A WHOLE NEW WORLD

Feed prices: High and going higher

Trade Policy: Obama change – So. Korea –Colombia – Panama – TPPA - DOHA

Food Industry: Labels – Dietary guidelines

Policy issues: Farm bill – COOL – Competition –Budget cuts

Immigration reform: After 2012

Decisions ahead with big impactsSome Key Issues

1

2

3

4

5

✓

• Yield losses • Export policy• Food prices• Acreage battle

• Prices• Biofuels

• Food demand• Farmland• Declining stocks

• Weather• La Nina• Russia, Ukraine

• Energy• China• Alternatives

• Globalization• Population• Growing wealth• GMO products

MEGA-TRENDS IN AGRICULTURE: Policy Impacts

VISULIZE ACTIVITIES WITH TIMELINES!

20142012201020082006 2009 2013201120072005

NOWVolatility

BEFOREChina impact

FUTURERisk Mgmt.

Market & Policy Volatility: Fasten Your Seat Belts

Turning to the centerObama and Election Impacts

Gridlock: Halting Obama– Or: Growth & Budget Cuts

Changes: White House

Congress: Fewer moderates

State of Union address Obama FY ‘12 budget

✓

4

3

2

1

The New HouseGOP controls with net gain of 63 seats

-- Leaders: GOP: BoehnerDems: Pelosi

-- ‘New’ approach:* Committee chairs: Power

- Markup sessions- Floor amendments

Energy and Commerce: Fred Upton (Mich.)• Supported proposed cut in ethanol payment rate

Ways and Means: Dave Camp (Mich.)• Tax Issues - Trade Policy

Ag: Frank Lucas (Okla.) – 14 Dems lost; No GOP•Direct payments - conservation - equity - regs

Budget: Paul Ryan (Wis.)• Key role in coming budget-cut proposals

Appropriations: Hal Rogers (Ky.)•No longer fun panel – cuts ahead

New players, different approachesHouse Committee Leaders

1

2

3

4

5

✓

New SenateDems still in control, but weakened majority

Same leaders: Dems: Reid GOP: McConnell

Election Math: * 2012: Dems: 23 seats; GOP: 10-- 8 Ag members up, only 1 GOP (Lugar)-- Dems: Conrad, Stabenow, Nelson,

Brown, Casey, Klobuchar, Gillibrand* 2014: Dems: 20; GOP: 13

Impact of Sen. Lincoln’s reelection lossNew Leader for Senate Ag Panel

Stabenow (Mich.)New Chair

Roberts (Kan.)

Ranking GOP

No./So. coalition- Conrad (N.D.)

Keys

Past two farm bills pushed fruit, vegetable funding

Other commodities in Mich.: Sugar beets, corn, soybeans, wheat, dairy

Up for reelection in ‘12

How to cut deficit Changes ahead

U.S. National DebtIn dollars and percent of GDP

40 45 50 55 60 65 70 75 80 85 90 95 00 05 10 15 200

2

4

6

8

10

12

14

16

18

20Trillions of dollars

0

12

24

36

48

60

72

84

96

108

120

Percent of GDP

National debt Percent of GDP

Eisen

howe

r

Kenn

edy

John

son

Nixon

/ Ford

Carte

r

Reag

an

H.W. B

ush

Clinto

n

G.W.

Bush

Obam

a

Truma

n

Roos

evelt

Passing Spending Cuts Will be DifficultEventually most programs will face cuts

19%

21%

5%19%

35%21%

25%12%

19%

23%

DefenseNet

Interest

Medicare /Medicaid Medicare /

MedicaidNetInterest

Defense

SocialSecurity

Discretionaryand othermandatory

Discretionaryand other

mandatory

FY 2009 FY 2015

$1,058 bil.

$1,246 bil.

SocialSecurity

Source: Congressional Budget Office, August 2010

Projected 10-Year Costs of Ag Programs Only 2.15% of all federal government spending

19%

21%

5%19%

35%21%

25%12%

19%

23%

DefenseNet

Interest

Medicare /Medicaid Medicare /

MedicaidNetInterest

Defense

SocialSecurity

Discretionaryand othermandatory

Discretionaryand other

mandatory

FY 2009 FY 2015

$1,058 bil.

