Balchem Corporation · NASDAQ:BCPC
Balchem — Balchem webinar December 2022
67 slides from Balchem's conference presentation, December 2022
Slide 1: 2022 in review: Economics and a Look Into the Future
2022 in review: Economics and a Look Into the Future Brett Stuart President, Global AgriTrends December 2022
Slide 2: Our Business: Global AgriTrends
Our Business: Global AgriTrends • Global analysis of agriculture markets, est. 2006; focused on global proteins (beef, pork, poultry) • Economic, policy, forecasting • Extensive global network of clients and contacts • On-the-ground research on 6 continents • Clients include multinational processors
Slide 3: Outline
Outline • How did we get here?? – The Largest Macroeconomic Experiment in HISTORY • Where are we heading? • Other factors: – Weather – Alt proteins – 10 year outlook
Slide 4: The COVID-19 Pandemic
The COVID-19 Pandemic • COVID transformed the world in major ways • The most significant of which was government spending (stimulus and monetary policy) – The U.S. money supply increased +44% in 2 years – Globally – Broad money as a % of GDP grew +18% • Relative asset prices (stocks, real estate, ca
Slide 5: The U.S. government increased the money supply by +44% in 2 years
The U.S. government increased the money supply by +44% in 2 years
Slide 6: Global broad money as % of GDP
143% 2020: +18.4% to 143% 2021? Source: IMF, World Bank, OECD
Slide 7: Coronavirus Stimulus Global
e © CORONAVIRUS ~ STIMULUS Global
Slide 8: The ONE Problem that Spending Can't Fix:
The ONE Problem that Spending Can’t Fix:
Slide 9: Inflation
Inflation • The massive surge in money supply fueled inflation levels not seen in 40 years – Food, energy, cars, housing, supplies, equipment • What is one of the slowest commodities to rise? – LABOR – Labor rates are moving HIGHER – Current US unemployment: 3.5% • Wages are still behind other commo
Slide 10: U.S. Retail Prices
35% 30% 25% 20% 15% 10% 5% 0% -5% -10% Change Since Jan. 2012 U.S. Retail Prices % change from Jan. 2016 eo SN PP Py ¥ ¥ ¥ ¥ ¥ Monthly through October 2022 Source: USDA 33% —=Pork 32% —=Chicken 26% ——Beef > ———_ Global AgriTrends
Slide 11: Global Food Indices
Global Food Indices —Dairy —Cereals —Oils —Meat Food Index: 2014-2016=100 0 1 Ethanol crude, global 3 growth China, Commodity recession deflation, China Slowing covID stimulus China ASF, Russia/ Ukraine CPV IPP PLN MPQAP PaO af Source: UN/FAO Monthly through November 2022 Parad SH HHH LPN > ———_ Glo
Slide 12: Global Food Indices
Global Food Indices Index: 2014-2016=100 300 —Oils 250 - —Cereals —Food —Dairy 200 - —Meat 150 100 50 T T T T T T T Fr FF FF F F FT SF SF Monthly through November 2022 > ———_ Source: UN/FAO Global AgriTrends
Slide 13: The future will be determined by….
The future will be determined by…. • Jerome Powell and the U.S. Fed Reserve • The U.S. Fed Reserve, after denying through 2021 that inflation would persist, now must fix the problem • Using interest rates and monetary policy • It is like brain surgery for the global economy
Slide 14: We will not go back to double digit interest rates
We will not go back to double digit interest rates… Nov 1981: Inflation 9.6% … simply because FF rate 13.3% we cannot afford it What does that suggest for inflation? AND the U.S. dollar rate?
Slide 15: Higher interest rates increase the value of U.S. dollars
Higher interest rates increase the value of U.S. dollars March 16, 2022 Weaker currencies, stronger dollar
Slide 16: 2023 Outlook: Macroeconomics
2023 Outlook: Macroeconomics • Recession risks are rising globally – U.S. interest rate hikes to continue, but likely to moderate into Q2 – If the Fed Reserve sentiment reverses, there could be rate cuts in 2023 – Rate hikes = strong dollar (and vice versa) – Japan and Europe vulnerable to inflation
Slide 17: U.S. Checkable Deposits & Currency Held by Wealth Groups
Million USS U.S. Checkable Deposits & Currency Held by Wealth Groups $1,600 $1,503 $1,400 —Top 1% $1,331 $1 200 —90-99% , —50-90% $1,178 $1,000 —Bottom 50% $800 $600 2008 Recession: $400 $8 million $200 e276 $o T T T t T T T T T a) T T T T T T PSV PP oP HP SM PHP AD SY AM AP AP AP FPFFFFKHFF HH F7K
Slide 18: Is Beef Recession-Proof?
Is Beef Recession-Proof? Keep in mind: “Beef” includes pricey tenderloins 2008 and affordable hamburger. 1981 1973
Slide 19: Is Pork Recession-Proof?
