农业的未来：技术将如何破坏价值链

1、GlobalResearch16 January2019Agricultural MachineryTheFutureofFarming:Howwilltechnology disrupt the valuechain?Farming will be markedly different in the future can farmer profits improve? We think the future of farming will be markedly different than it was historically and it istoday.Farmconsolidati

2、on,demographics,technology,data,sustainability,changing trade and grain supply/demand patterns, supply chain, asset utilization, andservices, will present long term opportunities and challenges. Can farmers navigate structural changes in the farming industry to become more profitable going forward?

3、In short, market share for farmers and the supply chain is at stake. We will address these and othertopicsinthisseriesofreportscalledTheFutureofFarming.Major implications for the supply chain but more questions than answers Whilegrowersandproducerswillfacethedynamicsnotedabove,thesupplychainwill als

4、ohavetoreacttothesemarketchanges.Withstructuralindustrychange,weexpect thatbusinessmodelsandvalueaddwilllookverydifferentthantheydotoday.Canthe traditional supply chain stay ahead of the disruption and disruptors? Who will be the winnersandwhowillbethelosers?Areincumbentsbusinessesmodelsatrisk?FoF P

5、art 1: Farmers - sustainable profitability is key; suppliers need to innovate In this first report, we look at an overview of farm profitability in the US, and highlight some of the aspects of profitability that farmers will manage differently in the future, specifically, marketing techniques, techn

6、ology adoption, extra focus on yield, diversification of growing and broader operations, and outsourcing. If incumbents in the chain are not able to innovate, to help farmers address profitability, we expect disruptors will displace incumbents. For machinery providers, to input providers, to service

7、 providers, there is a virtuous cycle of farm profits supporting profits to the supply chain, which in turn can invest to provide better returns for farmers.Machinery providers impactedThe question for machinery companies is whether they can keep ahead of disruptive companies.Cantheyeffectivelydevel

8、opandmarkettechnologytodriveprofitabilityby farmers? Can they adapt their business model to be less product and volume centric, andtobemoreserviceoriented?WeseeimplicationsforDeere,CNH,andAGCO.At themoment,webelieveDeereisbestpositionedtoaddressthesechangingdynamics for the large ag sector.Heavy Mac

9、hineryAmericasEquitiesStevenFisher,CFAHeavy MachineryAmericasEquities HYPERLINK mailto:steven.fisher +1-212-7138634Erika AssociateAnalyst HYPERLINK mailto:erika.jackson +1-212-7131426NicholasAmicucci AssociateAnalyst HYPERLINK mailto:nicholas.amicucci +1-212-8825036HikaruMizuno HYPERLINK mailto:hika

10、ru.mizuno +81-3-52086207 HYPERLINK /investmentresearch /investmentresearchThis report has been prepared by UBS Securities LLC. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 17. UBS does and seeks to do business with companies covered in its research reports. As a result, investors sho

11、uld be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.Contents HYPERLINK l _TOC_250008 Overview3 HYPERLINK l _TOC_250007 Why is farmprofitabilityim

12、portant?6 HYPERLINK l _TOC_250006 What is driving farmprofitabilitytoday?7 HYPERLINK l _TOC_250005 Income Drivers8 HYPERLINK l _TOC_250004 Expense Drivers10 HYPERLINK l _TOC_250003 Early indications for2019expenses10 HYPERLINK l _TOC_250002 What will be different about profitability inthefuture?12 H

13、YPERLINK l _TOC_250001 Diversification12 HYPERLINK l _TOC_250000 Outsourcing15Technology12StevenFisher,CFA HYPERLINK mailto:steven.fisher +1-212-7138634Erika AssociateAnalyst HYPERLINK mailto:erika.jackson +1-212-7131426Nicholas AssociateAnalyst HYPERLINK mailto:nicholas.amicucci +1-212-8825036Hikar

14、uMizuno HYPERLINK mailto:hikaru.mizuno +81-3-52086207OverviewFarmingwillbemarkedlydifferentinthefuturecan farmer profitsimprove?We think the future of farming will be markedly different than it was historically anditistoday.Farmconsolidation,demographics,technology,data,sustainability, changingtrade

15、andgrainsupply/demandpatterns,supplychain,assetutilization, and services, will present long term opportunities and challenges. Can farmers navigate structural changes in the farming industry to become more profitable goingforward?Inshort,marketshareforfarmersandthesupplychainisatstake. Wewilladdress

16、theseandothertopicsinthisseriesofreportscalledTheFutureof Farming.Major implications for the supply chain but more questions than answersWhilegrowersandproducerswillfacethedynamicsnotedabove,thesupplychain will also have to react to these market changes. With structural industry change, weexpectthat

17、businessmodelsandvalueaddwilllookverydifferentthantheydo today. Can the traditional supply chain stay ahead of the disruption and disruptors? Who will be the winners and who will be the losers? Are incumbents businesses models atrisk?Why is market share at stake?Forfarmers,marketshareisatstakeasothe