$1,246 bil.

SocialSecurity

Source: Congressional Budget Office, August 2010

Agriculture’s 10-Year Projected Spending Percentage breakdown of how $924 billion is spent

Farm Program Budget

77%

5%

10%3%3%2%

Breakdown of the $64 Billion in Commodity Support

Direct PaymentsACRECCPMLGDisasterDairy

Farm Program Budget

69%

18%

13%

Breakdown of the $89 Billion in Crop Insurance Spending

Farmer PremiumSubsidyDelivery Expenses

UnderwritingGains

Farm Program Budget

37%

26%

26%

3%2% 6%

Breakdown of the $65 Billion in Conservation Spending

CRPCSPEQIPFPPWRPOther

Farm Policy Linkages

Crop Insurance Safety Net Economy Ethanol

Timing: 2012? Senate before House? – Funding

Budget cuts ahead: When and where?

Other Issues: Dairy - CRP - Crop insurance - Sugar

No budget baseline: 38 programs, $9-$10 billion- Biggest program impacted: SURE

Direct payments: Dems want reform, Lucas doesn’t-Loan rates, target prices: Increases?

Obama position: No bill, analyze options

Key issues aheadNext Farm Bill

1

2

3

4

5

6

✓

THANK YOU!

Ag Outlook: Volatility Ahead

General Overview• Extremely tight grain and oilseed fundamentals• 2010 US production hurt by adverse August• Shortfalls in world wheat production• La Nina undermines Argentine crops• Strong demand

– High livestock and petroleum prices making it difficult to ration usage despite historically high grain prices

• Minimal 2010/11 corn and soybean ending stocks• Intense competition for 2011 acreage

– Outcome of South American crops and Chinese demand will determine how intense

• Limited prospects for stock building in 2011/12 even with trend yields

Grains Outlook• Grain shortages in 2010/11 due to FSU drought, hot US 2010 August,

strong bio-energy demand, record Chinese soybean imports– US and world stocks reduced to critically low levels for corn and oilseeds:

wheat stocks relatively adequate– High gasoline prices and ethanol tax credit extension cause corn ethanol

demand surge– Argentine 2011crops struggling with sporadic drought– US summer corn and soy supplies extremely tight

• Price highs supported by central bank inflationary monetary policy and economic recovery

– Demand rationing difficult with ethanol and China leading• Global crop production rebound in 2011 essential

– US 2011 acreage battle as cotton demand rebounds; soy could fall short– La Nina Pacific weather cycle positive for N. Hemisphere crops– FSU crop yields should rebound from 2010 extreme drought

• Prices likely to remain high and volatile until fall harvests in hand– Extreme spring and summer volatility expected as weather reaction– Late planting, summer heat, etc.

• Economic excess in China, US could lead to next burst price bubble

• Milk production growth has topped out globally for this cycle, and growth will be slowing worldwide. A lack of rain in New Zealand and Argentina, too much rain in Australia, blizzards in Europe, and $6.50 corn in the US are slowing milk production growth.

• Prices on the world market have responded to the lower supply by shooting higher, and the next chance to bring those back down will be when the new production season ramps up in New Zealand in August. US prices have been along for the ride despite adequate inventories of most dairy products (the exception being butter).

• US butter and cheese prices have jumped too high too fast and could retrace a bit over the next two-three months before turning back higher again. Prices for the various powders will trend higher until September or October when the world market will potentially come under pressure.

Dairy Summary

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12

-2

0

2

4

6

Percent change in annual world growth (purchasing-power parity rates)

Advanced countries Rest of world China India

Advanced economies accounted for over half of world growth rate from 1970 to 2008. From 2010 to 2012 they will account for less than one-third.

Uneven Global Economic Rebound Contains Downside Risks

* Currencies weighted by relative market importance to total U.S. trade.

