1. Dr. Robert Wisner: Grain Outlook 3/15/06 Iowa State University AgMarketing Resource Center AgMarketing Resource Center Grain Outlook for 2008-2010 3/21/08 Dr. Robert Wisner, University Professor & BioFuels Economist

2. Bio-Fuels: A Global Development 41 Countries encourage biofuels Driving Forces: –High crude petroleum prices –Concern over green-house gas Emissions –Government policies –Energy security

3. Global agriculture shifting from food & fiber to food, fiber & energy output Grain-based ethanol – first phase Shift requires sharp increase in grain, oil crop supply Adjustments in livestock production Oil price shock increases food costs Tightening supplies + weather variability add food-feed price volatility

4. Corn-ethanol only partial solution to energy challenges  Other feedstocks needed Municipal wastes Animal agriculture wastes Forest product wastes New crops  New automotive technology Hybrid gas/electric vehicles New engine & vehicle designs Hydrogen fuels & fuel cells  Diversification of energy sources  Incentives for increased mass transportation  Wind power use increasing

5. Key Determinants of Grain- Based Biofuels Industry Size Crude Petroleum Price Grain & Oil Crop Prices Needed for Increased Area & ProductionGrain & Oil Crop Prices Needed for Increased Area & Production Crop Inputs Availability & Cost Government Mandates

6. Recent Start-ups & Soon to be on Line U.S. Ethanol Plants Location Mil. Gal. Cap. Date Pikely, CA 40 AprilPikely, CA 40 April Lima, Ohio 54 MarchLima, Ohio 54 March Greenville, OH 110 MarchGreenville, OH 110 March Hennepin, IL 100 AprilHennepin, IL 100 April Cambria, WI 40 AprilCambria, WI 40 April Coshocton, OH 60 MarchCoshocton, OH 60 March St. Ansgar, IA 100 MarchSt. Ansgar, IA 100 March Monona, IA 100 AprilMonona, IA 100 April Volney, NY 41 May-JnVolney, NY 41 May-Jn Total 645

7. Recent Positive Developments in Biofuels Demand 2007 Energy Bill & mandates & a mechanism for implementation New Union Pacific rapid ethanol train receiving & unloading facility in Dallas North Iowa ethanol shipping facility Opening of substantial ethanol market in Florida and movement toward opening other southeast markets California state government commitment to reduce green-house gas emissions Higher gasoline prices?

8. Grain Market Outlook 2008-’10 Driven by global biofuels & U.S.-foreign wheat/weather problems Multi-yr. global battle for crop acreage: corn, soybeans, wheat, cotton, others Soy Prices: need for extra 7- 9 mil. U.S.Soy Prices: need for extra 7- 9 mil. U.S. acres in ’08 Other crop prices supported by SB, corn Record-high ‘08 guarantee prices for revenue insurance Bio-fuels future: support from crude oil prices & energy bill

9. 2007-08 U.S. corn supplies adequate to meet demand Crop up 24% -- 20% increase in corn acres But at expense of: –16% decline in soybean planted area –29% decline in cotton area –8% decline in non-durum spring wheat –Declines in minor crops Soybean supplies tighten substantially, increased plantings needed in 2008Soybean supplies tighten substantially, increased plantings needed in 2008 More U.S. corn will be needed in 2009,More U.S. corn will be needed in 2009, 2010, 2011

11. Enough Bean Acres Bought?

12. West Texas Intermediate Crude Oil 0 10 20 30 40 50 60 70 80 90 100 19601965197019751980198519901995 2000 2005 dollars/barrel (monthly average price)

13. U.S. 2007 Energy Bill U.S. 2007 renewable fuels production: 4.7 bil. gallons For 2008: Requires U.S. renewable fuels production at 9 bil. gallons For 2009: 11.1 bil. gallons For 2015: 15 bil. gallons corn-based ethanol (57 bil. liters) For 2009: 500 mil. gallons of biodiesel (1bil. Gallons for 2015)For 2009: 500 mil. gallons of biodiesel (1bil. Gallons for 2015)

