2008 chpa perkins

September 2008

Rabobank International

Deborah Perkins

World food market developments

Rabobank International, New York


2

Contents

Section 1:

Section 2:

Section 3:

Commodity market developments

Implications for specific sectors

Outlook


3

Section 1

Commodity Market Developments

http://am-portals.rabonet.com/sites/comm/Images1/Rabo%20Facilities/Offices/elcentro/4.jpg


4

Commodity prices are affected by the interaction of many factors

Commodity price

• Agricultural land• Yield (output/ha)• Farm management• Farm input prices• Weather• Diseases

Supply factors

• Feed • Food• Biofuels• Industrial

Demand factors

• Fund activity• Exchange rates• Freight rates• Crude oil prices• Technical specifications • Market sentiment and speculation• New non-agri market entrants

Other price determining factors

• Trade Policy• Agricultural Policy• Biofuel/Energy policy• Food safety regulations (e.g. GMO)• Sustainability criteria

Policies

Source: Rabobank


5

France

India

Russia

Germany

Italy

US

Argentina

Brazil

MexicoChina

Japan

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

0% 2% 4% 6% 8% 10% 12%

Income and population growth are key drivers of increased food consumption

Income growth (07)

CA

GR

pop

ulat

ion

(05-

10)

Source: UN, IMF, Rabobank

Income and population growth in selected countries

Size of bubble = 2006 population


6

China’s appetite for natural resources has had a big impact on all commodity prices

Chinese energy consumption Iron ore contact prices

Source: IMF, China State Statistical Bureau, Rabobank


7

Ethanol’s impact on commodity demand will focus on corn and sugar

million tonne2006 2012

Wheat and barley

734 803

…of which for ethanol5 19

share (%)1% 2%

Corn

687 818


share (%)7% 19%

Sugar cane

1346 1670


share (%)17% 28%

Source: Rabobank October 2007

Global ethanol production


8

Ethanol by-product production and use is also expected to increase substantially

DDGS production in North America

DDGS displacement of corn

Source: Informa, ProExporter, Rabobank


9

Increasing consumer demands which must be met are also affecting the cost of food

Safety

Environment & ethics

Local vs Organics

Time

Value for money

Quality

Experience & emotion

Health & Wellness


10

The increased presence of non-commercial interest in U.S. agricultural futures markets is having an impact

