Global Trends and Swing Factors And their impact on the - PowerPoint PPT Presentation

Click here to add image Click here to add image Global Trends and Swing Factors And their impact on the agricultural complex

Introduction I'm speaking today and tomorrow in Iowa for the IA Farm Bureau and I followed Sterling Liddell who gave a long range outlook . Super presentation . He has all the flamboyant showmanship of an economist, but still strangely likable. John Phipps Agricultural Columnist 2

Food & Agribusiness Research and Advisory A global team of analysts – supporting knowledge based banking Team of 80+ analysts Specialist teams London − Grains & oilseeds Fresno Chicago − Dairy Utrecht Beijing New York − Animal protein St Loius New Dehli Shanghai − Retail Hong Kong − Beverages Mexico Mumbai City − Ag inputs Singapore − Sugar Sao Paulo Sydney Santiago Melbourne Buenos Aires Christchurch

Macro Conditions Click here to add image

Recipe for our Economic Perfect Storm: Lower Interest Rates

Labor: west improving relative cost competitiveness Brazil, China and US Real Wage Index U.S. wage costs have barely budged over the last decade, while costs for Brazil are up 70% and up over 350% in China. This changes the relative competitive landscape dramatically – especially when we think about whether China wil l import grain or meat. Higher mean higher costs – but also more protein consumption. Source: IBGE, BLS, Bloomberg, 2012 6 Market Developments & Outlook Rabobank International

Cost of capital: Big advantage vs. Brazil other developing economies Sovereign Debt Interest Rates - US and Brazil Source: Bloomberg, 2012 7 Market Developments & Outlook Rabobank International

Systemic Risk Random Risk 8

What Happened to Prices 10 D u o l a r s / B h s e l $0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 Source: USD, Rabobank 1 9 5 0 5 1 9 2 1 9 5 4 5 6 1 9 9 1 8 5 6 1 0 9 2 6 9 1 4 6 9 1 6 1 9 8 1 6 9 0 7 9 1 2 1 9 7 9 1 4 7 1 6 7 9 8 9 7 1 C orn Price per Unit 0 1 9 8 1 9 8 2 1 9 8 4 9 6 8 1 1 9 8 9 1 0 1 9 2 9 1 4 Average C 9 6 1 9 8 1 0 2 orn Price 2 0 2 2 4 0 6 0 2 8 0 2 0 1 0 2

Demand Shifts Lead To Volatility Rabobank International

Understanding The Drivers: Click here to add image

Ethanol Reversing Grain Flows US corn used for ethanol has increased by roughly 100MMT since 2005, while world grain demand has risen by about 300MMT. Biodiesel is a factor as well. World demand for vegetable oil is growing by about 5 million tons per year. About 2 of that, or 40%, has been going to feed biodiesel demand.

Ethanol The Marginal Buyer Ethanol daily bid prices leading the market Source: Rabobank

Understanding The Drivers: Follow The Leader Click here to add image

Meat Production < GDP = Higher Meat Prices Especially that from developing markets World GDP growth continues to outpace animal protein production growth – so demand is outstripping supply which leads to high meat prices. Animal protein production is adapting to structurally higher and more volatile grain prices. Given the lag factor caused by anima l life-cycles, this process will take time. The shorter life cycle for poultry, in Sources: World Bank for GDP data and forecast, USDA for meat production, Rabobank for meat production addition to forecast feed 16 Market Developments & Outlook conversion Rabobank International advantages, provides a

The Struggle For Supply Growth In China KFC and McDonald’s Restaurants in China KFC is adding almost one new store per day in China. MCD also growing rapidly. Suppliers are struggling to keep up. + hard to secure an assemblage of land + labor costs are rising rapidly, labor availability in decline Source: Company data, Bloomberg, Reuters, 2011 + biosecurity a huge

Industrialization Production Driving Demand China Hog Production If industrial hog production grows from 55% to 60%, and modified from 11% to 21%, deficit expected to be 23 MMT by 2015 • Assuming 10 bu. of corn per pig Source: MOA, Rabobank, 2012

Soybean Imports

Grain Not Keeping Up With Structural Demand Growth World Grain Stocks to Use Ratio Despite a recovery of 60MMT of grain producti on from the FSU last year, the world grain still declined slightly. Structurally, demand is growing faster Source: USDA, 2012 than supply.

