the new realities of the ag economy... what it means for agri-marketers
DESCRIPTION
From Planalytics and AgriMarketing: The New Realities of the Ag Economy... What It Means for Agri-MarketersTRANSCRIPT
© 2008 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential
The New Realities of the Ag Economy...
What It Means for Agri-Marketers
December 15, 2008
© 2008 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential
Lynn HendersonPublisher
AgriMarketing Magazine
Introduction
• B.S. Iowa State University, Agricultural
Journalism and Mass Communications
• Owner, Henderson Communications, LLC
• Former President/CEO of Doane
Agricultural Services Co.
• Member:
• National 4-H Council Board of Trustees,
• American Business Media’s Agri-
Council,
• National Agri-Marketing Assn. (NAMA),
• St. Louis AgriBusiness Club,
• Farm Foundation Roundtable,
• Board of Directors of the World
Agricultural Forum,
• Board of Directors of the Agriculture
Council of America
© 2008 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential
Agenda
• IntroductionLynn Henderson, Publisher, AgriMarketing
•The Current State of the Grain Markets: Where We've Been and
the Impact on ProducersDr. Kevin McNew - President, CashGrainBids.com
•The Energy Situation and OutlookPaul Corby - Sr. VP Energy, Planalytics Inc.
• Impact on Land Values, Rents and Anticipated Cropping
Plan/Purchase Changes.Jim Farrell - President/CEO, Farmers National Co.
•Key Issues Facing the Ag IndustryMark A. Lakers - President, AgriBusiness and Food Associates
•What This Means for Agri-marketers, and What They Do About It. Dr. David Downey - Purdue University Center for Agricultural Business
© 2008 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential
Dr. Kevin McNew President
CashGrainBids.com
The Current State of the Grain Markets:
Where We’ve Been and the Impact
on Producers
• Bachelors degree from Oklahoma State
University
• Masters and PhD from North Carolina
State University in agricultural economics
• Professor of Agricultural Economics at the
University of Maryland and Montana State
University focusing on commodity markets
• Founded Cash Grain Bids Inc in 1999
• Unique commentary on cash markets can
be seen weekly on Bloomberg,
Agweb.com. Agriculture.com and other
publications
What We Do• Collect prices on over 3,300 local grain
markets…including spot and forward contract price information up to a year in advance.
• Provide intelligence to farmers, grain merchandisers and end-users about where and when to sell local grain.
• Handle trade execution through our electronic platforms direct to the Grain Exchanges.
Grain Market Drivers• Weak Demand
– Livestock
– Exports
– Ethanol
– Economy
• Grain Prices Plummet in the last 6 months– Soybeans off 50%
– Corn off 60%
– Wheat off 70%
US Wheat Price
Verasun - Ethanol
• Currently operate large plants in ND, SD,
IA & NE.
• A few plants have stopped buying corn
in recent weeks.
• What is the impact on local grain markets
if Verasun stops buying corn?
Impact of Verasun
Closing?• Cash Grain Bids collects daily spot and forward
prices on over 3,300 grain buyers around the U.S.
• Utilize our proprietary „grain sourcing‟ model that projects local grain flows and prices.
• Utilize Planalytics satellite-based county-level corn production for 2008.
• Where Does Verasun Get Corn… and if they stop buying, what is the price impact?
Verasun Corn Sourcing Regions
Expected Price Decline if Verasun Stops
Buying Corn
Expected Price Decline if Verasun
Stops Buying Corn
Expected Price Decline if Verasun
Stops Buying CornHankinson, ND
Ord, NE
Steamboat Rock, IA
Albert City, IA
Final Thoughts
• Impact will be largely localized, within 50 to 100 miles of
the plants with price declines normally 5 to 15 cents/bu.
• Basis in the US should be strong this year
– Lower transport costs
– Tight-fisted farmers in the face of falling futures
markets.
• Futures markets should continue to be weak, but a
bottom may be near
• Farmer profitability for 2009 seems dire with rising input
costs and lower crop prices.