18、rcountriesbecomemoresophisticated at farming, compounded by the fact that input costs in many of these countries are cheaper than in the US (particularly labor). There are some challenges / constraints,includingsuitablelandforfarmingandinfrastructure,butoverthelast 50 years the US has ceded corn pro

19、duction market share primarily to China and Brazil, with the Ukraine gaining momentum in the last 5 years, and soybean productionsharetoBrazilandArgentina.TheUSremainsthetopglobalproducer ofcorn,butinthelast3years,BrazilhasproducedmoresoybeansthantheUS.Figure 1: Global corn productionmarketshareFigu

20、re 2: Global soybean production marketshare50%45%40%35%30%25%20%15%10%5%19641967196419671970197319761979198219851988199119941997200020032006200920122015201890%80%70%60%50%40%30%20%10%196419671964196719701973197619791982198519881991199419972000200320062009201220152018ArgentinaBrazilChinaUkraineUSArge

21、ntinaBrazilUSSource:USDASource: USDAForthesupplychain,marketshareisatstakeasnewtechnologystart-upsemerge. The industry is dominated by incumbents with strong relationships and brand reputation,somemorethan200yearsold,butthisstaunchindustryisnowfacingrisk of disruption, arguably more than it ever has

22、, as the plethora of start-ups prove that their technology is viable and can help farmers improve their profitability.Figure 3: Agriculture supply chain backdropIncumbentsJohn Deere - Founded 1837Case IH - Founded 1902IncumbentsJohn Deere - Founded 1837Case IH - Founded 1902New Holland - Founded 189

23、5AGCO (Massey Ferguson) - Founded1847Kubota - Founded 1890Claas - Founded 1913Monsanto - Founded 1901Dupont - Founded 1802Start-upsFarmers Business Network - Founded2014Clear Ag - Founded 2014Smart Ag - Founded 2016Agrian - Founded 2004Farmers Edge - Founded2005Mavrx - Founded 2012Spensa Technologie

24、s - Founded2009CropMetrics - Founded 2009360 Yield Center - Founded 2013Cropzilla - Founded 2013Nardo Agribotics - Founded 2016Source: Company reports, UBSAccording to AgFunder, farm technology financing increased 38% YoY in 2017. Ag biotechnology received the most financing (defined by AgFunder as

25、“on-farm inputs for crops & animals, including genetics, microbiome, breeding, animal health”), followed by novel farming systems (defined by AgFunder as “indoor farms,agriculture,insect,algaeµbeproduction),agribusinessmarketplaces (dfnd by gundr as ommodties tradng patform, onne nput prouremen

26、t, equpment eang ued by farmer), and farm mangment software (defined by AgFunder as “ag data capturing devices, decision support software, big data analytics”).Figure 4: Annual farm techfinancing($m)Figure5:Farmtechfinancingcategorybreakdown(2017)3,0002,5002,0001,500Bioenergy& Biomaterials 2%Robotic

27、s, Mechanization, & Farm Equipment8%Farm-to- Consumer eGrocery 1%Misc 3%Ag Biotechnology 26%1,000500Farm management software, Sensing, & IoT 18%$2,603$1,745$2,603$1,745$1,883$1,4862014201520162017Marketplace 20%Novel Solutions 22%Source: AgFunderSource: AgFunderThe question for machinery companies i

28、s whether they can keep ahead of disruptivecompanies.Cantheyeffectivelydevelopandmarkettechnologytodrive profitability by farmers? Can they adapt their business model to be less product and volume centric, and to be more serviceoriented?For farmers, sustainable profitability is keyIn this first repo

29、rt, we look at an overview of farm profitability in the US, and highlightsomeoftheaspectsofprofitabilitythatfarmerswillmanagedifferentlyin thefuture,specifically,marketingtechniques,technologyadoption,extrafocuson yield, diversification of growing and broader operations, and outsourcing. If incumben

30、ts in the chain are not able to innovate, to help farmers address profitability, we expect disruptors will displace incumbents. For machinery providers,toinputproviders,toserviceproviders,thereisavirtuouscycleoffarm profits supporting profits to the supply chain, which in turn can invest to provide

31、better returns for farmers.Fundamentally, in this series of reports, we address the following two key questions:Can farmers navigate structural changes in the farming industry to become more sustainably profitable?Who will the winners and losers be in the supply chain? Can the traditional supply cha

32、in keep ahead of disruption?A series on the future of farmingIn our series, among other topics, we will look at:Which farms are profitable and which arent, and why does it matter to OEMs?What can farmers do to help improve their profitability?What technology moves the needle on profitability and wha

