1. “The Economic Climate: A Global Transition That Will Challenge Agriculture” Presented by: Terry Barr, Senior Director of Industry Research E-mail: tbarr@cobank.com “Thriving in Uncertain Times” 12 th Annual Farmer Cooperatives Convention November 9-10, 2009

2. The economic climate is beyond anyone’s control but it must be incorporated into the controllable aspects of your business Risk management (market, supply & counterparty) Business strategy Capital structure Productivity Product quality and service Operations management The Economic Climate

3. The U.S. and global economy are transitioning to more sustainable growth paths that will rebalance global economic and political interdependency. This transition will be complicated by the fact that the current downturn had its origins in the financial markets of the advanced economies. Capital markets will not provide safety valve for excess leverage. As a result the recovery process will be more protracted and will include greater role of government in the marketplace. The Global Transition to Sustainable Growth Paths

4. This transition will place a broad spectrum of policies in flux over the next few years and will introduce a greater degree of global “policy” uncertainty and risk than has been present in the past decade. The Global Transition to Sustainable Growth Paths

5. Policy Headwinds Are Building! FOR EXAMPLE THE U.S. IS PROPOSING TO RESTRUCTURE: Virtually every sector of the economy will be impacted and risk management and investment strategies will have to reflect the growing uncertainties Financial sectorFinancial sector regulatory reform Energy sector Comprehensive energy policy/climate change (cap and trade); transition from fossil fuels! ImmigrationReform groundwork being laid for 2010 Health care sectorUninsured, medicare / medicaid Regulatory oversightClean air & water, Food safety Deficit reduction Tax policy; entitlement programs (including farm and food programs).

6. The Global Transition to Sustainable Growth Paths The food, fiber and agriculture sector will not be exempt. After several years of record income the sector is now transitioning to a sustainable growth path. This transition, fueled by a return to a resource challenged world, will not be linear and will be volatile with each commodity facing a unique set of challenges.

7. The Global Transition

8. No Decoupling and Unique Global Recession

9. Slow Recovery in Advanced Economies; Emerging Markets Key

10. Advanced Economies in Collective Recession

11. BRIC Lead Emerging Markets Economic Rebound How long can China inject infrastructure stimulus to replace exports without overheating?

12. Sustaining Growth in China Will Require Shift of Growth Sources Rebalancing needed!

13. The Global Current Account Imbalances Were Unsustainable

14. The Global Growth Drivers Will Change: What are Implications? Growth in China consumer sector Into Asia and resource rich developing countries

15. Global Imbalances Will Keep U.S. Dollar Under Pressure

16. U.S. Dollar Continues to Decline Against Major Currencies

17. Will New Price Levels Prevail or Return to Historical Levels This? Or this? 1980-82 recession Three Views of the World?

18. Energy Sector Remains Strategic Declining U.S. Dollar and Optimism on Global Growth Boost Oil Potentially Larger Natural Gas Supplies Moderate Price Outlook More Predictable Feedstock Costs Will Aid Ethanol Returns

19. Oil Prices Will Track Global Recovery 2007 avg. $72 2008 avg. $100 2010 avg. $75 2009 avg. $60

20. Commodities Continue to Reflect Denomination in U.S. Dollars

21. Natural Gas Prices Likely to Hold Steady 2007 avg. $11.30 2008 avg. $12.60 2009 avg. $9.40 2010 avg. $9.50

22. More Predictable Feedstock Costs Will Aid Ethanol Returns

23. Inventory Cycle and Cash for Clunkers Fuel Rebound Job Losses Push Unemployment Higher Housing Sector Begins Slow Rebound U.S. Economy in Transition

25. Economic Stimulus / Inventories Spur End of Recession Cash for clunkers and buyer tax credit! Stimulus carries into 2010!

26. The Shape of This Economic Recovery is Still Unfolding W “double dip” “Broken V” (Jobless Recovery)

27. Falling Net Worth Compromises Consumer Rebound

28. The Consumer Begins the Deleveraging Process This consumer is gone and the retail and manufacturing capacity to serve them will be downsized both domestically and globally!