Kevin McNew
Cash Grain Bids Inc
GoGrain LLC
231 Bozeman, MT 59715
(866) 290-1196
www.cashgrainbids.com
www.gograin.com
© 2008 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential
Paul Corby Senior Vice President
Planalytics, Inc.
The Energy Situation and Outlook
• Manager of Planalytics’ Energy Division
• Provides risk management, decision
support and forecasts
• Responsible for product development,
client services, sales and marketing
• Chief architect of Planalytics’
EnergyBuyer® and ImpactPower
• Regular presenter at Public Utility
Commissions as well as National
Association of Regulatory Utility
Commissioners meetings.
© 2008 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential
The Current Energy Situation How We Got to Where We Are Today
• Nuclear explosions following Tokyo earthquake in Summer of 2007
• Asian Demand for Liquid Natural Gas (LNG) skyrockets
• Prices increased dramatically on rumors U.S. would run out of natural gas
• By end of ’07, hedge funds started bidding up prices of natural gas
• Other commodities – including crude and corn for ethanol – followed
Late ’07 around $9
$10-11 early ‘08
$13-14 summer ‘08
Currently
under $6
CRUDE OIL
Late ’07 around $70-85
NATURAL GAS$147 peak in summer ‘08
Currently below $50
© 2008 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential
• By end of 2007, global funds were pushing more dollars into Energy
• $140 Billion in Energy funds before the end of March ’08
• Natural gas increased to $13.00 by summer, crude was $147/barrel
• Assumption by many that prices would continue to go up
• Fear of running out led companies to buy contracts through 2009
The Current Energy Situation How We Got to Where We Are Today
Late ’07 around $9
$10-11 early ‘08
$13-14 summer ‘08
Currently
under $6
CRUDE OIL
Late ’07 around $70-85
NATURAL GAS$147 peak in summer ‘08
Currently below $50
© 2008 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential
• Crude is currently trading in low-$40s… Natural gas around $6.00
• Companies that locked in contracts at high prices are facing:
Margin calls from exchanges
Collateral calls from banks... cash is scarce
Higher production costs going into 2009
The Current Energy Situation After the Crash
© 2008 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential
The Current Energy Situation What We See Happening Leading into 2009
• Begun to see the fallout among ethanol companies and others
• Terra’s announcement that they are shutting down their fertilizer plant
• Low Energy prices will remain for first six-months
• Second half of 2009 will be very volatile
• Domestic supply will not be an issue
© 2008 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential
Paul Corby Jed LaffertySenior Vice President, Energy Managing Director, Life Sciences
[email protected] [email protected]
Planalytics, Inc.
1325 Morris Drive
Suite 201
Wayne, PA 19087
800.882.5881
www.planalytics.com
© 2008 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential
Jim Farrell President/CEO
Farmers National Co.
Impact on Land Values, Rents and
Anticipated Cropping Plan/Purchase
Changes
• Grew up on a grain and livestock farm in
northwest Iowa, near Storm Lake, and
graduated from high school in Fonda,
Iowa.
• BA Degree from Iowa State University
• University Of Pennsylvania ESOP
Program for CEO's
• President and CEO of Farmers National
Company since November of 2004.
• Serve on the FNC Board of Directors as
Chairman.
• Continue to supervise the Marketing/Sales
Department for Farmers National
Company.
Professional Farm Management70 Professional Farm Managers
• Our Clients - Non Operating Land Owners
• We Manage - 3,825 Farms – 1.3 Million Acres
• 20 States – Midwest & Mid South
40% Crop Share
20% Custom Operated
40% Cash Rent
Professional Farm Managers
• Work for Non Operating Land Owners
Own 50%+ of Land in Midwest & Mid South
• Select Operators
• Complete Lease Negotiations
• Make Planting Decisions
• Make Buying Decisions
• Currently Creating 2009 Budgets
Rural Real Estate Brokerage
• 200+ Licensed Professionals
2008 Fiscal Year Volume
• 220 Farm & Ranch Auctions
• 765 Total Properties Sold
• $390,000,000 Total Consideration
LAND MARKETDemand has softened
During November
15 Confirmed Auctions in NE
10 Sold above comparative sales
5 Sold below comparative sales
22 Confirmed Auctions in IA, IL, IN
15 Sold @ Avg. 3.85% below comparative sales
7 No Sales – 4 had below market leases for 2009
2 Sold later
1st Week of December
5 No sale auctions
Iowa
Led the Market Up
Has had the most resistance this Fall
Factors Impacting . . .
