beyond 40 dollars so that it represents right now around 36 euro cent or 32 to 36 or $17 per hundredweight if you make an American sense but this has been dropped now the last three four years to a level of $35 cents which is at the moment really a little bit painful for the u.s. dairy industry and what you also have seen that we have in the last three years a very unusual stability of prices very with very little fluctuation because usually you have a fluctuation of plus minus 50% about the mean in these cycles so that's where we are today I see a lot of you are from different countries what you could do you couldn't this this milk prices published on our website you can have a look and relate your national milk price with that price and you will see that in almost all countries the milk price in your country will fluctuate in a similar manner than the world market price the only thing there will be a little bit of a delay function if you look here in the US it takes here it took around six months unless the world market price can be transformed to the national farmers milk prices there's another interesting story on the US currently the u.s. price is substantially higher than the world market price a little bit risky scenario unless the world market price is rising if you look on Germany our UK you know at the moment milk in Europe is 20% cheaper than in u.s. that's very good for a European cheese exports it's very bad for American cheese export in there let's have a look on China in China was a country where the milk prices continuously already $60 in here and $60 is somehow what European farmers would call heaven because it's behind bigger than 50 euros per 100 kg of milk and here the government policy supports that price level and without that support all the large scale farms three thousand five thousand cow units would not been able to survive so milk supply drives mainly the price fluctuations I will skip that slide as a technical slide but I like to talk now a little bit of about data and and fat and protein this is the milk production growth of the United States if unnatural content you see in normal grows 2% and currently you see in milk production grows almost to zero farm economics was not great so we are in that range interesting what we found and probably your products had an impact on that one continuous rise in fat content and continues rise in protein content well done congratulation we see a similar trends in some European countries as well but if you then measure the milk production growth in solid corrected milk because fat and protein really counts you see that the milk supply in u.s. is still extra little e strong and have not been Slone down so the way we are trying to tackle supply growth is we monitor the world market price for milk we monitor the world market price for feed does this mix this blend of corn and so you have been meal we calculate a margin over compound feed cost just assuming a farmer feeds 300 gram compound feed per kg milk and then we put an average in here and then we classify whether the farm economics is good or bad and then we relate that to milk supply growth and it's just a matter of time once price signal margin signals get transformed into more or less supply so let's have a look the normal growth rate of milk supply is 2 to 3% 2014 record farm economics relate a little bit later into record supply and the same we have record low margins which later on lead us to low supply right now we are a little bit in a way that supply is extremely weak and margins are still relatively good this is a special situation and the special situation comes out of a number of countries which are definitely declining in milk supply Ukraine Uruguay Argentina Colombia Turkey Norway Algeria Sweden Japan China etcetera etcetera so there are some relief countries moving backwards now you are interested in the look and outlook we do in a very simple way we look on the butter prices in the three key markets us CME European XPrize and entered X price and you see the butter price us a little higher New Zealand a little bit low but still on a much higher level and you see here the SP prices now all the SP prices are very much aligned and you see here this is the ex post prices this is a forward prices and these prices we can transform into a payout price per kg milk you see if this is the old price range from 17 to 19 of $35 and you see here the green line this is a forward traded price in Europe and now the forward traded price indicates the payout price in Europe moving up to 36 euros and it's a very good price right so we have been much lower button we are moving upwards us is even higher and New Zealand is also very high so at the moment the future market markets indicate a very very good scenario why supply is low stocks are low and demand is still growing and probably the milk alternatives had not kicked that in as the noise is on the market so let me sum up the past 20 years remember my 60% story a lot of our milk more farms more cows more people more trade main grows in emerging market countries small farms dominating and gaining market share the outlook the outlook of the dairy industry is in the hand of the dairy industry if they had their industry is gaining its license to operate in acceptance from society for what they do there is a very very great opportunity to grow and 45% or even gross level more than we have seen in the last 20 years 2020 milk supply is low like 2009 2030 in 2016 and future market price indicate a rise in prices and we support this thing so once again what his toss name is said very simple 60% more milk and we are moving to a $40 milk price level or 36 euro per hundred kg milk this presentation was possible due to a control collaboration of a lot of people which I would like to briefly acknowledge thank you very much