Up, Up and Away! The Increasing Costs of Crop Inputs! Mike Mleziva General Manager AgVentures, LLC Ag Prices Conference Wisconsin Dells

“ Hungry People are Angry People” - U.N. Secretary-General, Ban Ki-moon

High Food Prices High Oil Prices Changing Diets Urbanization Expanding Population Extreme Weather Growth in Biofuel Production Speculation

What is Needed? More Food Aid African Green Revolution Package Fewer Export Bands and Tariffs More Agricultural Research Build Market Infrastructure Promote Technology Innovation Avoid Counterproductive Policies

Why have nutrient prices increased? Many of the Same fundamentals causing record grain prices => Combination of demand-pull and cost-push factors Extraordinary nutrient demand growth! Cost pressures from higher energy and raw materials prices! Higher costs of transporting raw materials and fertilizer materials! Falling value of the U.S. dollar! Commodity Markets!

U.S. Crop and Fertilizer Prices June 2008 vs. June 2007 Source: Prices received (crops) and paid (fertilizer) by farmers, National Agricultural Statistics Service, USDA. Commodity Price Change Soybeans+ 80 % Fertilizer+ 77 % Corn+ 74 % Wheat + 65 % Cotton+ 28 %

U.S. Crop and Fertilizer Prices July 2008 vs. July 2007 Source: Prices received (crops) and paid (fertilizer) by farmers, National Agricultural Statistics Service, USDA. Commodity Price Change Fertilizer+ 104 % Soybeans+ 88 % Corn+ 69 % Wheat + 41 % Cotton+ 33 %

U.S. NUTRIENT DEMAND FY2006/07

U.S. Corn Used For Ethanol Production Billion bushels Source: USDA; Doane forecast.

U.S. Nutrient Use

Supply Factors Energy Costs ! Raw Material Costs !

U.S. Ave. Annual Natural Gas Price

Rising Energy and Feedstock Costs PRODUCTION COST IMPACTS Ammonium Phosphates => higher energy prices => higher phosphate rock prices => higher sulfur prices => higher ammonia P’s Potash => higher electricity and natural gas P’s

Over 80% of production exported compared to 12.5% for world grains

Tight Stocks!

Sinkhole Threatens Russian Potash Shipments Silvinit 9% of global potash capacity Only available rail link from Silvinit mines Sinkhole currently 100 meters from rail link Safety officials will shut down if it gets within meters Would be disrupted for “… several weeks at least …” as govn’t considers options for a third rail spur. Best case Worst Case Uncertainty Disruption in Shipments

OTHER FACTORS Exchange Rates Labor Issues Shipping/Distribution Costs Food and Fertilizer Export Curbs

Canadian Exchange Rate Example January 2003 December 2007 Change Exchange Rate: $ CAN/$ US % Price of Product X $ $ % Receipts in $ CAN $ CAN $ CAN % Price Rise in $ U.S. Necessary to Maintain Receipts in $ CAN: Price of Product X $ $ % Receipts in $ CAN $ CAN $ CAN %

Shipping/Distribution Costs are UP! RISING : Ocean Freight Rates Rail Rates, especially for ammonia Barge Rates Truck Rates

Countries also curb fertilizer exports Export tariffs or “instructions” to sell product in the domestic market China Russia Ukraine Belarus Egypt Vietnam Indonesia

Chinese Fertilizer Export Tariffs, Effective April 20, 2008 Source: The Chinese Finance Ministry. May 12 earthquake: Sichuan Prov. urea & MAP production!

Recap: Factors Resulting in Higher Fertilizer Prices Dramatic Increase in World Nutrient Demand More Recently, Rise in U.S. Nutrient Demand Decline In Domestic N Supply – Natural Gas P’s! Which resulted in Increased U.S. Imports of Nitrogen Rising Energy P’s => Higher Production Costs Rising Raw Material P’s => Higher Production Costs  Tighter supplies of all nutrients! Increased Shipping/Distribution Costs (ocean freight; rail; barge; truck) Falling Value of the U.S. Dollar Curb on food and fertilizer exports by selected countries

Longer-Run Supply/Demand Factors

Growth: Primarily China and the Middle East

Growth: Sooner - China & Morocco Later – Saudi Arabia & Algeria

Growth: North America, China, Middle East, Russia, Belarus & Argentina

Capacity Expansions Coming on Stream Source: PotashCorp

USA 1.00 : 0.37 : 0.39 China 1.00 : 0.39 : 0.20 India 1.00 : 0.41 : 0.19

Other Factors U.S. Nat Gas P’s to Remain High Energy Prices to Remain High Shipping/Distribution Costs to Remain High $ U.S. Dollar – No significant recovery soon

Summary Nutrient markets could be tight until 2009 as demand has expanded more rapidly than was expected a few years ago. While urea supply is projected to grow, the supply/demand balance will remain tight in 2008, possibly easing somewhat in If planned capacity expansions materialize, a surplus could emerge in 2010 or beyond. The DAP, MAP and TSP market will be balanced throughout most of the forecast period. Very few producers have available swing capacity for export. Potash supplies will eventually increase in most exporting countries. Because of a shift towards more balanced fertilizer use, no significant surplus will likely develop before 2011, at the earliest.

Fertilizer Prices at Record Levels Increase of 268 percent January 2000 – June 2008

Fertilizer Price Comparison Jan Jan Jan Aug $385 $365 $570 $ $372 $360 $625 $ $272 $268 $510 $838

Crop Protection Product Comparison May 2006 May 2007May 2008 Aug Atrazine 9-0$2.60 $2.58 $3.28$3.45 Glyphosate$19.75 $19.50 $27.50$36.35 Lumax$38.65 $43.20 $48.75$48.75 Surfactant$24.10 $23.30 $24.35$24.95

Seed Price Comparison May 2006 May 2007 May 2008 Aug Corn Bt RR $134 $189 $194 $246 Soybean RR $27.10 $31.50 $35.00 $60.00 Alfalfa $3.20 $3.20 $3.90 $5.10 Wheat $9.00 $10.60 $18.50

Thank you!