GPS Leaders Conference: Global Dairy & Milk Protein - PowerPoint PPT Presentation

GPS Leaders Conference: Global Dairy & Milk Protein Opportunities November 2016

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If this can happen…..anything can happen! 3

Topics covered +Where can the US play? + Hoogwegt Organization +Market Outlook +US Dairy Export Update +Conclusion +Global Trends 4

The Parent Company: Hoogwegt Groep B.V. 5

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Topics covered +Where can the US play? +Hoogwegt Organization +Market Outlook + US Dairy Export Update +Conclusion +Global Trends 7

U.S. Export Evolution Source: USDEC 8

US Exports Product Mix 1995-2015 US Dairy Export Product Mix 2,500,000 2,000,000 Cheese 1,500,000 Lactose 1,000,000 Whey 500,000 Nonfat 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Non-Fat Dry Milk Whey Lactose Cheese And Curd Butter And Milkfat Dry Whole Milk&Cream Yogrt&Othr Ferm Milk 9

US Export Product Mix- 1996 to 2015 Casein Casein Yogurt & Yogrt&Othr Ferm Butter And Milkfat 0% 1% Other Milk 1% 1% Non-Fat Dry Dry Milk Whole 7% Milk&C … Cheese And Curd Butter And 18% Non-Fat Dry Milk Milkfat Dry Whole 32% 7% Milk&Cream 2% Cheese And Curd 11% 2015 1996 Whey 41% Lactose 21% Lactose 26% Whey 25% 10

US Trade destination evolution: 1996 to 2015 1996 2015 China Middle East & Other 1% Africa 4% China Other 5% 15% 19% Japan & S. Korea Latin America 24% 9% Middle East & Japan & S. Kor Oceania Africa 10% 6% 6% Latin America 9% Oceania Southeast Asia 1% Mexico 20% 19% Southeast Asia Mexico 7% 25% Canada Canada 11 14% 6%

2015 Annual Export Trade Data Highlights Total Value of U.S. Dairy export Total Lbs. U.S milk solids exported Percent of US whey proteins Percent of U.S milk production exported exported Percent of U.S. cheese exported Percent of U.S. butterfat exported Percent of U.S SMP/NFDM exported 12

2016 Most Recent Results- on the upswing + Overall volume up 23% through August + Cheese YTD exports down significantly + NFDM YTD Exports up slightly through August + WPC exports up significantly, a bright spot + Mexico +30%, SE Asia down 5%, Pakistan + China up 46%, SE Asia up 13% down 16% 13

Topics covered: Global Trends "There is no reason anyone would want a computer in their home." – Ken Olson, president, chairman and founder of Digital Equipment Corp., 1977 14

Global Trends and Dietary Implications + Urbanization + More restaurants, particularly “QSR”, to serve a busy lifestyle. + Improved Cold-chain infrastructure + Transportation of goods easier and safer than ever before + Better science and consumer nutritional awareness + Benefits of dairy for all ages + Trade liberalization + As markets open, some distortions in trade allow dairy to become more affordable 15

Protein Consumption & Income Growth Protein Consumption vs GDP Per Capita (2010) $100,000 $90,000 Luxembourg $80,000 $70,000 GDP Per Capita ($) $60,000 $50,000 United States Iceland $40,000 European Union $30,000 $20,000 $10,000 China $- 100 150 200 250 300 350 400 450 500 550 Protein Consumption (g/Capita/day) 16

American QSR Chains Expanding Globally NUMBER OF INTERNATIONAL RESTAURANTS AS OF 2013 Papa John's 755 Dairy Queen 802 Dunkin Donuts 3,005 Domino's 4,422 Burger King 4,998 Starbucks 5,727 Pizza Hut 5,890 Subway 10,109 KFC 11,798 McDonald’s 18,710 Source: Forbes 17

2025 Milk Supply Forecast Source: IFCN 18

2025 Consumption Forecast • More Cows: 370 million dairy animals now to 405 million. Increase of 35 million dairy animals needed in 10 years. • Global Dairy appetite: Dairy consumption per capita expected to grow from 114 kg ME to 127 in 2025-- 12% increase • World trade gaining importance and relevance: World trade increased by 29% from 2005-2015. For the next 10 years, trade is expected to grow 51% , or 26 MMT of more products. 13 times US’s exports Source: IFCN 19

Annual Growth Rates of Per Capita Consumption Fresh dairy products Cheese Butter Skim milk powder Whole milk powder % 6 5 45% higher 4 growth rate 3 2 1 0 -1 2006-15 2016-25 2006-15 2016-25 20 Developed Developing

Topics covered: Where Can the U.S Play? “The entrepreneur always searches for change, responds to it, and exploits it as an opportunity .” – Peter Drucker 21

Opportunities abound 22

Higher Quality Spec Potential Growth PROJECTED MARKET GROWTH- DAIRY PRODUCTS Yogurt- Low Heat 7% Bakery products- High Heat 2% Ice Cream- Low Heat 3% Biscuits- Medium Heat 2% Coffee- Instant 2% Chocolate 3% Infant Formula Micro spec 10% Milk and dairy drinks:Low Heat, high heat stable 10% 23

Higher Quality Spec Potential Growth 24

Product Innovation Yearly WPI Production Yearly WPC (50-89.9) Production 110 300 280 100 148% 260 101% 90 increase increase 240 80 220 Millions lbs Millions lbs 70 200 60 180 50 160 40 140 30 120 100 20 2007 2008 2009 2010 2011 2012 2013 2014 2015 2007 2008 2009 2010 2011 2012 2013 2014 2015 Year Year 25

Topics covered +Where can the US play? +Hoogwegt Organization + Market Outlook +US Dairy Export Update +Conclusion +Global Trends 26

Volatility! Dairy commodity prices FOB Oceania, 2006-2016 27

Production Decline Milk Production growth, Big 7 exporters, 2008-2017f Milk Production growth in key export regions May-Jul 2016 Source: Rabobank 28

EU supply developments by country 29

Imports January – July 2014-2016 - total of the big 8 30

…. But Stock Overhang EU-28 monthly SMP stocks estimates ('000t) Intervention Private 600 500 400 300 200 100 0 Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 May-15 Oct-15 Mar-16 Aug-16 Jan-17 Jun-17 Nov-17 31

General price direction, upside and downside influences • EU supply contracts due to weak cash positions and reduction premiums Upside influences • Weak start of the Southern hemisphere supply season • Chinese import levels increase gradually • Buy side stocks are falling back to normal levels • Commodity prices are translated into lower retail prices Jan Nov Dec Mar Oct Feb Apr May 2017 • Dairy imports by oil exporters remain slow as • LatAm supply growth returns towards end of oil prices recover only slowly season Downside • Russia remains absent influences • US supply growth improves due to weather and solid farmer margins • Above average end user coverage • Better than expected market recovery could trigger EU to start reselling intervention stocks Source: Hoogwegt 32

Topics covered +Where can the US play? +Hoogwegt Organization +Market Outlook +US Dairy Export Update + Conclusion +Global Trends 33

Conclusion “Failure is not fatal, but failure to change might be.” – John Wooden

Conclusion + We are part of a global economy and cannot escape. + If we want to grow we need to think globally and give attention to global customers. + Adaptability and agility is key to success. 35