Grain & Feed Outlook 2009-10

1. Grain & Feed Outlook 2009-10 Dr. Robert Wisner Ag Marketing Resource Center Iowa State University June 2, 2009

2. Key Grain Market Influences Funds • Planting progress - - E.CB. & ND • Global economy • U.S. $ value • Sharp drop in S. America crops • China SBM exports or SB cancellations? • Crude oil prices • Livestock prices & numbers • Dry weather – NE China & W. Canada

4. General Econ. Outlook3 Highly Likely Developments • Trend toward weaker $ • Increasing inflation, esp. in 2-3 years • Higher interest rates– in 2-3 years, possibly sooner Driving forces: huge budget deficits and “cap & trade”

5. U.S. General Econ. OutlookWhat Kind of Recovery? • V – looking less likely • W – temporary recovery • U -- gradual recovery • L -- extended period of stagnation (with inflation) : can’t be ruled out with higher taxes & cap & trade

6. USDA S-D Report 6/12/09Likely Changes • Argentine SB crop estimate down 36 to 72 mil. bu. (1-2 mil. T.) vs. May. • Lower Paraguay soy crop? • U.S. 2008-09 soybean exports up15 to 20 mil. bu. • ‘08-09 carryover down 10 to15 mil. bu. • ‘09-10 carryover down 15 to 25 mil. Bu. • Corn – probably not much change

7. Potential Market Impacts • Even tighter old-crop soybean supply (It’s already record tight) • Bullish old & new-crop soybeans & meal, • Especially old-crop meal • With inverse, SBM strength is concentrated in July futures, but will shift to Sept. by late June • Corn market up $0.29 since 4/30 break-out. Price likely volatile until June 30 acreage report • Informa report suggests about 1 mil. A. less ’09 corn acres – via late plantings in E. Corn Belt

8. Cautions in Soy Meal Supply • Local shortages of soybean meal in Aug. & Sept -- a definite possibility, with the sharp drop in S. America's spring ‘09 soy harvest. • 8/31/09 anticipated soybean stocks--much tighter than last year, 2.2 weeks supply vs. 3.5 weeks in 2007-08. (Tightest since at least 1965) • Uncertainty: China’s 56 mil. Bu. unshipped purchases. Small S. Am. Crop reduces chances of their cancellations.

9. Corn Supply • Old-crop: ample if yield prospects look good • New-crop: probable tighter supply even with trend yield • Sharp drop in S. America spring ’09 production • China: only small exports expected • Reduced foreign feed-wheat competition • Some increase in corn for ethanol • Prices: depend heavily on weather, global oil price, & whether E-15 will be allowed for conventional vehicles

10. Weekly U.S. Dollar Index 5/28/09

11. Downside Risk increasing? Weekly December Corn 5/28/09

12. Weekly SB Price 5/28/09

13. Weekly SBM Price 5/28/09 Gap @ $395

14. Weekly Ethanol Price 5/29/09 Gap

15. Weekly Crude Oil Price 5/29/09

26. Corn Balance Sheet – Wisner - 5/29/09

27. July ’09 – July ’10 spread = +$0.44 Corn Futures Close 5/12/09 5/29/09

28. Key Assumptions • Slow economic recovery until at least Q1-2010 • Gradually weakening U.S. Dollar • Crude oil prices in the $55-$65 range through 2009, then gradually increasing into 2011 • Government approval of intermediate ethanol blends • Gradually accelerating inflation beginning in mid-2010

31. Soybean Balance Sheet - Wisner

32. 5/12/09

34. S. America Crop Prospects5/12/09 USDA Mil. Bu. Chg. Vs. last yr. • Argentina corn -355 • Argentina SB -450 • Brazil corn -320 • Brazil SB -147 • Paraguay SB -114 • Total corn change -675 • Total SB change -711

35. Rapidly Emerging Longer-term Grain Issues • Biofuels mandates: on collision course with GHG regulations & allowable ethanol blend levels • If E-15 is allowed, expect about 45% increase in corn use for ethanol vs. current levels – over next 4 years • California: will it become the national standard for GHG emissions? • If so, Midwest ethanol will find it hard to compete on E. and W. coasts. • Alternative fuels with strong GHG competition: Brazil ethanol, compressed natural gas, compressed landfill gas, electric vehicles • Ratings for cellulose ethanol not yet available in California    • Key element in ethanol & biodiesel GHG competition with other alternatives: indirect land use emissions • Look for efforts to eliminate indirect land use from consideration in GHG emissions evaluations • Also look for pressure to increase research on indirect land use emissions- - both scientific & economic

36. Greenhouse Gas Developments • Both EPA & California proposed air quality regulations are negative to ethanol & biodiesel -- especially biodiesel • California proposal would lock out Midwest ethanol in 4-5 years, but would allow California-produced ethanol to continue as motor fuel See our forthcoming report on this at:http://www.agmrc.org/renewable_energy/agmrc_renewable_energy_newsletter.cfm • USDA projected soy oil use for biodiesel in ’09-10 is about 60% of mandated level. This tempers soybean & oil price prospects for ’09-10

39. Take-Home Points • Severe drop in S. American crops to bring tighter corn & SB supplies until next spring • Summer ‘09 bean supply record tight: expect high & volatile meal prices through early Oct. • Expect adequate SB & meal supplies beyond spring 2010 • Look for tightening ‘09-’10 corn supply • Biofuels & Greenhouse Gas policy are on collision course: Look for policy changes • Wild cards: China, weather, & crude oil

40. Thanks! Questions?Web Site • http://www.econ.iastate.edu/faculty/wisner/