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Investment opportunities in Agribusiness Profit from overcoming global inefficiencies in feeding the world Premium Wealth Management – Vietnam Conference.

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Presentation on theme: "Investment opportunities in Agribusiness Profit from overcoming global inefficiencies in feeding the world Premium Wealth Management – Vietnam Conference."— Presentation transcript:

1 Investment opportunities in Agribusiness Profit from overcoming global inefficiencies in feeding the world Premium Wealth Management – Vietnam Conference April 2012 Bill Barbour – Director, Investment Specialist Asia Pacific and MENA

2 Important information Issued by Deutsche Asset Management Pty Limited Australia) Limited ABN AFSL This document is not an offer of securities or financial products, nor is it financial product advice. As this document has been prepared without taking account of any investors’ particular objectives, financial situation and needs, you should consider its appropriateness having regard to your objectives, financial situation and needs. The Fund referred to is issued by Deutsche Asset Management (Australia) Limited ABN AFSL To acquire units in the Fund, complete the application form that accompanies the current PDS, which you can obtain from or by calling client services on You should consider the PDS in deciding to acquire or to continue to hold the Fund. Although specific information has been prepared from sources believed to be reliable, we offer no guarantees as to its accuracy or completeness. The information stated, opinions expressed and estimates given constitute best judgement at the time of publication and are subject to change without notice to you. This document describes some current internal investment guidelines and processes. These are constantly under review, and may change over time. Consequently, although this document is provided in good faith, it is not intended to create any legal liability on the part of Ironbark or any other entity and does not vary the terms of a relevant disclosure statement. Past performance is not an indicator of future results. All dollars are Australian dollars unless otherwise specified. All indices are copyrighted by and proprietary to the issuer of the index. An investment is not a deposit with or any other type of liability of Deutsche Bank AG ARBN , Deutsche Asset Management (Australia) Limited ABN or any other member of the Deutsche Bank AG Group and the capital value of and performance of an investment in the Fund is not in any way guaranteed by Deutsche Bank AG, Deutsche Asset Management (Australia) Limited or any other member of the Deutsche Bank AG Group. Investments are subject to investment risk, including possible delays in repayment and loss of income and principal invested. Deutsche Asset Management (Australia) Limited is not an Authorised Deposit-taking Institution under the Banking Act 1959 nor regulated by the Australian Prudential Regulation Authority. 1

3 Our background 2 Actively managed Global Agribusiness Fund to capture inefficiencies and misperceptions of agribusiness. Launched first global agribusiness investments and research in 2005, as of June 2011 over 5 billion USD in assets. Carefully cultivated network of global agribusiness experts in academia, supranationals (invited to roundtable discussion at the UN). Dedicated and seasoned global agribusiness investment team located in NY with strong focus on bottom-up research. Embedded in global thematic equity and trend analysis. Over six years of in-depth analysis at the farmgate, agri-IP, agri- R&D roadmaps. Source: Global Thematic Partners and DWS Investments

4 The case for Global Agribusiness

5 Global food prices hit all-time high – Agflation is back UN Food and Agriculture World Food Price Index 4 Source: Bloomberg; : 30 th September 2011 (Monthly data to 29 th February 2012) Food prices ???

6 Global food prices hit all-time high – Agflation is back UN Food and Agriculture World Food Price Index 5 Source: Bloomberg; : 30 th September 2011 (Monthly data to 31 st August 2011) Supply shocks

7 Global food prices hit all-time high – Agflation is back UN Food and Agriculture World Food Price Index 6 Source: Bloomberg; : 30 th September 2011 (Monthly data to 31 st August 2011) Future prices???

8 Corn price – January 2000 to February 2012 USA – No. 2 Yellow Corn in US$ per bushel 7 Source: US Department of Agriculture as at 29 th February 2012

9 World Sugar indicators 8 Source: Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), Agricultural Commodities, September quarter 2011.