33、t are farmers willing to invest in?What impact will autonomy have on agriculture and machinery?What are the long term challenges to farm profitability and to OEMs?The question for machinery companies is whether they can keep ahead of disruptivecompanies.Cantheyeffectivelydevelopandmarkettechnologyto

34、drive profitability by farmers? Can they adapt their business model to be less product and volume centric, and to be more service oriented? We see implications for Deere, CNH, AGCO and Kubota. At the moment, we believe Deere is best positionedtoaddressthesechangingdynamicsforthelargeagsectorWhy is f

35、arm profitability important?When farmers make money, they buy equipment. As shown in HYPERLINK l _bookmark0 Figure 6, high horsepower equipment sales are strongly correlated to farm net cash income. While we do not expect significant improvement in farm profitability in 2019, we doexpectitwillbehigh

36、enough tosupportasteadyreplacementcycleinNAlarge ag as fleets age, warranties roll off, and technology upgrades become more desirable.Forexample,assuming2019netcashincomeof$98b(the2yearaverageof2017 and2018),or+4.5%YoY,ourregressioncalculationsuggestshighhpequipment sales could be up 1% YoY in 2019.

37、Figure 6: High hp equipment sales YoY vs. Net cash income YoY40%30%Flattish to modest growth in net cash income is enough to support equipment purchases.20%10%0%-10%-20%20052006200720082009201020112012201320142015201620172018E2019E-30%20052006200720082009201020112012201320142015201620172018E2019EHig

38、hHPEquipmentSalesYoYCashIncomeYoY EstimateSource: AEM, USDA, UBSUsing the regression derived from HYPERLINK l _bookmark0 Figure 6 above, we estimate that if 2019 net cashincomedeclined15%YoYhighhpequipmentsalescouldbe-11%YoY.This scenario assumes continued trade tensions drive crop prices lower in 2

39、019. Conversely our bull case assumes net cash income increases 20%, off an easy 2018 comp (USDA forecasts 2018 net cash income -8.4% YoY) and that trade tensions are resolved, driving crop prices higher in 2019. In this scenario we estimatehighhpequipmentsales+10%YoYusingourregression.Figure 7: Exa

40、mple scenarios for high hp equipment sales flexing net cash income assumptions using our regression analysis30%20%10%0%-10%-20%-30%Bull high hp sales ( cash income +20%):10%Base high hp sales ( cash income +5%):1%Bear high hp sales ( cash income -15%): -11%Source: AEM, USDA, UBSWhat is driving farm

41、profitability today?Wethinkthebestmetrictogaugefarmprofitabilityisnetcashincome,whichata high level is simply cash receipts and other cash income plus direct government payments less cashexpenses.Figure 8: Cash Farm Income Statement ($b)20112012201320142015201620172018FGross Cash Income$ 407.08$ 451

42、.33$ 455.55$ 470.55$ 422.25$ 398.72$ 416.71$ 423.02Cash receipts total365.90401.43403.55424.22377.07357.86372.30374.85Animals and products164.86169.82182.70212.80189.47162.83176.03175.62Crops201.04231.61220.85211.42187.60195.03196.27199.23Corn62.7472.0259.9554.4747.0246.6246.6148.51Soybeans33.1244.1

43、044.4740.8433.1141.9138.6340.39Cash farm-related income30.7639.2640.9936.5734.3727.8932.8734.58Direct government payments10.4210.6411.009.7710.8012.9811.5313.59Cash Operating Expenses$ 240.21$ 267.15$ 270.02$ 287.72$ 265.85$ 254.09$ 264.08$ 273.92Origination96.16106.31109.88117.04110.2499.52105.8410

44、9.32Inputs58.0664.7965.8267.5059.0656.5156.2558.67Other59.5964.4262.4369.2764.9364.1267.0869.09Labor26.4031.6331.8833.9131.6233.9334.9136.83Cash Operating IncomeOther Expenses$ 166.87$ 184.18$ 185.53$ 182.83$ 156.40$ 144.63$ 152.63$ 149.11Rent18.0921.8424.3222.9821.9721.5120.0820.55Interest14.5915.7

45、914.0414.8015.3916.2917.6121.29Property taxes and fees10.9811.2711.6213.5012.7111.9013.0313.88Net Cash Income$ 123.22$ 135.28$ 135.56$ 131.55$ 106.33$ 94.94$ 101.91$ 93.37Source: USDANetcashincomepeakedin2013at$135.6b.TheUSDAforecasts2018netcash income will decline 8.4% YoY to $93b. We think 2019 ne

46、t cash income will be similartolevelsearnedoverthelastthreeyears,around$97-99b,whichwouldbe a modest improvement from 2018.Figure 9: Net Cash Income ($b)160140Net Cash IncomeNet Cash Income($b)10080604020198019811980198119821983198419851986198719881989199019911992199319941995199619971998199920002001