-30,000

-20,000

-10,000

0

10,000

20,000

30,000

40,000

Mar

-06

Apr

-06

May

-06

Jun-

06

Jul-0

6

Aug

-06

Sep

-06

Oct

-06

Nov

-06

Dec

-06

Jan-

07

Jan-

07

Feb

-07

Mar

-07

Apr

-07

May

-07

Jun-

07

Jul-0

7

Aug

-07

Sep

-07

Oct

-07

Nov

-07

Dec

-07

Jan-

08

Jan-

08

Feb

-08

Mar

-08

Po

siti

on

s

200

400

600

800

1,000

1,200

1,400

US

cen

ts/b

ush

el

Non-Commercial Wheat Net Length Prices

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

Mar

-06

Apr

-06

May

-06

Jun-

06

Jul-0

6

Aug

-06

Sep

-06

Oct

-06

Nov

-06

Dec

-06

Jan-

07

Jan-

07

Feb

-07

Mar

-07

Apr

-07

May

-07

Jun-

07

Jul-0

7

Aug

-07

Sep

-07

Oct

-07

Nov

-07

Dec

-07

Jan-

08

Jan-

08

Feb

-08

Mar

-08

Po

siti

on

s

0

100

200

300

400

500

600

700

US

cen

ts/b

ush

el

Non-commercial Net Length Price

Non-Commercial Corn

-80,000

-30,000

20,000

70,000

120,000

Mar

-06

Apr

-06

May

-06

Jun-

06

Jul-0

6

Aug

-06

Sep

-06

Oct

-06

Nov

-06

Dec

-06

Jan-

07

Jan-

07

Feb

-07

Mar

-07

Apr

-07

May

-07

Jun-

07

Jul-0

7

Aug

-07

Sep

-07

Oct

-07

Nov

-07

Dec

-07

Jan-

08

Jan-

08

Feb

-08

Mar

-08

Po

siti

on

s

400

600

800

1,000

1,200

1,400

1,600

US

cen

ts/b

ush

el

Non-commercial Soy Net Length Price

Non-Commercial Soy

Non-Commercial Wheat

-4,000

-2,000

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

May

-06

May

-06

Jun-

06

Jul-0

6

Aug

-06

Sep

-06

Oct

-06

Nov

-06

Dec

-06

Jan-

07

Feb

-07

Mar

-07

Apr

-07

May

-07

May

-07

Jun-

07

Jul-0

7

Aug

-07

Sep

-07

Oct

-07

Nov

-07

Dec

-07

Jan-

08

Feb

-08

Mar

-08

Apr

-08

Pos

ition

s

0

5

10

15

20

25

US

dol

lars

/ cw

t

Non-Commercial Dairy Net Length Price

Non-Commercial Dairy

Source: Bloomberg, Rabobank


11

Low inventory levels have contributed to higher and more volatile prices

Global wheat stocks Global corn stocks

Sources: USDA, Rabobank


12

Source: ADM, Toepfer International, FAO, Rabobank

million hectares

Area of grains, oilseeds and sugar crops

Projected area of grains, oilseeds and sugar crops

Other suitable agricultural land including forestry, orchards and pasture land OR land that may be taken out of agriculture due to environmental issues

North America

128 143193

2007 2020 Other

Brazil

4978 89

2007 2020 Other

Argentina

30 34 16

2007 2020 Other

EU-27

69 72 60

2007 2020 Other

Australia

21 20 30

2007 2020 Other

M iddle East

32 31 -28

2007 2020 Other

Subsaharan Africa

98 116

436

2007 2020 Other

CIS

94 112 106

2007 2020 Other

India

138 141

-18

2007 2020 Other

China

112 109-24

2007 2020 Other

Other Asia

85 8715

2007 2020 Other

The availability of additional arable land is limited


13

The adoption of GM technology will play a key role in increasing production

Agbiotech market by cropAgbiotech market by geography

GM crop area (million acres)Agbiotech market by product

segment

U.S., 71.8

Rest, 7.1

Latin America,

16.6

Canada, 4.5 Cotton,

11.90

Corn, 41.00

Soybean, 43.90

Other, 0.20

Canola, 3.00

Insect resistant

seed, 19.1

Herbicide tolerant

seed, 57.2

Stacked gene

varieties, 23.7

0

50

100

150

200

250

300

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

RR Soybean Other RR Crops Other HR CropsB.t. Cotton IR Maize Stacked Cotton Stacked Maize


14

Fertiliser prices are indicative of higher input costs farmers are facing

Fertiliser prices

0

200

400

600

800

1,000

1,200

1,400

USD/

tonn

e

DAP North Africa MOP Vancouver DAP US Gulf Urea FOB Yuzhny

Fertiliser use by region


15

USD weakness also relevant

Higher USD prices required to balance the market

USD - Nominal Broad Index

80

90

100

110

120

130

140

Jul-9

6

Jan-

97

Jul-9

7

Jan-

98

Jul-9

8

Jan-

99

Jul-9

9

Jan-

00

Jul-0

0

Jan-

01

Jul-0

1

Jan-

02

Jul-0

2

Jan-

03

Jul-0

3

Jan-

04

Jul-0

4

Jan-

05

Jul-0

5

Jan-

06

Jul-0

6

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

Jan

1997

= 1

00

Source: US Federal Reserve http://www.federalreserve.gov/RELEASES/H10/Summary/

The USD lost 26% of its value between Jan 2002 and Jul 2008


16

Section 2

Implications for specific sectors


17

Growth in world fish production is coming from aquaculture and most of it has been in China

0

20

40

60

80

100

120

140

160

1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007

Catch Aquaculture

Millions of tonnes

FISHSTAT 2007


18

Source: FAO, FAPRI, Rabobank, USDA, 2007

0

50

100

150

200

250

300

350

1985 1995 2005 2015f

mil

lio

n t

on

nes

Beef Pork Poultry Lamb- Mutton

Global meat demand, 1985- 2015f

Despite increasing demand meat producers face a number of challenges especially with respect to feed costs


19

Consumption of fruit in Chile’s largest export market is forecast to increase but prices have been relatively stable

Growth in F&V consumption in the U.S. 2005-2020

-4

-2

0

2

4

6

8

10

Citrus

Apples

Grape

s

Other

fruit

Potato

es

Tomat

oes

Lettu

ce

Other

vege

tables

perc

ent

Source: USDA Fruit & Vegetable consumption


20

Consumers tend to spend more on processed fruit and vegetables as their incomes increase

