2004 grains outlook

8/6/2019 2004 Grains Outlook

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CommodityMarket &Futures IndustryUpdate

By: Rich Feltes

V.P. & DirectorRefco Global Research

2003 Global Futures Volume by Category

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500

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EquityIndice

s

Inte

restRa

teSSF

AgCom

md.

Energy

Produ

cts

Non-Pr

ecMetals

Mil contracts42%

27%

15%

31% 4% 26%

% change vs 02 on top of bar

- Foreign markets growing faster than US

- Foreign dominated by electronic trade


2/21


3/21

2003 Futures Volume by Exchange

00.2

0.40.60.8

11.21.4

1.61.82

KoreaStockExch Eu

rex

Euronext CME CB

OT

Mil contracts 50%

27% 0%15%

32%

% change vs 02 on top of bar

03 Dalian Futures Ex. Vol.up 54.9% vs. 02 to 75 mil con.

Why is CRB Booming?

Weakening dollar

Low interest rates

Range bound equity market

Surging PRC economic growth Energy demand outpacing supply

Online access/Electronic execution

Simultaneous crop shortfalls globally

90s Dot com boom discouraged investment incommodity capacity


4/21


5/21

ChinaDemographics

1.3 bil populationgrowing by 10.4 mil/yr

8 mil people enter work force yearly

Average factory wage 61 cents/hr vs. $16.14 US

Average farm size 1.6 acres vs. 140 acres in US

61% rural vs. 79% in 82 (must build city size ofHouston/mo. to house flow from rural to urban)

Chinas demographics are their destinythe 21st

century belongs to the Chinese


6/21

ChinaEconomy

Worlds fastest 5th largest & fastest growing economy

Autoskey economic driver next 30 years (GM 1stQ04 car sales up 70%)

Building 1900 miles of expressways/year Worlds largest soybean importer & steel producer

2nd largest crude oil consumerconsumes 5 mbd vs.20 mbd in US (US pop only of PRC)

Will buy 1900-2300 airplanes next 20 years

If Wal-Mart were a nation it would be Chinas 8th

largest trading partner


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8/21

Chinese Soybean Meal Consumption

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2

4

6

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10

12

14

16

18

2022

24

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Source: USDA -Jul 2004

2220% increase 1990 to 2004

13% Population growth same period

Protein consumption outgrew

population by 170X past 14 years

Chinese Soybean Oil Consumption

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1

2

3

4

5

6

7

8

9

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Soybean Oil Consumption

Source: USDA -Jul 2004

31-fold expansion

in 20 years...


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1980 1985 1990 1995 2000 2005

Ending Stocks

CHINA ENDING STOCKS: WHEAT, CORN & SOYBEANS COMBINED

MMT

With reduced area and

reduced yield. production

has declinedand with

consumption climbing

(including corn

EXPORTS), China has

reduced its carryout

stocks by nearly 150

million tons!

We do not know the correct figures for China

stocks, but we do know that the five-year change

has been enormous. Is the stage set for reduced

corn exports, maybe even imports?

PRC: Ag CommodityWrap Up:

Info on PRC ag output & trade more transparent

World markets nervous about over re-entry of PRCas a grain buyer; risk--grain stocks are state secret!

Decline in PRC grain yields, stocks & acreageportends renewed emphasis on production

PRC 04/05 soybean import growth may slow asworld production poised to surge

Bottom line: watch trends in domestic PRC prices &agribusiness margins


11/21

Soybean harvest followed by planting of double crop corn(31 combines & 12 planters)

Expansion in Brazil is the most important shift in globalagriculture since the Midwest was settled in the 1800s.

- USDA Economist

Soybean Harvest - Mato Grosso, Brazil

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50-51 55-56 60-61 65-66 70-71 75-76 80-81 85-86 90-91 95-96 00-01 05-06 10-11

Brz Actual

Brz Trend1960 to 2000

Trend + Stdev

Trend - Stdev

Trend 1990 to2003

Brz = 28 % of world all wheat production, latest year

PRXfile:PSD_YieldAnal_PrezCN. PRXrev. 28-Nov-03. USDA: Nov-03.

For GTB-03-11.

Exceeding 40-year trendsince 1990, with new,rainfed land in cerrado.

Trendline fits with r-square = 0.79

Bushels/acre

BRAZIL SOYBEANS YIELD HISTORY AND TREND


12/21

South American Ag: Big Potential& Low Cost of Production

05 S. America soybean prod. up 20 mmt (vs.4.5 mmt decline in 04);

Brazil is 2nd

largest beef exporter Brazil broiler cost of production 22% below US

Undeveloped Brazil land = total US crop area

Deforestation in Brazil since 1995 averaged 5mil acres/yr (equal to 7 football fields/minute)--PRC lost 3.7 mil acres/year since 1998


13/21

US Share of Global Trade

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20

30

4050

60

70

80

Soyb

eans

Soym

eal

Soyo

il

Wheat

Corn

Beef

Pork

Poult

ry

'92/93

'03/04

%/Mkt Share

Usshretrade

*17.8% prior to 12/23/03 US BSE discovery

*


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225

197184

1041 07 1 17

118

138

124

132

158 160160

175

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90

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210

90/91

91/92

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99/00

00/01

'01/'02

'02/

03

'03/

04

'04/05

est

Other

So. Am.