2009 Planning
• Late Harvest
• Wet/Cold Soil Conditions
• Drop in Commodity Prices
• Crop Insurance – Revenue & Production Claims
• High Fertilizer Prices
• Increases in Seed Cost
• Negative Projected Cash Flows
Sample
Corn Budget
2009 Adjustments
• Later Leasing
• Later Crop Planning
• More Soybeans
• Less Fertilizer – Will Impact Yields
• More Credit Problems
• More Crop Insurance
Volatility and uncertainty – along with Inability
to forward price gain has limited our willingness
to lock in inputs.
© 2008 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential
Mark A. Lakers President
Agribusinesss and
Food Associates
CHALLENGES for Agri-Marketers
Winners and Losers!
What we see coming down the road. . .
• 17 years in major agribusiness firms
including 13 years with Ralston Purina
• VP First National Bank of Omaha
• Former McCarthy Group agribusiness
partner
• Founded AFA in 1999
• MBA from Washington University
Intro to Ag and Food Associates
(“AFA”)
• Investment banking firm established in 1999;
• Headquartered in Omaha, NE;
• Premier middle market merger &
acquisitions advisor West of the Mississippi
River;
• Specializes in agribusiness, livestock
production, renewable fuels, food
processing, and financial services;
• Mergers/acquisitions, restructuring debt,
raising capital, building equity, mezzanine
debt and equity.
1. New Technologies (fractionation and fluidized beds);
2. Tight Credit;
3. Lower Future Crush Margins;
4. Ethanol may become the by-product rather than the primary product;
5. Developers driven out of industry;
6. Integration from back and front;
7. Need for Economies of Scale;
8. Large equity and credit market losses in sector NOW!
9. “Deterioration” of Lenders‟ Mindset
Drivers of Ethanol Production
Consolidation
Ethanol‟s Likely 3 – 5 Year Picture
• Go from 150 producers to 25 – 50 – and
could be FASTER!
• Expect 5 – 10 producers to go to Chapter 11
in 4th Quarter 2008!
• Expect Foreign-Owned Banks and Non-
Traditional Lenders and Farm Credit to
dominate ethanol production credit markets.
Ethanol‟s Grim Short-term
• Expect about 40 plants to be in Chapter 11
by January 31, 2009!
• Big Winners and Big Losers in early ‟09.
Protein Market Changes
USA‟s Beef Production Industry Will Shrink!
[up to 10-20% in Five Years]
• USA is the only developed country where
beef consumption exceeds pork (but
demand has weakened in 2007 & 2008);
• Relative Efficiency in Converting Feed to
Protein
– Beef is 8:1
– Pork is 2.8:1
– Chicken is 2:1
– Fish is 1:1
Protein Market Changes
(continued)
• Five time the historical “normal” number of feed yards over 10,000 head capacity for sale today;
• 2008 was second year for large production losses;
• Worldwide recession may reduce per capita consumption of beef nearly 20% domestically!
• Domestic pork and chicken demand may not increase 1:1 with reductions in beef consumption.
• 95% of capital is “mobile”.
Ag Credit Markets
• Expect Mega Trends to Accelerate!
– Foreign-owned banks gain market share
– Non-traditional (often supplier-owned) lenders grow market share
– Domestic commercial banks consolidate and lose market focus
– Farm Credit Services is a “Wild Card” –may grow shares or may get distracted
• Federal Policies for Energy, Food, and Ag will drive Credit, Production and Processing MORE than in the past.
