Monsanto at BMO Conference Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

900m bushels of corn demand increase driven by ethanol/emerging middle class

“over the past 10 years, we’ve seen about 900 million bushels a year of corn demand increase and that’s a — a lot of that’s been driven by in the U.S. and about the ethanol but it’s also about the continued expansion of population in the middle class where people are going to upgrading their diet.”

Most of that was met by bringing new acres in

“The interesting thing about this, 900 million bushels a year, the majority of that demand, about 70% of it was met by bringing new acres into production.”

Going forward have to increase the productivity of acreage

“he challenge for this next increment of productivity is, is that we’re not to be able to bring significant amount of new acres into production. It’s going to have to come from productivity on the acres that we have or a shift in acres from other crops into corn.”

Have to increase productivity by 2%, that’s not happened before

” We have around, globally around 300 million acres of productive corn acres globally and in order to meet this 500 to 600 million bushel a year increase in demand. We would have to increase productivity on those acres by 2% a year. So we’ve never done that before. That’s never happened”

Need more environmentally efficient productivity too

“Ag already uses 70% of the freshwater consumed on earth, so we will see not only there is need for increased productivity, increased productivity per acre but a sustainable increased productivity per acre as we go forward just to meet this demand curve in corn and you will see and it’s similar in soybeans as well. ”

A challenging environment so far

“let me give you a read on where we are this season, this year and kind of a mid season checkpoint. Again this has been one of the most challenging Ag environments we’ve had, with significant headwinds around acres, around currency, commodity price, political unrest”

Northern hemisphere running at about the 5 year average for acres planted, dakotas are running behind though

“in the northern hemisphere while corn planting if you look, is about at the five year average. If you look specifically into the Dakota so the northern corn belt where there’s about 8 million acres of corn in North and South Dakota and where we have very-very high share, they’re about 10% planted and well behind the average, so we’re looking at whether or not we’ll see potential acre shifts between corn and soybeans in that region but clearly an area that we’re keeping focused on and most of that’s going to play out over the next couple of weeks as planting will continue through the first insurance day which will be May 25th so North and South Dakota there’s some weather impacts and we’re monitoring.”

A little softness in Brazil

“we are seeing a little bit of softness, more softness than we originally expected in the safrinha acres in Brazil and Paraguay.”

Tight credit is a headwind in otherwise growing Ukraine

“political uncertainty in the Ukraine, our Corn business in the Ukraine is growing very-very well. It is our fastest-growing business and will continue to grow this year, but the political uncertainty there has taken some of the top-end off of that, as we see some softness and some uncertainty, mostly driven by smaller growers and credit risk, and tightening of credit in the region”

Bring growers information solutions to monitor productivity

“growers are demanding, information solutions, they’re looking for companies who can come together and provide integrative solutions that can help them manage variability on their farm and make better decisions. A grower typically makes about 40 decisions a year on their farm and typically these are reactive decisions, they go out, they walk on their field, they say oh I have a problem, I have a bug problem, I have a disease problem, I have a fertilizer problem, fertility problem and then they go ahead and act and by that time you’ve already lost some of the yield and that’s why we see variability in yield, year-over-year.

We’re going to — what we’ll be able to do and we are going to with our precision Ag offering around climate is really go ahead and help these growers make proactive decisions to be able to predict what’s happening in the field and make proactive decisions that can drive productivity.”

Deere 1Q14 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Global grain and oil seed demand is strong, unfavorable weather could lead to price spike

“Planting is well underway in North American where farmers appear to be shifting some acreage from corn to soybeans in response to relative prices. But even though supplies appear to be adequate, global grain and oil seed demands remain strong. Unfavorable growing conditions in any part of the world would hurt production, reduce the stock to use ratio and result in prices quickly moving higher.”

Farm income expected to decline slightly

“While remaining near long term averages, grain prices and farm income are expected to decrease in 2014. As a result, farm machinery demand is expected to be lower for the year”

upbeat on construction and forestry markets

“Housing starts are slowing ramping up, home inventories are low and prices are improving. Landscaping activity is picking up and financing for land developers is slowly recovering. Additionally, we continue to see a strong domestic energy sector.”

Pull rather than push inventory model

“keep in mind that one of the difference for Deere versus at least many of our competitors is our order fulfillment process. We have very much a pull type system where our dealers, we don’t push a lot of inventory out into the market. We allow our dealers to pull it as needed and with our pretty short order windows that we at lease attempt to have, we’re much more of a just-in-time type of process versus build up that inventory ahead of time sort of situation.

So we’ve been building much closer to retail and that part of the timing difference that you’ll see for Deere versus maybe some of our competitors who push some significant inventory in the field ahead of those sales materializing.”