10 9 Pressure on global supply/demand of grain (%) Global Grain Consumption, Production, and Inventory Ratio According to the Japanese Ministry of Agriculture, the inventory ratio of grain will decrease to 15% in 2020 and is expected to fall below the safety zone defined by the FAO. Source : Japan Ministry of Agriculture (As of February 2011) (Million tons) FAO Safety Zone 17~18% 【 1970 ~ 2010 】 Total Grain inventory as a % of demand (RHS) Grain Production volume (LHS) Grain Consumption volume (LHS)

11 10 1. Soaring global population 2. Rising incomes in the developing world 3. Limited agricultural land 4. Bio-fuels 5. Global warming – climate change Agribusiness – Inevitability Global forces or catalysts for change These forces appear to be inevitable and unstoppable Source: Deutsche Asset Management

12 11 World population growth forecasts Almost 1 billion more people over the next decade Source: Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects: The 2010 Revision, August 15, 2011; Billions of people

13 12 The simple income / Food formula Rising income = More food and higher protein consumption Source: CBA, Commonwealth Research (Updated as at 31 July 2011) Grams per day

14 13 Meat demand and changing diets Creating unprecedented demand for grain Kilos per person per annum GDP per capita (US$) Income versus meat demand in large consuming countries Source: USDA, FAO, US Census; Date: USA China Brazil

15 14 Potential for an increase in food consumption 81% of the world population earns less than US $3,466 per annum Sources: 1) Estimated Global Population: CIA, The World Factbook ) Income Group Classification: World Bank mn people 10% 602 mn people 9% 2,506 mn people 38% 2,785 mn people 43% High Income Countries Upper-Middle Income Countries Lower-middle Income Countries Low Income Countries Developing Countries Developed Countries GNI* < US$ 875 pa GNI < US$ 3,466 pa GNI < US$ 10,726 pa GNI > US$ 10,726 pa Global income distribution in relation to world population * GNI – Gross National Income on a per capita basis per annum 2006 Data

16 Potential for an increase in food consumption Around half of the world population still earns less than ~ US $4,000 per annum Sources: 1) Estimated Global Population: CIA, The World Factbook, estimation as of July ) World Bank economies classification as of 18 th July ,101 mn people 16% 2,484 mn people 36% 2,499 mn people 36% 828 mn people 12% High Income Countries Upper-Middle Income Countries Lower-middle Income Countries Low Income Countries Developing Countries Developed Countries GNI* < US$ 1,005 pa GNI < US$ 3,975 pa GNI < US$ 12,275 pa GNI > US$ 12,276 pa Global income distribution in relation to world population * GNI – Gross National Income on a per capita basis per annum Data

17 16 Farmland per person is declining Rising demand requires higher yield from agricultural land World Population (Billions) Farmland (Billions of Hectares) Farmland per person (Hectares) Source: Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects: The 2010 Revision, August 15, 2011; (utilising high variant data), Lehman Brothers and Global Thematic Partners

18 17 Biofuels are competing for farmland

19 Rapid depletion of US Corn inventories 18 Source :Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), Agricultural Commodities, September quarter Millions of tons

20 World biodiesel usage 19 Source :Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), Agricultural Commodities, March quarter 2012.

21 World oilseed indicator price 20 Source: Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), Agricultural Commodities, September quarter US$ per ton

22 21 Droughts Floods Storms Extreme Temperatures Source: Scotia Capital Global observations per annum Climate change Increase in global extreme weather over the last century

23 22 Scarcity: Potential 150 million hectares shortage of farmland Long-term supply not sufficient Source: Radar, USA – August 2009 Many zoning restrictions in Brazil and Africa limit farmland expansion Fragmented substance farmers in Africa, China, India, Eastern Europe require new incentive structures Land ownership unclear in many developing agri regions Undervalued price of water and lack of infrastructure need to be considered when solving the land shortage formula

24 23 Food consumption on the rise Forecast extra developing world demand to 2015 Source: Societe General Cross Asset Research, January 2010

25 24 SEEDS & FERTILISER LAND/PLANTATION MACHINERY FARMERS WATER By products Distribution Product Fish Grain Storage Marketing Farm Aqua Grain Animals Credit Processing Exchanges Chicago Board of Trade AWB What is Global Agribusiness? “Everything from agricultural commodities to consumer products" Meat Bio-fuels Land Arbitrage Logistics Source: Deutsche Asset Management

26 25 From dirt to dinner table – Allocation along the value-chain UPSTREAMDOWNSTREAM Resource Owners Land Plantation Fertilizer Seeds Facilitators Agri. products Machinery Irrigation Infrastructure Value Adders Packag. Food Meat & Bev. Aquaculture Forestry Collectors/Distributors Retailer Logistics Distribution Services Source: Global Thematic Partners, 2011 For illustrative purpose only. The above companies are not a securities recommendation.