70

80

90

100

110

120

130

140

150

Indexes of major currencies/US$ (March 1973=100)

80 82 84 86 88 90 92 94 96 98 00 02 04 06 0874 76 78 10

From March 2009 ………. -14%From 1997-03 average … -28%

Dollar Erosion Has Boosted Foreign Buying Power and Commodity Prices

Competitive devaluations and protectionism will be

significant issues in 2011-12

Oil Price Recovery Will Track Global Rebound and U.S. Dollar into 2011

19861987

19881989

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

2006

2007

20082009

20102011

2012

$10$20$30$40$50$60$70$80$90

$100$110$120$130$140

Dollars per barrel; spot price West Texas Intermediate

Questions for oil:Middle East keeps uncertainties in the market.US dollar value still a factor.OPEC: limited output adjustmentsGlobal recovery will set pace of price rebound.

2007 avg.$72

2008 avg.$100

2009 avg.$62

2010 avg.$79

2011-12 avg.$90-100

Real Gross Domestic Product (GDP)

Personal ConsumptionFixed investment

NonresidentialResidential

Change in InventoriesNet exportsGovernment spending

III

2.6

3.2

1.7 0.2

0.9-0.8

1.6 -1.7 0.8

IV

5.0

0.2

0.7- 0.1

-0.10.0

2.8 1.9

-0.3

----------- 2010 -----------2009 2011I

1.3 0.4

0.7-0.3

2.6 -0.3 -0.3

3.7

2.4

II

1.5 2.1

1.50.5

0.8 -3.5 0.8

1.7

3.0

---------- Percent change at annual rate ----------

---------- Percent change from year earlier ----------

Percent points of contribution at annual rate:

I

2.1 0.6

0.8-0.2

2.0 -0.1 -0.6

4.0

2.9

IV

3.2

2.8

3.0 0.5

0.40.1

-3.7 3.4

-0.1

Strong Fourth Quarter in U.S. Signals Momentum For 2011 First Half

Annual Sources of Growth: U.S. Economy

Real Gross Domestic Product (GDP)

Personal ConsumptionFixed investment

NonresidentialResidential

Change in InventoriesNet exportsGovernment spending

Percent points of contribution at annual rate:

---------- Percent change at annual rate ----------

---------- Percent change 4th qtr-to-4th qtr ----------

2006 2007

2.0 0.4

0.8-0.5

0.1 -0.1 0.3

2.7

2.4

1.7 -0.3

0.8-1.1

-0.2 0.6 0.3

2.0

2.3

Forecast2008

0.0

-2.8

-0.2 -1.0

0.0-1.0

-0.5 1.2 0.5

2009

-2.6

0.2

-0.8 -2.7

-2.0-0.7

-0.6 1.1 0.3

2010

2.9

2.8

1.3 0.5

0.5-0.1

1.4 -0.5 0.2

2011

3.1

3.2

2.3 1.0

0.90.1

0.0 -0.1 -0.1

From 1998-2007over 75% of growth waspersonal consumption

Major Changes in theFebruary WASDE

World / U.S. Wheat/ Soybean and Cotton Largely UnchangedCoarse Grain Stocks:World ….. -4.7 mmtU.S. ……. -1.8 mmt (70 million bushels) (price range $5.05-5.75/bu.)

(2010 ending stocks estimated 675 mil. bu.; Avg trade estimate = 725)Foreign … -2.9 mmt (Brazil … -1.5 mmt; Mexico …. -0.5 mmt)

Small increases in meat and milk production for 2011.

Significant changes in prices:Steers ……… + $3 /cwt. ………. ($102-109 / cwt.)Hogs ………. + $4 /cwt. ………. ($58-61 / cwt.)Broilers …. - 1 cent/lb. ………. (80-85 cents/ lb.)Milk ……… + $1.60 / cwt. …….. $17.70-18.40 / cwt.)