Dean Foods 4Q13 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

An unprecedented dairy environment

“Before turning to our results I wanted also take a moment to update you on the increasingly challenging and unprecedented dairy commodity landscape. Looking back on 2013 particularly over the second half it was a very challenging year as domestic raw milk prices continued to be meaningfully impacted by global developments in ways that we had not seen previously.”

Powder prices highest since 2007

“Through November the U.S. has exported over 1.1 billion pails of powder which represents a 24% increase compared to last year’s record year. At current levels powder prices are at their highest levels since the fall of 2007.”

Dramatic price inflation in Cheese

“Recently the domestic cheese market has experienced dramatic price inflation at the CME as the increased exports, decreased imports and higher milk utilization in class four butter and powder products have led to tightness in the cheese market. At current levels CME’s spot cheese prices have been fluctuating near or above all time high.”

Chinese causing the price increases

“All major U.S. dairy product export volumes have experienced meaningful year-over-year increases in 2013 with China leading the way in terms of import demand, increasing their total dairy imports by 42% in 2013, with most of this increase in the form of whole milk powder.”

“A significant constriction in Chinese milk production coupled with rising demand for dairy based protein throughout Asia ultimately caused the dramatic increase in Asian demand for imported dairy commodity dairy products. Since the melamine crisis China has struggled to achieve desired growth in its own milk supply, weather disease and regulatory changes in China have conspired to create a full blown supply challenge in 2013.”

Chinese production down 5-10%, not going to recover in 2014

“industry analysts have estimated Chinese milk production to be down anywhere from 5% to 15% compared to year ago levels with most of the trade estimates in the 5% to 10% range. Chinese milk production is not expected to fully recover in 2014 as these are issues that cannot be quickly reversed.”

US and EU need to pick up the slack

“in order for domestic raw milk prices to experience a noticeable decline in the second half of 2014 there will need to be a significant supply response from both the U.S. and the European Union.”

Elevated milk prices throughout 2014

“Overall we expect raw milk prices to remain elevated across all categories throughout 2014 especially in the first half.”

John Deere 3Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings.

“Grain production levels are expected to be up in 2014, resulting in lower prices. Livestock receipts are forecast to be about flat with 2013 level. As a result, our forecast calls for 2014 cash receipts to be approximately $380 billion, down about 4% from 2013, which was the second highest level ever recorded. 2014 cash receipts, the number one predictor of farm equipment sales, are expected to remain at a historically high level, which should help keep farmers in a financially sound position.”

“there is already talk about among U.S. farmers looking ahead to the 2014 planting season, about adjusting corn acreage down by about 4% in favor of soybeans.”

“Looking at South America, Informa is forecasting a cut in planted corn area of about 10% in Brazil and of about 30% in Argentina.”

“If 2014 brings unfavorable growing conditions in any part of the world, the U.S., Brazil, and Argentina in particular, corn stock fees [ph] would fall, suggesting the commodity prices would stabilize.”

“what we will tell you is combines today are down year over year on orders. That’s reflected in our outlook. As you look at large tractors, however, it’s still a very, very strong order book. It is open through the end of May today. And so if you look at 8R tractors, our availability on 8R tractors is out to basically early June this year on the wheel tractor. Last year that would have been around April timeframe and then if you look at our 9R tractors again on the wheel variety, available is March this year, of 2014 last year, we would have been in the February timeframe. So both of those are running a little ahead.”

Tyson Foods 3Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings.

“We continued to see a shift away from foodservice into retail, reflecting the overall economy.”

“We’re also seeing more bifurcation among consumers between those choosing higher-priced value-added products and those moving down the value stream to save money.”

“By separating our poultry and Prepared Foods division, we are sharpening our focus on these 2 crucial growth areas.”

“Our buy versus grow strategy continues to work for us. By keeping our production short of demand, we can make opportunistic purchases on the open market for breast meat used and value-added products, while keeping our late quarter inventories in check. We will maintain this strategy into fiscal 2014 as it allows us to be responsive to customer needs and market shifts.”

“we like the way that the chicken supply and demand fundamentals are setting up. We’ll continue to get some tailwinds from grain, moving on through our Q1 and then into Q2.”

“So if you’re a QSR, in the last couple of years, you’ve been running chicken promotions, it’s going to be really hard to comp a chicken promotion with a beef promotion. So — and that’s more likely than not, that would dominate the feature activity. So the great thing about chicken is it carries a lot of flavors, shapes and forms, and I don’t see any fatigue at all at QSR for chicken. So here’s kind of the way we think about it: So beef and pork prices ought to be pretty high, beef prices particularly, which sets up a pretty good halo in chicken, relatively speaking is a very good value when compared to those high beef prices. So we continue to think you’ll see a demand shift. In some of the numbers that we talked about, you got chicken pounds up 2% on 7% increase in pricing year-over-year. And what we saw was the beef pounds kind of struggled a little bit as they reached some pricing elasticity. Now the key thing about us in the beef and pork deal has been around where the animals are. And we’re very well positioned from a supply base around a lot of the feedlots — that are high-volume, high-capacity feedlots. So we like the way our Beef business is set up this year.”