U.S.

World Soybean Production (MMT)

World population up 19%

Production up 90% from 90 to 04

Soy product use driven by income growth

Source: USDA July 2004

Soy prod. exceeds pop. growth by 4.7X!

189


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Global Soybean Meal Production(Million Metric Tons)

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20

40

60

80

100

120

140

160

83/84

85/86

87/88

89/90

91/92

93/94

95/96

97/98

99/00

'01/'02

'03/'04

Source: USDA -Nov 2003

Production up 2.6x in 22 years...

55

144


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Global Soybean Oil Production(Million Metric Tons)

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4

8

12

16

20

24

28

32

36

40

83/8

4

85/8

6

87/8

8

89/9

0

91/9

2

93/9

4

95/9

6

97/9

8

99/0

0

'01/'0

2

'03/'0

4

Source: USDA -Nov 2003

152% growth over 20 years...

13

32

Stunning Global Food-demand Growth

Global equity market collapse in 2000

September 11, 2001 terrorist attack

Three-year global economic slump

Afghanistan and Iraq wars

S.A.R.S. & Bird Flu outbreaks

Food-safety challenges

On-going international trade disputes

In Spite Of:


17/21

World Night Picture

Veg oil Use Per Capita

(kilos)

US 34

PRC 14

FSU 12.5

India 10.3Cuba 9.3

N. Korea 8.7

Free-market principles, progressivepolicies, and the indomitable human spiritcombine to advance human condition

Threats to Global Economic Expansion

Rise of isolationism/nationalism

Broadening protectionism

Extreme terrorism (closing ship lanes/ports)

Food-supply contamination issues (B.S.E.,Avian flu, Hoof & Mouth)

Reversion to failed policies of the past (e.g.protectionism, socialism, communism)


18/21

Global grain stocks tightestsince early 70s

US/Global GDP trending up

$ easing/low interest rates

Low tolerance for CN/BNyield adversity in 04

PRC grain stocks down 100mmt since 9/01

Easing Ocean Freight

Market Low Carb craze

54 new US ethanol plantsin planning stage

Neutral E.N.S.O. suggeststrend or higher 04 US yields.

S. America poised to increasesoy production 20 mmt in 05

US soybean export marketshare shrinking

Economic recovery could pullmoney away fromcommodities

40-45 mmt rebound in 04

global wheat prod likely Fragile state of PRC crushers

could slow pace of BNimports

04/05 Grain MarketsA look ahead

Positives Negatives

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US

China

Major importers

WORLD CORN ENDING STOCKS

PRXfile:PSD_Anal_CornOV.PRXrev. 12-Jan-04. USDA:

Jan-04. For GTB-04-01.

Million metric tons

World total stocks (per

USDA) in 03-04 will be down24 mmt, led by China (whos

goal remains to reduce its

huge stocks), but with

increase in US.

China stocks

history not

revised before

1980.

China stocks from 80-81 forward revised

by USDA May-10-02.


19/21

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50-51 55-56 60-61 65-66 70-71 75-76 80-81 85-86 90-91 95-96 00-01 05-06 10-11

World Actual

World Trend1960 to 2000

Trend + Stdev

Trend - Stdev

World = 100 % of world all wheat production, latest yea

PRXfile:PSD_YieldAnal _PrezCN. PRXrev. 31-Jan-04. USDA: Jan-04.

For GTB-04-01.

Last three years havebeen noticeably below

40-year trend.

Trendline fits with r-square = 0.98

Bushels/acre

WORLD WHEAT YIELD HISTORY AND TREND

WORLD WHEAT


20/21

Low Carb Update

1 in 14 Americans on low carb diet

US wheat flour production down 7 lbs perperson to 139 lbs from 2000-2003

1863 low carb products introduced FH 04

Livestock prices higher than suggested by S/D

reflects low carb & improving income

Short term fad or long term trend? (Stillclimbing but losing steam)

US Ag Commodity Outlook

Even with trend 04 corn yields, difficult to build stocksdue ethanol growth & expanding livestock

Grain prices retreat from 04 highs but stay above

average for 05greater downside in soy prices Cattle prices firm to higher next 1-2 yrs, then flatten/top

out; hog prices work lower next 2 years.

Bottom line05 US farm income robust


21/21

Favorite Trading Rules

The reaction of the market to news is more importantthan the news itself.

People who buy headlines end up sellingnewspapers

Facts are pricelessopinions are worthless

2004 grains outlook

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