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 1050

60

70

80

90

100

110

120

130

140

150

Percent

10

12

14

16

18

20

22

24

26

28

30

Percent

Debt-to-Income

Debt-to-Net Worth

A Deleveraging Consumer Will Temper Potential Demand Growth

Budget Deficits Have Become Focus of Congress and Administration

81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19-1600

-1400

-1200

-1000

-800

-600

-400

-200

0

200

Deficit in billion dollars

-16

-14

-12

-10

-8

-6

-4

-2

0

2

-79-128-208

-185-212 -221

-150 -155 -153

-221-269 -290

-255

-203-164

-108 -2269 126236128

-158

-375-413

-318

-6%

-4.7% -3.6%

Reagan ClintonG. Bush

G.W. Bush

Source: Congressional Budget Office (January, 2011), BEA and Treasury Department and forecast

Deficit aspercentof GDP

Percent of GDP

-248-162

Obama

-9.8 %

-1414

Assumptions: 4 year phase-out in Iraq/ Afghanistan Permanent extension of tax provisions

Declining Grain Stocks Will Drive Acreage Decisions in 2011

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 100

100

200

300

400

500

Million metric tons of wheat & coarse grains

0

8

16

24

32

40

Stocks-to-use percentage

World stocks Total stocks-to-use

Acreage Shifts Will Favor Corn But Weather / Input Costs Will Play Role

Corn

Soybeans

Wheat

Upland Cotton

7 other crops*

Hay harvested

CRP

Double crops

Total acreage

93.5

64.7

60.5

10.8

20.2

61.0

36.8

5.0

349.2

2007

+2 to +4

-1 to +1

+2 to +4

+1 to +3

-1 to 0

+0 to +1

-1 to 0

+1 to +2

+3 to +6

Change10 to 11

----------------- million acres -----------------

* Barley, oats, sorghum, rice, sunflowers, peanuts and canola

86.0

75.7

63.2

9.3

23.7

60.1

34.6

7.1

348.6

2008

86.5

77.5

59.2

9.2

20.8

59.8

33.7

4.7

346.4

2009

88.2

77.7

53.6

11.0

21.2

59.7

31.3

2.8

343.4

2010

90-92

76-79

56-58

12-13

20-21

60-61

31

4-5

346-349

2011

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

2008 2009 2010

2011

100

200

300

400

500

600

700

Index (1990-92=100)

Feed Nitrogen Potash & Phosphate

Key Crop Input Prices Set Globally and Likely to Remain Volatile

Change from year ago

+17%

+24%

+39%

72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 100

50

100

150

200

250Million metric tons of wheat

0

8

16

24

32

40Stocks as percent of use

World Wheat Stocks Fall As Global Production Declines

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10

(25)

0

25

50

75

100

125

Million metric tons

Ending stocks

Domestic use

Production

Net exports

Declining FSU-12 Wheat Production Driving Markets

27% of world trade

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 100.0

0.5

1.0

1.5

2.0

2.5

3.0

Billion bushels

Ending stocks

Total useProduction

Rebound in Global Wheat Production Could Push U.S. Stocks Higher in 2011

U.S. Winter wheat seedings: +3.7 mil. acres (+10%)

Sharply Reduced Coarse Grain Stocks Push Markets Higher

60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 100

10

20

30

40

50

60

70

Percent (stocks as a percent of use)

U.S. World

Lowest in over 50 years

What if China develops even a small appetite for corn in 2011-12?

Corn Stocks Remain Tight Even With Large Harvest

75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 110

2

4

6

8

10

12

14Billion bushels

Production Total Use Free stks Gov't stks

Nearly 40 percent of the crop is utilized for ethanol.

Total corn use is now over 13.5 billion bushels.

(need 89 mil. acres at trend yield)

Corn Acreage and Yields Will be Strategic in 2011

Need yield of 160 or above

even with 92-93

million acres

88 89 90 91 92 93

81 82 83 84 85 86

154 12.47 12.63 12.78 12.94 13.09 13.24

160 12.96 13.12 13.28 13.44 13.60 13.76161 13.04 13.20 13.36 13.52 13.69 13.85162 13.12 13.28 13.45 13.61 13.77 13.93

Yield 163 13.20 13.37 13.53 13.69 13.86 14.02164 13.28 13.45 13.61 13.78 13.94 14.10165 13.37 13.53 13.70 13.86 14.03 14.19166 13.45 13.61 13.78 13.94 14.11 14.28167 13.53 13.69 13.86 14.03 14.20 14.36