Is Pork Recession-Proof? 41 years ago 52 years ago 49 years ago Source: USDA
Slide 20: Where Are we Headed? Global Supply and Demand – Proteins
Where Are we Headed? Global Supply and Demand – Proteins
Slide 21: 2023: Fewer Cows and Sows
2023: Fewer Cows and Sows Both estimated down -0.5% Jan 1, 2023 Brazil, U.S., Argentina, Australia, EU, Mexico, Canada, Uruguay China, EU, U.S., Brazil, Russia, Canada
Slide 22: Beef Cows, Top Nations
Million Head Beef Cows, Top 8 Nations cumulative change from 2006 Source: USDA/FAS Brazil —=-Mexico —Argentina ——Uruguay -- Combined —-EU -Canada -eAustralia —=U.S. > ———_ Global AgriTrends
Slide 23: Why production is expected to stagnate or decline
• Why? – Trade disruptions and increased commodity prices caused by the post-Covid recovery – The Russian invasion of Ukraine led to even higher prices of inputs and energy – Food inflation soared and trade was further disrupted – Climate change is resulting in more frequent adverse and extreme weat
Slide 24: Global Beef Demand
Global Beef Demand Source: TDM, AgriTrends
Slide 25: Global Beef Consumption
Million MT Global Beef Consumption Change from 2000 -- Combined —China —India —-Brazil -=Japan U.S. Argentina -—=—Mexico -eRussia —EU > ———_ Source: USDA/FAS Global AgriTrends
Slide 26: China Meat & Poultry Prices
China Meat & Poultry Prices 100 market prices Year ago chg 90 - +2% 80 4 70 - Beef 2 60 - S50 + 40 - Pork +33% 30 + 20 4 +27% 10 - Poultry 0 T T T T T T T T T T T PPro PPP” ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ Monthly through mid-December 2022 Source: China MARA > ———_ Global AgriTrends
Slide 27: Global Hog Prices
Global Hog Prices USS/hundred pounds, carc wt equiv — China —Mexico —U.S. |__| ==EU —Brazil a a ‘y 12 \v \v \y Vv Vv Vv Vv Vv Vv Vv $ » cr Ss ye > er Weekly through Dec 4, 2022 Global AgriTrends
Slide 28: Source: USDA, AgriTrends forecasts
Source: USDA, AgriTrends forecasts
Slide 29: China Pork Imports
China Pork Imports 500,000 450,000 4 —Pork Imports: All sources China 400,000 - —Pork Imports: from the U.S. ASF = 350,000 7 2016: Years of ~ corn "floor" 4 300,000 7 prices, 5 financial loss a 250,000 7 driven £ 200,000 liquidation = ’ 2011: Financial é 150,000 7 loss driven - 100 000 _ 2008: "Blue
Slide 30: China Grain Imports
China Grain Imports 70 60 = Sorghum @ Barley 50 = Corn - 40 | Wheat Source: USDA/FAS 9 oF ~ Annually through 2022 —_—_—™ Global AgriTrends
Slide 31: China is now beginning to relax their ZERO-COVID measures
China is now beginning to relax their ZERO-COVID measures…
Slide 32: Other Factors
Other Factors Disease Meat Policies Rising Alt Meat?
Slide 33: African Swine Fever (ASF)
African Swine Fever (ASF) • ASF continues spreading in Asia, Europe, and Africa • It is now found in Haiti and the Dominican Republic • There is no commercially available vaccine • And it is an “export killer”; all exports cease upon a single case • Wild boars in Europe continue the spread – Most re
Slide 34: German ASF Continues Spreading
German ASF Continues Spreading
Slide 35: HPAI Now at Record U.S. Culling
HPAI Now at Record U.S. Culling
Slide 36: Foot and Mouth / Lumpy Skin Disease: Indonesia
Foot and Mouth / Lumpy Skin Disease: Indonesia • Both viruses remain on the move; likely to be declared “endemic” in coming months • Both would stop Australian beef exports to key markets (Japan, Korea, U.S., China) – Aussie beef would be relegated to compete with Brazilian beef and Indian water buf
Slide 37: The Issue is RISING
The Issue is RISING 2 i A) oe |. The,. \ Guardian ‘Emotion and pain’ as Dutch farmers fight back against huge cuts to livestock Farmers express fury at government drive to tackle nitrogen pollution through a major reduction in numbers of pigs, cattle and chickens in the Netherlands lrish farmers say
Slide 38: Sustainability is an Opportunity
Sustainability is an Opportunity
Slide 39: Global Weather Pattern SHIFTING?
Global Weather Pattern SHIFTING? • 3 years of La Niña – Dry for N. America • Weather pattern shifting? – Forecasts say YES – To an El Niño
Slide 40: North America Drought Monitor
North America Drought Monitor October 31, 2021 October 31, 2022 In 2022, 13.5% of the beef herd will be slaughtered That is the highest level since 1984
Slide 41: USDA Beef Forecast
USDA Beef Forecast: 2023 Production drops by most in 44 years Source: USDA
Slide 42: It all happens on the Pacific Equator…
It all happens on the Pacific Equator… • Sea-surface temperature anomalies fuel global precipitation
Slide 43: NOAA CFSv2 El Nino Forecasts
NOAA CFSv2 El Nino Forecasts NOAA CFSv2 NINO 3.4 through July 2023 November 14, 2022 The NOAA CFSv2 model continues to forecast strong warming across the equatorial Pacific starting in February and March, 2023. The newest forecast for Nino Region 1&2 shows explosive warming in May and June with SST
Slide 44: Don't bet on the end of the world
“Don’t bet on the end of the world. It only happens once – and the odds are really against it.”