27 Opportunities

28 High farm income good news for capital expenditure 27 Source: Kansas City Federal Reserve as of 28 th February 2011 Farm income and capital spending (Diffusion Index)

29 High farm income good news for capital expenditure 28 SourceUSDA, Association of Equipment Manufacturers; Note: 2011 Ag Equipment Sales are YTD through March (% change from prior year) Rising farm incomes spur spending on tractors

30 29 Opportunity: Ag-Biotech Enhancing farm and land productivity through science *Food and Agriculture Organisation, October 2009, Food production will have to increase 70% over the next 40 years* The population growth necessitates the use of transgenic crops. These are plants which have artificially introduced genetic material. Scientists develop these crops to obtain better quality, higher yield, pest control and resistance to weather volatility. Company examples include: –Monsanto (USA) –Syngenta (Switzerland) –Vilmorin & Cie (France) –KWS Saat AG (Germany) The above companies are not a securities recommendation and are provided for information purposes only.

31 30 Global growth in genetically modified (GM) crops A huge investment opportunity - Essential to feed the word

32 31 Ag-Biotech example Monsanto’s “SmartStax” seed technology Source: Monsanto.com; 2009 and 2011 Monsanto has introduced seed technology breakthroughs for corn and cotton Seeds include herbicide tolerance and insect-protection genes for 8 different above and below ground insects This is forecast to enhance crop yields by 7% to 8%

33 A new Puccinia graminis fungus originated in Uganda and was discovered in 1999 (UG99). The fungus causes stem rust that eventually distract plant nutrients relevant for growth. Roughly 90% of the world wheat production has no protection against the virus. 40 million acres in US are currently susceptible to UG99 stem rust, placing annual production of over 2 billion bushels, worth $9 billion, at great risk. Wheat rust has spread 5,000 miles in the last decade. In June of last year scientists announced the discovery of two new strains in South Africa, the most important food producer yet infected. Directly impacts wheat growers, grain handlers, exporters, the US milling and baking industry, and consumers through lower crop yields, reduced grain supplies, poorer grain quality, and higher commodity prices. Wheat crop threat UG99: A potential future driver of famine 32 Source: The Economist: July 1, 2010 Global wheat crop could be severly threatened as scientists are concerned that UG 99 might spread as far as Russia and India.

34 Forecast share of fish production 2030Share of fish production Opportunity: Aquaculture Substitution and increased consumption of protein * Source: DeAM and United Nations & FAO: World Review of Fisheries and Aquaculture 2010, 2008 and 2006, and FAO Committee on Fisheries, Sub-committee on Aquaculture, Fourth Session, Puerto Varas, Chile 6-10 October Global fish demand forecast to increase by 26% to >50% by 2030* Current per capita consumption p.a. of 17 kgs = 26% demand increase by 2030 An increase to only18 kgs per capita p.a. = 50.9% demand increase by 2030 Most of this increase must come from Aquaculture, with largest growth in Asia

35 Performance comparison: DAX Global Agribusiness Index vs MSCI World Index (in USD) % MSCI World Index % DAX Global Agribusiness Index Source: Bloomberg as of 29 th March 2012 Note: Commencement date 15 th September 2006=100 Performance in USD. Past performance is not necessarily indicative of future performance.

36 Performance comparison from global market bottom* DAX Global Agribusiness Index vs MSCI World Index (in USD) % MSCI World Index % DAX Global Agribusiness Index Source: Bloomberg as of 29 th March 2012 Note: * The MSCI World Index bottomed on 9 th March 2009 =100 Performance in USD. Past performance is not necessarily indicative of future performance.