29. Unemployment Rates Peak Well After Recession Ends

30. Investment Not a Significant Growth Factor for 2009-10 Major drag on economy!

31. Fiscal and Monetary Policy: Setting Stage for 2010 and Beyond Congress White House Federal Reserve

32. Government Spending is Major Growth Driver; Record Deficits Assumptions: 4 year phase-out in Iraq/ Afganistan Extention of tax provisions except high income

33. Addendum: 23 states have proposed tax increases, 13 are considering increases. This is in addition to 10 states that raised taxes in 2008! Taxpayer Expectations

34. U.S. National Debt in Dollars and as a Percent of GDP are Rising

35. Federal Reserve Will Seek Improved Capital Markets Rates are lower but qualifications and covenants are much tougher! The acceptable degree of leverage has changed for every consumer, farmer and business! Capital markets are key to sustaining recovery.

36. AGRICULTURE’S TRANSITION IN RETURNING TO A RESOURCE CHALLENGED WORLD

37. Agriculture is one of stronger sectors in the U.S. economy but the next several years will provide significant challenges. Managing risk associated with current challenges and positioning for opportunities will be the key to the strategic deployment of capital. Remember: After this economic realignment the world will remain resource challenged due to the continued growth of consumer demand in China and the emerging markets!

38. A Resource Challenged World Still Lies in the Future Growing Middle Class China and India will account for 70 % of the increase in the middle class from 2000-2030. Their “ability to pay” will set global market prices! Income growth (source?) Market access (protectionism) Yield technology (biotech) Political decisions (inward?) But it is not a straight line growth path!!! Significant volatility will prevail around the growth path!

39. Global Trade Will Recover Slowly

40. Grain Stocks Building But Crop Is Not In the Bin Yet

41. Global Stocks-to-Use Building World stocks rebounding as demand weakens and crop conditions improve!

42. World Wheat Stocks Rebounding

43. EU Harvests Boost Global Supplies

44. Declining U.S. Acreage Slows U.S. Wheat Stock Buildup

45. Wheat Prices Have Settled to Historical Levels

46. Corn Stock Increases Limited by Harvest Weather

47. Ethanol Continues to Support Grain Markets

48. Production Rebound in Argentina Could Reshape Soybean Market

49. U.S. Soybean Stocks Could Build Quickly in 2010

50. Livestock, Poultry and Dairy Cattle and poultry sectors ahead of adjustment curve! Dairy trying to catch up! H1N1 (SW) surprise just won’t stop! “Reacted to feed costs and now to domestic / foreign consumer!” Consumer is cutting back …. but how far? Feed cost declines may limit liquidations and boost turnaround.

51. Hog Sector Unable to Follow Cattle Turn

52. Hog Sector Has Been Under Pressure for Over Two Years

53. Poultry Struggling to Hold Its Positive Turn

54. Meat Industry Will Be Cautious About Expansion in 2010

55. A Growing Meat and Dairy Industry Must Become More Export Reliant! Export share of U.S. production Broilers ….. 18% Beef ………. 7% Pork ……… 20% All meat.......14% Dairy …...… 10%

56. Dairy Sector Challenged by Volatility Increasing competition in a smaller global marketplace!

57. Milk Feed Ratios Beginning to Turn

58. Weak Demand / Productivity Limits Effectiveness of Dairy Liquidation

59. Economic Conditions Increasingly Diverse in Agriculture

60. Farm Income Conditions Will be Diverse Again in 2010 Livestock and dairy losses will drive income back to 2006 levels! Recovery in 2010 will be limited with grains complex watching stock buildup and livestock/dairy completing liquidation process. Note: Income has averaged $80 billion over last seven years

61. Agriculture Sector Balance Sheet Still Solid Deleveraging is not issue for much of agriculture!

62. Prices Received and Paid by Farmers Increasingly Volatile Sector is operating at higher price and cost levels with greater volatility …… more working capital to play, less leverage permitted and more emphasis on well-defined risk management policies!

63. Key Crop Input Prices Set Globally and Likely to Remain Volatile

64. The Emerging Business Environment Greater price, cost and cash flow variability requiring increased working capital, better risk strategies. Increasing cost structure from regulatory compliance (taxes, energy, environment, health care etc.). Near term deflation then higher inflation & interest rates. Less leveraging of capital will be permitted. More limited and costly access to capital markets. Weaker dollar (favoring exports but increasing costs for globally priced inputs). Greater vulnerability to global trade policy actions as export dependency increases with industry size. Greater global policy uncertainties.

65. The market can stay irrational longer than you can stay solvent! John Maynard Keynes, (attributed) REMEMBER!

66. “The Economic Climate: A Global Transition That Will Challenge Agriculture” Presented by: Terry Barr, Senior Director of Industry Research E-mail: tbarr@cobank.com “Thriving in Uncertain Times” 12 th Annual Farmer Cooperatives Convention November 9-10, 2009