Mark Lakers, President
Ag and Food Associates, LLC
100 Millennium Plaza I
15858 W. Dodge Road
Omaha, NE 68118
Phone: (402) 933-8700
Fax: (402) 933-4411
Email: [email protected]
© 2008 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential
W. David DowneyExecutive Director
Center for Food and Agricultural
Business, Purdue University
What This Means for Agri-Marketers
….And What They Can Do About It
• Professor Emeritus of Agricultural Sales
and Marketing at Purdue University
• Consultant to Agribusiness Industry
• Recognized by American Agricultural
Economics Association
• B.S. Agronomy, M.S. and Ph.D in
Agricultural Economics from Purdue
Center for Food and Agricultural Business Purdue University
The Center for Food and Agricultural Business provides professional development programming for Agribusiness and AgriMarketers, backed by ongoing research into a variety of agribusiness topics.
The most recent is a nation wide study of the buying behavior and attitudes of over 2500 large commercial producers that is now available through the CAB. For more information, contact Aissa Good, CAB Program Manager
The Outlook For AgribusinessesThe long term outlook for agribusiness is positive and strong
World population growth is strong and will continue to grow
The number of people entering middle classis dramatically increasing and they want to live better
US Ag is in a strong position to provide Food, Fiber, and Fuel
Great natural resources (climate, soil, water)
Good infrastructure (waterways, rail, roads)
Well educated farmers who adopt technology quickly
Land Grant system of research and education
System of property rights and sanctity of contracts
A strong agribusiness industry to support production Ag
The issue is….How do we get there from here?
National Agri Marketing Webinar
The Short Term Climate for Farmers• In general, agriculture may not be impacted as much as others
• Many crop farmers are coming off a good year and have cash
• Many livestock and dairy farmers have had it really tough
• All are dominated by --- Uncertainty – Nervousness -- Caution
-- From the general economic recession and fear of reduced exports
-- From the sudden rise and drop of commodity pricesand for many……commitments to high production costs
• Higher costs: Cash Rents; Interest; Seed; Chemicals; Fertilizer
• Dramatically higher feed and nutrition costs
• Tighter credit and capital markets ….especially for livestock
• Increased risk because of market volatility
National Agri Marketing Webinar
184
11498
222
125112
239
120 119
$380
$182 $179
$489
$255 $249
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
Rotation CORN Rotation BEANS Wheat
$/A
cre
Estimated Variable Costs/Acre: Average Quality Indiana Land (158 bu. corn; 49 beans; 70 wheat)
2005 2006 2007 2008 2009
+50%+52%
+59%+39%+40%
+29%
National Agri Marketing Webinar
Implications for AgriMarketersAnticipate:
More nervousness and caution….. slow to decide
More resistance to higher prices
Some shift to lower cost alternatives
Much wider variation in financial situations of farmers
Many highly interested in ‘09 pre-payments(but they will want price protection if they can get it)
More discerning ….careful decisions
Consolidation of farms will continue
National Agri Marketing Webinar
Implications for AgriMarketersAnticipate: Consolidation of Agri-businesses will continue
maybe even faster as some are in difficult positions
Cash flow and working capital problemswill be major challenges….especially for some
Dramatic volatility of ag commodities and inputswill continue as grain prices follow energy prices
and general economic conditions
Short term inventory challenges because of reluctance of farmers to commit
putting Agribusinesses in difficult position
More demand for credit from farmers
National Agri Marketing Webinar
Implications for AgriMarketersPlan to:Work harder and longer to sell added value
Educate, Communicate, Demonstrate value
Prioritize and target coveted prospects carefully
Spend time helping customers understandthe terms of sale and risks involved
Be pro-active with selling strategies….targeting, planning, preparation, professionalism
will be more important than ever before
Work strategically ….targeting the farmers you believe are best positioned to grow
….. to consistently be a valued sustaining resourcewho understands and delivers unique value
National Agri Marketing Webinar
Thank you for Attending
The recording of today’s presentation will be available in approximately 48 hours on the
AgriMarketing Website at www.agrimarketing.com
© 2008 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential
The recording of today’s presentation will be available in
approximately 48 hours on the AgriMarketing Website
at www.agrimarketing.com
Thank you for Attending