37 36 Global food consumption and economic crisis Grain demand uncorrelated to GDP Scatter chart of world GDP growth and grain demand Source: Citi Investment research and US Government sources (1980 to 2009) 5.0% 4.5% 4.0% 3.5% 3.0% 2.0% 1.0% 0% 2.5% 1.5% 0.5% -2.0%-1.0%2.0%0%1.0%6.0%3.0%4.0%5.0% World GDP growth Grain demand R Squared =

38 Continuous growth in global demand for Grain and Oilseeds 1960 to 2011 (Recessions shown with red bars) 37 World grain and oilseed use Source: US Department of Agriculture 2011 and Global Thematic Partners Million Tonnes

39 World stock of Grain and Oilseeds near historic lows 38 Source: US Department of Agriculture 2011 and Global Thematic Partners. Million TonnesStock to use ratio

40 Grain prices Common based at 100 from 1 st January 2010 to 31 st August Source: Bloomberg as of 6 th October 2011 (Active contracts from Chicago Board of Trade, Source data in UD Dollars) Past performance is not necessarily indicative of future performance.

41 40 Grain prices Common based at 100 from 1 st January 2010 to 6 th October st September 2011 Source: Bloomberg as of 6 th October 2011 (Active contracts from Chicago Board of Trade, Source data in UD Dollars) Past performance is not necessarily indicative of future performance.

42 CF Industries Holdings Inc. – US fertiliser company Share price in USD from 1 st of July Source: Bloomberg as of 6 th October 2011 This is not an investment recommendation and is for information purposes only. Past performance is not necessarily indicative of future performance. -36%

43 CF Industries Holdings Inc. – US fertiliser company Share price in USD from 1 st of July Source: Bloomberg as of 6 th October 2011 This is not an investment recommendation and is for information purposes only. Past performance is not necessarily indicative of future performance P/E = P/E = 5.70

44 CF Industries Holdings Inc. – US fertiliser company Share price in USD from 1 st of July Source: Bloomberg as of 29 th March 2012 This is not an investment recommendation and is for information purposes only. Past performance is not necessarily indicative of future performance P/E = P/E = P/E = 7.92

45 An interesting insight – correlations over time 44 Source: Bloomberg as of August 2011; Correlation data in USD. *DWS Global Agribusiness* is a US mutual fund and has not been registered in Australia with ASIC and is shown for information purposes only. Past performance is not necessarily indicative of future performance. Two years daily correlation with Fund*

46 Australia - Agribusiness opportunities Sector contribution to total Australian GDP Source: Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), Agricultural Commodities, September quarter 2011.

47 46 Australia - Agribusiness exports E xports in billions of AUD Source :Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), Agricultural Commodities, September quarter Sector = 2011 imports exceed exports

48 Listed Australian Agribusiness companies A small and limited opportunity set 47 Company examples include: –Australian Agricultural Company Limited $419 million –Elders Ltd $126 million –GrainCorp Ltd$1,477 million –Incitec Pivot Ltd$5,489 million –Nufarm Limited$1,139 million –Ridley Corporation Ltd $326 million –Ruralco Holdings Ltd $171 million Recent takeovers: –ABB Grain Ltd (Acquired by Viterra Inc – Canada) –AWB Ltd (Acquired by Agrium Inc -USA) Source: Bloomberg and Deutsche Asset Management Market capitalisation data at close of business 7 th of October 2011 in AUD. The above companies are not a securities recommendation and are provided for information purposes only. Market capitalisation

49 48 Rising prices for Agriculture & Food related products and investments » Urbanization » Increase in life expectancy Growing Global Population » Strongest Population Growth in Asia Rising Incomes » Increasing demand for High-Protein food … » … and “healthy” quality food (Organic) Source: Deutsche Asset Management Limited Resources » Land & Water Scarcity » Changing Weather Increasing Pollution » Slowing Yield Gains » Bio-fuels Global Agribusiness An inevitable investment opportunity


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