1. 1 Supply, Demand and Prices for Agricultural Commodities Presented to International Food Aid Conference April 15, 2008 Patrick Packnett Office of Global Analysis Foreign Agricultural Service

2. 2 Farm Prices, Selected Crops: Recent History CropUnitAverage2002-2006 2007/08 Est. Wheat$/bu.3.61 6.65 (+84%) Rice$/cwt.7.50 12.20 (+63%) Corn$/bu.2.37 4.30 (+82%) Sorghum$/bu.2.33 4.15 (+78%) Soybeans$/bu.6.14 10.25 (+67%) Soybean Oil Cents/lb.25.89 52.00 (+101%) USDA/FAS-OGA/ISAD

3. 3 Economist Intel. Unit Soft Commodities Index US Dollar Index – Year 1990 = 100; February 2008 forecast. FFB commodity groups and 2007 weights: Beverages 20.1%, Grains 46.4%, Oilseeds 28.6%, Sugar 4.9% 1990 = 100

4. 4 Macroeconomic Factors Drive Grain and Oilseed Prices Higher Strongest growth in global economy in three decades Strongest growth in global economy in three decades –Consumer incomes are rising and middle class households are expanding rapidly, especially in large emerging markets where global import demand growth is concentrated –Impact on food demand is significant due to higher income elasticities in emerging markets Value of the U.S. dollar continues to fall Value of the U.S. dollar continues to fall –Dollar has been depreciating since 2002. In 2007, real value fell to 30 year lows. Further declines expected through 2011. –Boosts purchasing power of foreign buyers of dollar-denominated commodities, thereby increasing demand and putting upward pressure on prices. Renewable energy markets boost demand Renewable energy markets boost demand –Continued expansion of global biofuels production is boosting demand for grains and oilseeds and their prices –Higher oil price is largely responsible for boosting the competitiveness of biofuels, while also increasing cost of input, processing, and transportation for ag commodities

5. 5 Global Wheat Consumption Remains Strong

6. 6 MMT$/TON Wheat Prices Soar in 07/08

7. 7 Governments React to High Prices Several key countries raising export taxes, imposing export quotas or placing outright bans. Several key countries raising export taxes, imposing export quotas or placing outright bans. Moves designed to prevent food shortages and curb domestic food inflation. Moves designed to prevent food shortages and curb domestic food inflation. Result – importers face higher prices, uncertainty in market, disincentives to raise production. Result – importers face higher prices, uncertainty in market, disincentives to raise production.

8. 8 U.S. #2/4 RICE FOB Price Quotes

9. 9 MMT Production Rebounds to Normal Level Exports Jump Consumption 2007/08 U.S. Wheat Situation Tight Exports MMT

10. 10 MMT $/TON Low Ending Wheat Stocks Boost U.S. Price to Record Level U.S. Domestic Price Range Midpoint Ending Stocks

11. 11 U.S. Corn, Soybean,Wheat Planted Area 86 74.8 63.8

12. 12 Select Food Aid Commodity Price Trends (f.o.b./f.a.s. US Gulf) 2005 – 2008 (thru March)

13. 13 Wheat Purchased for U.S. Export Food Aid

14. 14 U.S. Season Average Farm Price for Wheat 1995/96 through 2012/13F Note: projections for 2007/08 are from the April 9, 2008, World Agricultural Supply and Demand Estimates and for 2008/09 through 2012/13 are from the February 2008 USDA Agricultural Projections to 2017.

15. 15 U.S. Corn Exports Expected to Moderate as Ethanol Expands With Higher Production

16. 16 Source: USDA/FAS-OGA/ISAD Prices have soared in the face of strong demand for feed grains, diminished competition, and reduced prospects for 2008 production #2 Yellow Corn Prices 5-year Average = $118 (MY 02/03 – 06/07)

17. 17 Conclusions Rebound in 2008 global wheat production may ease prices. Rebound in 2008 global wheat production may ease prices. U.S. corn stocks tighten and prices increase. U.S. corn stocks tighten and prices increase. Continued pressure on food aid budgets from high commodity prices. Continued pressure on food aid budgets from high commodity prices.