2/22/2011 Commodities Outlook Virgin Virginia ia Sta State Fee - - PDF document

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2/22/2011 1

Commodities Outlook

Virgin Virginia ia Sta State Fee Feed Asso Association / / Virgin Virginia ia Tech N Nutr trition ition Cow College ege

February 2011

Macro View

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Rising World Demand for Food

• In Asia food makes up 34.5 percent
• f consumer prices versus 15

percent in the U.S.

• In Mexico food makes up 22.7 per

cent of the consumer price index – far lower than the percentage food weightings for Brazil (27), Russia (38), India (46) or China (33), while Ukraine has a weighting of more than 50 percent.

• In countries such as India and

Vietnam the cost of rice alone has a bigger impact on inflation levels than energy costs – A 20% increase in rice prices regionally adds 1.5 percentage points to inflation while a 50% jump adds 3.7 percentage points

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Agflation – Agricultural prices in the past 2 decades

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Unemployment Rate in the US

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Soybeans and Products

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US Soybeans S&D

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US Soil Oil S&D

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Biodiesel Use Oct/Sep

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US Soybean Meal S&D

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Soybeans Major Origins Production MMT

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Soybean Major Origins Stocks MMT

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China Soybeans MMT Oct/Sep

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World Soymeal Consumption MMT Oct/Sep

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Global Demand Predominately China to Meet Oil and Protein Needs

• China accounted for 70 percent
• f US bean exports since Sep. 1

but private estimates see China bean imports slowing from 60 mmt to 55 mmt – China has been less active in looking for old crop beans as their domestic margins have weakened and they have ample stocks in port – Wild card could be Argentina if production drops, sending China back to US after Brazil is sold out this spring

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Chinese Needs Soybeans for Meal Consumption

• China continues to build crush

plants

• China’s production of pork, poultry,

and eggs grew by less than 50% from 1998-2008, while soybean imports grew more than six times

• ver this period; inclusion of protein

meal is critical factor behind soybean demand

• Meal consumption grew 1 mmt

from 1970-1990 – now at an estimated 31.7 mmt an increase of 3000% in 18 years

• Chinese consumption in 2009

surpassed the EU-27 as the largest meal consuming market in the world, up 7.9% from 1996-2010/11

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Grains & Biofuels

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US Corn S&D MBU

Source: USDA

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US Corn vs. Soybean Acreage ‐ Mln Acres

Source: USDA

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US Ethanol Demand for Corn MBU Sep/Aug

Source: USDA

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US Ethanol Facilities

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• 5 - 6 years ago, inclusion near zero
• Estimated average inclusion rates:

Beef Cattle 40% Dairy Cows 35% Swine 30% Layers 15% Broilers 8%

Dried Distillers Grains in Feed Rations

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Key Takeaways Going Forward

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• The

The cheap U eap U.S.do doll llar, ar, Bio-

• -Fuel dem

el demand, hig high c crud ude oil e oil pr prices ices, inc increased w world-wide de ec economi

• nomic g

grow

• wth, and

and supply supply disr disruptions

• ns have

have creat eated a d a near near per perfect ect stor storm of

• f hig

high commodity pr prices ices, fueled fueled b by spec specul ulation, fear fear and and hoar hoarding.

• The Mar

The March h 31 31st

st corn a

and soybean p n planting tings i s intentio ntion r n report will give us will give us our

• ur fir

first glanc glance at at the e ac acrea reage b e battle le t that at w we ar are e going ing t to exper experien ence t ce this is c crop year

• p year.
• We

We ne need to to ge get p t peop

• ple

le back to back to work work and and ou

• ur ec

economy

• nomy b

back on

• n its feet with

its feet with r real job al jobs.

• Per

Per NOAA, NOAA, 2010 tied 2010 tied 2005 as 2005 as the the warm warmes est year on year on rec record, but 2010 was but 2010 was also also was was the the wett wettes est year year on

• n record.

Meteor Meteorolo

• logists and

and clima imatolo

• logists are

are try trying to to exp explai lain how/ how/why this this La Nina La Nina year is so year is so diff differen ent and how and how they all they all missed missed p proje

• jection
• ns.

Some have me have moved moved

• n,
• n, citing a

a long hist long histor

• ry of
• f 18

18 year year drou drough ght cycles es with with 2011 being 2011 being the the year for the year for the next next major major US US droug drought. Texa xas corn corn p planti lanting typ typically star starts in in Feb, but will be Feb, but will be delayed delayed till M till Marc rch due due to to cold s cold soil te il temp mps. We We cannot cannot afford afford any weathe any weather event this event this year. year.

• Wor

World pr d produ

• duction
• n is

is growi

• wing b

but to t to rebuild stock sur d stock surpluses we we need need genet netic tec c technolo logy plus yield g plus yield grow

• wth b

before w fore we see see any sig any significant r reduct ductions in in pr price volat ice volatility. Hig High pr prices ices ar are e here here for at leas for at least 2 t 2 more more ye years ars.

• Weather

Weather, p politi litics, world world ec economi

• nomies, sp

spec ec money, money, fundam fundamentals, Chin China.

• a. batt

battle for ac for acres, res, ext extrem emel ely t y tight endin ending st stoc

• cks

ks, and S and SA needs t needs to fini finish sh t thei eir c r crop

• p
• We

We cont ntinue ue to to analyz analyze “out of “out of contr ntrol” balanc balance sheets sheets, figh fight for ac for acres res, but if but if you you list listen en hard enough hard enough you you can n hear whis hear whispe pers of

• f 50

50 MMT MMT in Argen in Argentina a and 71.5 and 71.5 MMT in in Braz

• Brazil. We

We shall see. shall see.

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Questions?