Certainly We Have Tried To Over Produce Click here to add image

Understanding The Drivers: Changes In Supply Sources Click here to add image

Global Soybean Production 23

Infrastructure Challenges

Investment in storage infrastructure has not matched the growth of corn and soybean production [Million Metric Tons] 19/03/13 19/03/13 154 155 149 CAGR: 6% 144 19/03/13 19/03/13 123 123 119 115 101 19/03/13 19/03/13 CAGR: 4% 19/03/13 19/03/13 19/03/13 19/03/13 19/03/13 19/03/13 19/03/13 19/03/13 19/03/13 19/03/13 19/03/13 19/03/13 19/03/13 1 9 / 0 3 / 1 3 1 9 / 0 3 / 1 3 1 9 / 0 3 / 1 3 1 9 / 0 3 / 1 3 1 9 / 0 3 / 1 3 1 9 / 0 3 / 1 3 1 9 / 0 3 / 1 3 1 9 / 0 3 / 1 3 1 9 / 0 3 / 1 3 1 9 / 0 3 / 1 3 1 9 / 0 3 / 1 3 1 9 / 0 3 / 1 3 1 9 / 0 3 / 1 3 Source: Rabobank. Data from CONAB:2012.

Supply For Global Wheat Trade Is Shifting 26

Incremental Production Moving to More Volatile Environments

Outlook: What Does All of This Make Agriculture in 2013??? The Dog That Has Finally Caught the Car!

Impacting US Farmers and Their Suppliers Higher Prices Do Not Guarantee A Profit

Confidence: The feeling just before you completely understand the situation Macro economy remains highly • volatile New trends of changing labor • rates and historically low cost of capital for developed economies New demand sources continue to • grow Developing economies demand • more protein Food delivery systems force • changes Although reduced from past • years, inelastic demand from bio fuels remains a key Supply will attempt to keep up • As crop production spreads • across the globe, weather will introduce additional volatility 30

Land Values

Livestock Turn To Wheat Surge in export interest in wheat matches US livestock move to wheat 32

In 2013 Corn Continues To Expand Wheat is expected to gain acreage in 2013/14 while cotton is expected to decline, with corn and soybeans stable YOY 10 8 6 4 2 0 -2 -4 -6 -8 09/10 10/11 11/12 12/13 13/14(f) Corn Soybeans Cotton Wheat Source: USDA, Rabobank 33

Western Corn Belt: Still Little Room For Error Click here to add image Click here to add image

Yield New Source of Uncertainty Pivotal point in the future P opulation/ Ac re Y ield/ Ac re 35,000 190 170 30,000 150 25,000 130 Weighted P lant 110 20,000 P opulation/Acre Actual Y ield E xpected yied based 90 on P P A Y ield at 1988 10-year 15,000 ave weight/plant Max C apacity 70 L inear (Actual Y ield) 10,000 50 8 1 9 1 9 8 9 1 9 0 1 9 1 1 9 2 1 9 3 9 4 1 5 1 9 1 9 6 1 9 7 8 1 9 1 9 2 0 2 0 1 2 0 2 2 3 0 2 0 4 2 5 0 6 0 2 7 0 2 2 0 8 2 0 9 1 2 0 0 0 1 2 2 0 1 2 1 0 3 2 4 2 0 1 2 0 1 5 1 0 2 6 0 2 1 7 ( f ) f ( ) ) f ( ) f ( f ( )

Conclusions Current situation Milk production in export regions is low but increasing Supply side stocks have started to rise International market prices continue to gradually move upwards Steeper recovery so far prevented by softer demand growth/forward coverage US drought induced price premiums have now been eradicated Next 12 months Prices will slowly be squeezed up by falling supply as margins turn negative However, the pace and vigour of the move has now been tempered US wholesale prices to move up in tandem with the international market

This time government supports are less impactful

All Wheat Accumulated Exports BY Week

Corn Accumulated Exports By Week