“the tough thing about FY ’13 was the financial impact on our business. We were — about half of our production is in company-owned — or company-controlled birds now. And our cost structure in those houses is really effective. So we can’t get our land-use rights and can’t get these farms built fast enough for our taste.”

“[In China] The thing we have seen is the importance of the supply chain that we’re developing. And what we’ve seen in ’13, although it’s not been great for us financially, it has validated our business model. So we think having a supply chain that is from pullet to plate is very consistent with a lot of cost controls and a lot of bio-security controls is going to be very good for us in ’15 and beyond”

“Hope you’ll have a happy Thanksgiving. And, hey, eat some chicken, beef and pork instead of turkey this year, would you?”

Agco 3Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“In North America, farmers’ strong financial positions and the expectation of near-record farm income in 2013 are expected to support healthy retail demand, especially in the professional farming sector, through the end of the year. Strong farm fundamentals are expected to continue in Brazil in 2013 and the attractive terms for the government financing programs are in place through the end of the year are expected to stimulate growth in excess of 15% compared to the same levels in — compared to the levels in 2012. We are expecting softer demand in Western Europe, with weakness in the U.K. and Central and Eastern Europe. Solid demand across France and Germany is expected to mitigate some of the weakness in other areas. We are continuing to expect 2013 demand in Western Europe market to be down between 0% and 5% compared to 2012.”

“I don’t think anything has really changed too much over the course of a quarter. Obviously, the commodity prices are down, but also you have to keep in mind that farm income levels are projected to be very strong in North America and South America. And in many cases, in Europe, we’re seeing good harvest and farm income should be very good there as well. So we’re expecting the activity levels in our dealerships and retail demand to be strong for the balance of the year, and that’s what we’re for focused on right now.”

” in November, we will have the biggest farm show in the world with — it’s in Hanover, Germany, called Agritechnica. It’s a very global, very international show. All dealers go, all importers go, a lot of customers go. And so it, therefore, typically, before Agritechnica, orders slow down a little bit. And the real picture we will have when we come towards this in December. So it’s actually too early to talk about what’s really going on and to talk about 2014″

“we have seen a pickup in the midsize tractors for some of those dairy and livestock guys and also with that, we would expect to see heavier orders or continued heavy orders for the hay products. So that’s balers, windrowers, those kinds of things. So there is some offset then as you see maybe a slowdown if you do on the row crop guys, the dairy and livestock and the protein producers typically see their margins go up and that’s when we would expect to see stronger sales of those products that we just talked about.”

“especially in the U.S. with some expiring tax benefits and the farmers have had a very good year, a good harvest in most cases and commodity prices have been okay, so farm income is going to be good.”

Mosaic FY 4Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“It was a tough spring planting season for farmers here in North America. Warm weather came very late and just six months after drought battered the 2012 crop, the spring of 2013 brought [thrashing] rains to most of the Corn Belt. Some of the same fields that our ploughed under for lack of rain last year were puddled and too wet for planting this year.”

“The Mississippi River, once so dry that navigation nearly came to a halt, was again difficult to navigate this time because of flooding.”

“we sold 2.6 million tons of potash, a record quarter for Mosaic. And 2.9 million tons of phosphates with a big finish in the last two weeks of May.”

“India continues to use significantly less potash than it has in recent history, offsetting demand growth elsewhere. As a result of the nation’s unbalanced subsidy program, Indian agricultural soil is suffering and at some point the subsidies will need to change to avoid increasing pressure on the food supply. India will come back, we are just not certain when.”

“the longer term outlook remains positive. Farmers still have strong incentive to maximize yield. And to maximize yield, they need fertilizer. Grain and oil seed prices have declined in anticipation of a big crop, which would be a welcome development for global food security. But prices remain high enough to deliver good farm profits, especially given the affordability of crop nutrition and other inputs. And let’s not forget that farmers balance sheets and cash flows remain exceptionally strong as a result of many years of compelling economics.”

“Farmers can make a good living even if corn prices drift down to $4.50 or even $4 per bushel, especially if they’re wringing more bushels out of each acre. Revenue per acre matters to farmers and there are a lot of ways to generate a profitable $900 of revenue per acre”

“As our guidance makes clear, we do not expect a significant recovery in potash and phosphate prices in the near term. Over the medium and longer term, we ultimately believe that economics will rule. The new supply of both nutrients that is coming to market now is likely to dampen prices and lower prices will lead to less future supply expansion. We have already seen a number of announcements deferring or canceling projects. New supply will continue to come in stair step fashion, resulting in short term periods of imbalance which we are seeing today. We are confident that over the next year or two, demand growth will ultimately absorb the new supply.”