2011 Corn Planted Acreage (Mil. Acres)

Harvested Acreage

Billion bushels

South American Crop Size Will Set Tone for 2010 - 2011 Crop Years

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 100

50

100

150

200

250

Million metric tons

Brazil and Argentina

United States

World

Continued Large Global Soybean Stocks Offset by China Demand

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 100

10

20

30

40

50

60

70

Million metric tons of soybeans

0

5

10

15

20

25

30

35

Stocks-to-use percentage

Ending stocks Stocks-to-use

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10-75

-60

-45

-30

-15

0

15

30

45

60

75

Million metric tons

Ending stocks

Domestic use

Production

Net exports

China’s Appetite for Soybeans is Major Market Driver

In last 10 years domestic consumption has tripled with no significant

increase in domestic production.Increase of 8-9 mmt. in 2009 & 2010.

79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 110

500

1,000

1,500

2,000

2,500

3,000

3,500Million bushels

Production Total Use Stocks

U.S. Soybean Stocks Limited by Strong Demand and Acreage Competition

Meat Industry Will Be Cautious About Expansion in 2011-12

74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 100

5

10

15

20

25

30

35

40

Billion pounds

Beef

Pork

Broilers +1.3 % -1 to -2% - 2.4 % 0 to 1%

Change in 2010 2011 + 4.0 % 0 to +2%

BeefPork

Broilers

2007 2008 2009 2010 2011 +2.2% + 3% -3.2% 1.3 % -1 to 1 %

Percent change in total meat output

Export Market Will Be Key to Positive Returns Through Mid-2011

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10-3

0

3

6

9

12

15Billion pounds (red meat: carcass weight; poultry: ready-to-cook)

Imports Exports Balance

Export share of 2011 U.S. production Broilers ….. 18% Beef ………. 9% Pork ……… 21% All meat .......16%

19811983

19851987

19891991

19931995

19971999

20012003

20052007

20092011

-150

-100

-50

0

50

100

150

200

Dollars per cow

90

95

100

105

110

115

120

125Million head

Cattle inventory(January 1)

Cow-calf returns

Cow Calf Returns Likely to Remain Positive As Inventory Continues Decline

Lowest since 1958

Beef Pork Broilers0

1

2

3

4

5

6

7

Billion pounds (1999-2011)

99 02 03 05 07 09 11 99 02 03 05 07 09 11 99 02 03 05 07 09 11

Meat Exports at Plateau Following Strong Upward Trend

Recovering Export Markets Will Help U.S. Dairy Sector

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 110

50

100

150

200

250

300

350

400

Million metric tons

NFDM Cheese Butter & Milkfat Whole Milk powder

Milk Feed Ratios Likely To Be Pressed Lower in 2011

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5Quarterly ratio: pounds of feed equal to value of one pound of all milk

quarterly data86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 10

* Number of pounds of 16% protein Mixed Dairy Feed (C51/S8/AH41) equal in value to 1 lb all milk.

05 06 07 08 09 11

Livestock and Dairy Prices Must Move Higher to Catch Grains

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

2008

2009

2010

2011 80

100

120

140

160

180

200

Index (1990-92=100)

Prices received: crops

Prices paid*

*Prices paid commodities & services, interest, taxes and wage rates

Prices received: livestock

75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 110

20

40

60

80

100Billion dollars

Net Farm Cash Income

Direct government payments*

* emergency payments are striped area of government payments)

Net cash income in agriculture is now averaging around $80 billion a year

compared with an average of $60 billion for the previous decade….. but more volatility

Farm Income: Agriculture Continues Strong Performance

Record high

Farm Debt Leveraging Has Not Followed Land Prices Higher

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 100

500

1000

1500

2000

2500

Billion dollars

0

100

200

300

400

500

Billion dollars

Change 1970-1980Assets ... +259%Debt ....... +235%

Change 1980-1990Assets ... -16%Debt ....... -19%

Change 1990-2000Assets ... +43%Debt ....... +25%

Change 2000-2010Assets ... +74%Debt ....... +43%

Farm assets(left scale)

Farm debt(right scale)