Slide 45: Thank You
45 Thank You Brett Stuart bstuart@globalagritrends.com
Slide 46: Is Alternative Protein the Answer?
Is Alternative Protein the Answer?
Slide 47: Welcome to the Age of Alternative Meat
WELCOME TO THE AGE OF ALTERNATIVE MEAT
Slide 48: Stock Opens May 2019 at $66 And quickly surges to $234!
Stock Opens May 2019 at $66 And quickly surges to $234! • Investors gush over alternative meats as they write checks for hundreds of millions into this new “disruptive” industry • Companies spring up EVERWHERE • The new WAVE of the future • No more livestock!
Slide 49: Recent Headlines
Recent Headlines Beyond Meat Stock Lost Its Sizzle a Long Time Ago The company's failing financials should give BYND stock traders food for thought Beyond Meat may be struggling with its fast-food partnerships Jul. 21, 2022 11:30 AM ET Beyond Meat, Inc. (BYND) YUM, HRL By: Clark Schultz, SA News Edi
Slide 50: The customers have spoken.
BYND has lost -93% of its $234 value $15 now The customers have spoken.
Slide 51: Other Alt-Meat Companies
Other Alt-Meat Companies • Maple Leaf Foods cut their plant-based business Greenleaf Foods by -25% in August 2022 – Gross margin declined 24.7% due to investments made to increase capacity to meet growth that never happened. – “And we used to believe in a transformational category outcome for meat a
Slide 52: Global AgriTrends
—_=_= Global AgriTrends
Slide 53: China Shifts to Beef?
China Shifts to Beef? • Beef imports are now surpassing pork into China – US$12 billion last year • Beef per-capita consumption remains <12 pounds • Pork per-capita consumption remains >60 pounds Source: USDA/FAS
Slide 54: Brazilian Beef Herd
Brazilian Beef Herd • Slaughter and production data is scarce – USDA estimates • Price and export data is the most accurate • 2016-2020 avg versus 2022: – Exports: +51% – Cattle prices: +47% • Exports drive Brazilian cattle prices
Slide 55: And Who is Driving Brazil's Beef Export Demand?
And Who is Driving Brazil’s Beef Export Demand? • Brazilian Beef to China has averaged +37% annual growth the past 5 years • US$7.8 billion in 2022 • China’s economy remains unsteady into 2023
Slide 56: 10-Year Outlook
10-Year Outlook
Slide 57: Global GDP and Meat & Poultry Consumption, Annually
Global GDP and Meat & Poultry Consumption, Annually R? = 0.9909 Meat and Poultry Consumption $o $20 $40 $60 $80 GDP, Trillion $ (2010) Source: UN/FAO $100 > ———_ Global AgriTrends
Slide 58: Source: FAO, UN, IMF, World Bank, AgriTrends
Source: FAO, UN, IMF, World Bank, AgriTrends
Slide 59: $22 TRILLION more GDP generates 68 million mt more meat consumption
$22 TRILLION more GDP generates 68 million mt more meat/poultry consumption (+22%) from 2021 to 2031 Source: IMF, World Bank, UN/FAO, forecast uses 2000-2020 as base years
Slide 60: Supply and Demand Projections
Supply and Demand Projections -17 mmt -10 mmt -4 mmt Production estimate: FAO http://www.fao.org/publications/oecd-fao-agricultural-outlook/2021-2030/en/ Consumption estimate: AgriTrends Global Demand model (2022-2031)
Slide 61: Source: USDA, AgriTrends forecasts
Source: USDA, AgriTrends forecasts
Slide 62: China YTD Beef Imports: +22% in tonnage
China YTD Beef Imports: +22% in tonnage +55% in value Source: TDM, AgriTrends
Slide 63: Sustainability and the Global Beef Industry
Sustainability and the Global Beef Industry
Slide 64: What is Food Sustainability?
What is Food Sustainability? • Textbook Definition – Able to be maintained at a certain rate or level • Producer Definition: – Long term profitability • Consumer Definition: – Ecologically responsible food production
Slide 65: Global Livestock Under Attack
Global Livestock Under Attack • UN published in 2006 • “Globally, livestock produces a staggering 18% of the world’s greenhouse gas emissions.” – Conclusion: Livestock was doing more to harm the climate than all modes of transportation combined. – The report was proven WRONG within a year – A retrac
Slide 66: This analysis is based on data in Figure 7.8 in the recent IPCC AR6
This analysis is based on data in Figure 7.8 in the recent IPCC AR6 WG1 report
Slide 67: Innovation in Global Protein
Innovation in Global Protein • CO2 versus Methane? – A new index to measure emissions is coming • Feed additives to reduce methane: Asparagopsis, others • Increasing productivity offers PART of the solution to reducing carbon footprint – Increasing turnover (shorter lifespans for cattle) – More outp