Average US spend on Processed fruit and vegetables

0

20

40

60

80

100

120

140

160

180

Processed Fruit Processed Vegetables

USD

0-30,000 30-50,000 50-75,000 75,000+


21

Orange juice concentrate prices have tended to react to supply disruptions

Orange juice price development2002-2007

0

50

100

150

200

250

8/5/

2002

11/5

/200

2

2/5/

2003

5/5/

2003

8/5/

2003

11/5

/200

3

2/5/

2004

5/5/

2004

8/5/

2004

11/5

/200

4

2/5/

2005

5/5/

2005

8/5/

2005

11/5

/200

5

2/5/

2006

5/5/

2006

8/5/

2006

11/5

/200

6

2/5/

2007

5/5/

2007

8/5/

2007

11/5

/200

7

2/5/

2008

5/5/

2008

8/5/

2008

US

D/1

5,00

0 p

ou

nd

s o

ran

ge

soli

ds


22

73%73%

63%

30%

13%

11%

0%

10%

20%

30%

40%

50%

60%

70%

80%

1970 1980 1990 2000 2006 2010

California Imports

Chile faces strong competition in the U.S. which is an attractive market for all wine exporters

Share of U.S. wine market- California vs. imports, 1970- 2010


23

Production growth > 4%

Production growth 2 - 2.5%

-12%

2.1%0.2%

2%

-7.6%

16%

6.6%

-8.4% 2.5%

4.3%

The strongest milk production growth is occurring in some of the non traditional dairying regions

Production increase in key countries in 2007

Source: Rabobank, ZMP, NDDB, IBGE, SAGPyA, CDA

0.4%


24

When looking at export opportunities we need to remember that most commodities are thinly traded

Small ripples in these national markets can create LARGE waves in the traded market

European Union

China

USA

Brazil

Trade

Russia

AUS


25

Section 3

Outlook


26

Even when prices begin to decline they are projected to remain above their 2004 levels

0

50

100

150

200

250

2007 2008 2009 2010 2015

Maize Wheat Rice Soybeans Soybean oil Sugar

Index of projected real food crop prices, 2004 = 100

Source: World Bank, DECPG


27

Mexico: Removed tariffs and quotas on pulses, corn, milk, and sugar. Honduras:

Introduced export ban on maize.

Venezuela: In February, Pres. Chavez warned he may nationalize large food companies.

Ecuador: Eliminated tariff on wheat and wheat flour and fixed bread prices.

Peru: Considering subsidizing bread prices, encouraging production of potato bread.

Brazil: Considering removal of tariffs on wheat.

Bolivia: Eliminated import duties on wheat, wheat flour, rice, and maize. Banned wheat exports.

Argentina: Corn export taxes increased to 25% and wheat to 28%. Stopped issuing corn export permits. Ongoing restrictions on beef exports, increased soybean export taxes

Algeria: Gov’t budgeted $4.2 billion for farming in a 2005-09 recovery plan, aiming to improve soil quality, grant concessions of land to agricultural investors to carry out reforestation and promote farm businesses.

Niger: On March 8, gov’t suspended taxes and customs duties on rice imports for 3 months and says it will increase state stockpiles of rice and cereals.

Cameroon: Eliminated VAT on rice and fixed prices of rice.

Egypt: Raised food subsidies.

Turkey: Reduced tariffs on wheat and maize and eliminated that on barley.

Azerbaijan: Eliminated VAT on grains.

China: Introduced export levies on wheat, buckwheat, barley, and oats by 10%. Increased those on wheat flour and starch, maize, sorghum, millet, and soybeans. Introduced export quotas on flour made of wheat, maize, and rice. Placed price controls on staples such as dairy products.

Pakistan: Imposed levies on exports of wheat and wheat flour. Banned private exports of wheat to Afghanistan.

South Korea: Reducing tariffs on wheat and corn and eliminating those on soybeans and feed maize.

India: Eliminated tariffs on wheat and wheat flour and restricted rice exports.

Bangladesh: Reduced tariffs of rice and wheat imports by 5%.

Vietnam: Restricted rice exports, lowered import tariffs on a range of dairy products.

Indonesia: Eliminated tariffs on wheat and soybeans.

Philippines: On 2/21, the gov’t said Pres. Arroyo asked Vietnamese Prime Minister Dung to guarantee a supply of up to 1.5 mln tonnes of rice, signaling rising nervousness about tight supply. On 3/11, gov’t asked for supplies from the East Asia Emergency Rice Reserve, a stockpile from S. East Asian nations, China, Japan, and South Korea, to meet a domestic shortfall. On 3/17, the gov’t asked fast-food restaurants to serve half portions of rice as sides to main dishes to cut down on waste.

Source: Various, Rabobank, correct as at 31 March 2008

Policy responses will be important

Russia: Implemented price controls on certain dairy products, increased beef

import quotas


28

Rabobank International….

“The financial link in the

global food chain”®

2008 chpa perkins

Business

prices source

sugar source

attractive market

rabobank income

crop agbiotech market

fixed bread prices

subsidizing bread prices

global ethanol production