47、20022003200420052006200720082009201020112012201320142015201620172018E2019ESource: USDAIncome DriversOver the last 10 years, the single largest contributors to cash receipts have been meat animals, corn, poultry and eggs, soybeans, and dairy products.Figure 10: Cash receipts mix (2009-2018E average)A

48、ll other animals & products WheatPoultry 2%&Eggs11%Corn 14%Dairy 10%Soybeans 10%Source: USDAMeat animals 23%All other crops 14%Vegetables & Melons5%Fruits & Nuts 8%Asshownin HYPERLINK l _bookmark1 Figure11,thegrowthinnetcashincomeoverthe2010-2014period was primarily supported by meat, dairy, and pou

49、ltry cash receipts plus strong wheat and corn cash receipt growth in 2011 and 2012 (and soybeans in 2012- 2013).& productsFigure 11: Cash receipts YoY by type& productsCash Receipts20112012201320142015201620172018EWheat22%23%-15%-11%-25%-6%-1%5%Corn32%15%-17%-9%-14%-1%0%4%Cotton-2%13%-21%9%-33%16%45

50、%-1%Tobacco-15%18%15%11%-6%-17%3%-8%Soybeans-4%33%1%-8%-19%27%-8%5%All other crops28%45%-8%-8%-18%10%1%3%Meat animals21%5%3%18%-9%-16%7%-2%Dairy products26%-6%9%23%-28%-3%10%-7%Poultry & eggs2%8%16%9%-1%-20%10%9%Allotheranimals5%5%9%3%-3%0%2%3%Source: USDAHowever,asshownin HYPERLINK l _bookmark2 Fig

51、ure12,despitehavingroughlythesameamountofgross cash income in 2018 as 2015 and 2017, 2018 net cash income is expected to be 8.4% lower than 2017 and 12.2% lower than 2015.Figure 12: Gross cash income vs. Net cash income margins$50032%$273300bps lower margins in 2018 than 2015 on approximately the sa

52、me gross income$273300bps lower margins in 2018 than 2015 on approximately the same gross income22%25%$327$318$354$399$349$417$407$423$422$471$456$451$40030%28%$35026%$30024%$25022%$2002006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018EGrosscashincome(LHS,$b)Netcashincomemargin(RHS)20%

53、Source: USDAExpense DriversLooking at the components of cash expenses in 2015 vs. 2018 we note that the main drivers of lower net cash income margins appears to be higher interest and labor expenses in 2018 relative to 2015.Figure 13: Cash expense components400300200100020082009201020112012201320142

54、01520162017 2018ENet renttolandlords1414181822242322222021Otherintermediateexpenses6057556064626965646769fuel, Manufacturedinputs(electricity,fertilizer,5649505865666859575659fuel, Farmoriginations(seed,feed,etc)81788296106110117110100106109Property taxes&fees1010101111121413121314Labor2928272632323

55、432343537Interest1516151516141515161821Source: USDAEarly indications for 2019 expensesWhile interest expense will likely continue to increase next year given thecurrent rising interest rate environment, labor will likely be flat or higher given tight labor markets,andthe HYPERLINK /shared/d2ZX5QiyJ1

56、wK UBSChemicalsteamforecastsagfertilizerpriceswillcontinueto increase,fuelandpropertytaxescoulddeclinemodestly(onlowerUStaxrateand thecroplandvaluein2018isbackto2015levels)tohelpoffsettheseheadwinds.Figure14:FertilizerpricesFigure 15: Cropland values($/acre)$700$600$500$400$300$2002009$1002009201020

57、112012201320142015201620172018 HYPERLINK /shared/d2ZX5QiyJ1wK 20192020Potash (Vancouver fob) Ammonia (tampa/USGC cfr)201020112012201320142015201620172018 HYPERLINK /shared/d2ZX5QiyJ1wK 20192020Urea(USGC/NOLA,granular,FOB) DAP (FOBUSGC/Tampa)4,5004,0003,5003,0002,5002,0001,5001,0005001997199819971998

58、19992000200120022003200420052006200720082009201020112012201320142015201620172018Source: Fertecon, CRU,UBSSource: USDAThe USDA forecasts the operating cost of production for corn and soybeans will both rise 1.2% in 2019. Operating expenses include seed, fertilizer, chemicals, customoperations,fuel,lu

59、be,andelectricity,repairs,othervariableexpenses,and interest on operating capital.Assuming2018yieldsandcommoditypricesandtheUSDAs2019operatingcosts ofproductionaswellascashoverheadexpenses(hiredlabor,taxesandinsurance, and general farm overhead), we estimate 2019 net cash income for an acre of corn

60、and an acre of soybeans would be 2% and 1% lower YoY in 2019 respectively.Historical and forecasted income statements from the USDA, beforegovernment payments, for an acre of corn and soybean are presentedbelow.Figure 16: Corn production costs and returns per planted acre, excluding government payme