“we are certainly seeing lower prices in all of our raw materials. Ammonia has come down about 20%, sulfur is down significantly and moving down as we speak, and rock costs are also moving down. However, the one thing we need to point out is there is about a quarter lag between when we see the change in prices and when it meets cost to goods sold. So what we expect to see is, despite the lowering price we should see our margins stay relatively flat because of the prices of raw materials.”

“we have seen a weakening, a slackening in demand, first of all in potash. And this has all been caught up in what’s happened in general crop nutrition market and P&K. We have seen a strong decline in urea pricing which has gotten the attention of dealers and farmers. We have seen the phosphate price cost components go down as well as the price of phosphates go down. Again, that has the attention of both farmers and dealers and potash is getting caught up in that. We have seen a slackening of demand and people just have become much more cautious about taking inventory price risk, putting product into position ahead of a season. And so they are just waiting to see when the bottom comes in.

I believe we are very near the bottom, certainly on the potash market and I think this is great value at these prices certainly relative to the crop prices.”

“This has been a very market distorting subsidy program that the Indian government has in place. You’re seeing — we’ve seen prices on both DAP and on potash nearly triple over the last 18, 24 months, while there has just been a couple of rupees increase in the price of urea. So the Indian farmers have looked at that and their thinking is, flawed as it may be, but their thinking is, we’ll just put on twice as much urea and reduce our potash and phosphate. This will catch up to them. This is not good for the crop production, the balance of nutrition that those plants need and it’s not good for the environment.”

“The Indian government to make this right will have to increase or decrease I should say the subsidy pay for nitrogen fertilizers and that means the price of nitrogen fertilizer will go up for the Indian farmers and no official in India that’s looking to be reelected is going to dare raise the price on urea which is domestically produced and a staple for the Indian farmer.”

“Right now we peg global MLP capacity in that 64 million to 65 million ton range. And based on our projected usage in the 55 million to 57 million ton range, you are looking at operating rates in the mid-80% range, 86% or so. Looking out to 2020, we are now putting expected capacity in the 81 million to 82 million ton range. We have knocked that down about 3 million tons. We had been around 84 million tons of the effective capacity. And our project demand in 2020 is around 70 million to 72 million tons. So that translates again into 85% to 87% operating rate more or less.”

Monsanto at Sanford Bernstein Conference Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“looking at the macro climate and agriculture at the moment, it’s the same story. We are looking for more grain on shrinking acres and the demand curves in agriculture of the life and wealth.”

“If you look at corn and the conservative estimates in corn we’d suggest going forward that we need about 500 million bushels of incremental corn each year, so we need 500 million bushels of new corn each year.”

“so soy is an emerging story, and within Monsanto, we say that this is decade of the bean”

“I think if you look at China one other things that get gloss over sometimes just the second largest hybrid corn market in the world, second only to the United States, there is over 70 million acres of corn in China today and it’s all hybrid, and they’ve done a fairly decent job with their own genetics and breeding programs to increase productivity of their corn –base, but nowhere close to the level that they need to keep up with the internal demand”

[in response to a question on GMO] “We are a seed company. We produce seed that somebody else grows and harvests and somebody else buys and trucks and somebody else process seed and then somebody else buys that processed material and makes brand of food that ends up in a [chilled cabinet] and somewhere in that very long the chain we’ve got more attention than we anticipated…I think for us there was an education job and we need to do our job and explain what we do and because you’re explaining very often where food comes from and isn’t a chilled cabinet this starts in the field. So I think that for us specifically but for the industry in general we have to do much better job in telling an untold story”

Pilgrim’s Pride 1Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“The price of chicken is going to be driven by the balance of supply and demand for chicken, and not necessarily the price of corn.”

“I think that if you go back and look at the last 2 years, wing prices have been extremely high as compared to history. And as we know, high prices tend to cure high prices.”

“I would remind you that we have the technology in this country to rapidly plant our crop in a very, very short period of time. And I still believe there’s more than adequate time to get the acres planted that we expected to get planted. The good news is the subsoil moisture that we lost last year has been replenished. And once we do get the crop into the ground, we’re optimistic that we’re going to have a really good corn crop this year.”

“I think the industry is doing an admirable job in being disciplined on the supply side. And I think we’ve got a combination where we’ve combined that discipline with strong demand for product. And that’s why you’ve seen the pricing environment that we’re now enjoying. I don’t think that’s going to relent much this year. We’ll certainly get seasonal dips and seasonal increases as we always do. But we’re starting from a very, very strong base. As I said earlier, we haven’t seen the type of strength in pricing and demand, probably in the last 9 to 10 years.”

“I would remind you of, export demand is extremely strong for U.S. chicken the past 2 years, and I don’t think that’s going to wane either.”