14. Source: Dr. Terry Francel, American Farm Bureau Federation & U.S. Energy Dept.

15. Price Outlook, Grain, 1/17/08 Irregular uptrend in corn & bean prices into mid-February Markets very volatile as South American growing season & Northern Hemisphere wheat progress Look for Corn & Bean markets to over-react on up-side with battle for 2008 crop acreage Look for stronger corn & bean basis in spring & summer Soy prices not yet high enough to boost A. Wheat: Sensitive to U.S./ foreign weather

16. Keys to 07-09 Grain Markets 1.Ethanol profitability -- Infrastructure & transportation -- Negative margins ahead -- how long & how bad? 2.Govt. biofuels mandates to support corn 3.Strong Export sales—better foreign weather? 4.World Economy? 5.EU opening up 10% set-aside in 2008 6.Battle for acreage: S. Am., EU, U.S. wheat, SB, Cotton, & Corn

17. Cautions in 2008-09 Grain Markets 1.Fund Traders 2.Bio-diesel economics not good, no mandate until 2009. 2.Domestic user returns tighten with higher corn prices – livestock & fuel

18. Risks: 2009 & 2010 Crop Sales Production Costs Some of new-generation contracts not tested in extreme mkt. conditions Weather (Strongly consider harvest- price revenue insurance)

21. Ethanol, demand growth & food inflation shifting China from to corn exporter to importer? 41 Countries Encourage Biofuels

22. Corn Yield to Affect China Export Availability

25. Big Picture Impacts Changes in crop rotations: more monoculture agriculture Upward pressure on food & feed costs -- U.S. food inflation -- demand pull so far -- Non-U.S. food inflation -- cost push Global adjustmentsGlobal adjustments – In livestock: more production from forage, less intensive grain feeding –Land clearing

26. U.S. expansion Continuing Changes in U.S. Ethanol Plants, 7/27/07 to 1/08/08 (From DTN) 1/8/08 3/14/08 7/27/07 11/6/07 1/8/08 3/14/08 U.S. Opr. Plants 134 139 163 171 Under Const. 89 91 81 74 Planned plants 329 343 336 341 Total 552 572 580 586

27. Production Total Use Ending Stocks, % of Use World Stocks are Record Low -- USDA

28. World Stocks are Near-Record Low -- USDA

29. Declining but not yet record low

30. U.S. R-O-W World Supply Tightening

31. Total Utilization

37. Historical & Needed U.S. Corn Yield Deviation Needed From Trend 0.7 0.0 -10.2 0.0 16.2 1.8 0.9 3.3 3.8 7.5 11.8 13.4 14.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Other Considerations: Sharp increase in marginal Corn acres  Very tight fertilizer supplies  Corn-on-corn yield drag  Low C-o-C yields in bad weather

40. Lower productivity land Conservation Reserve Land

43. Source: FAPRI estimates Pulls land away from food uses (Growth 2007-12 = 147% of U.S. soybean oil exports) (Food demand for vegetable oil highly inelastic)

44. International Impacts U.S. ethanol plants under construction to use 2.0 bil. bu. of corn (almost doubling use) –Over 3 times the volume of Japan imports of U.S. corn –105% of 2007 EU corn crop –54% of global corn exports Higher food costs ahead Major risk-management challenges in Ag. & bioenergy

45. U.S. Cellulose Ethanol At least 3-4 pilot plants being developed Government emphasis on alternative feedstocks Potential Feedstocks: DDGS fiber Corn stover Prairie grasses Sugar, sweet sorghum Forest wastes Municipal & livestock wastes Research for major handling & storage challenges

46. Weekly ethanol futures

47. Daily ethanol futures to 3/17/08

48. Monthly CRB Index Incentive for Index Fund Traders to buy Commodities for inflation hedge

49. Week U.S. Dollar Index: Reduces grain prices in world markets

50. Weak U.S. Dollar Index: Reduces grain prices in world markets

51. Dec. ’08 Corn Futures 3/17/08 Possible Objectives: $5.41, $5.25, $5.15? Double Top

52. Nov. 08 SB Futures Prices, 3/17/08 Objectives: $11.70-$12.10?

54. Infrastructure lags

55. Total 11,693 mil. Bu. Figure 3.

56. U.S. Grain Export Sales to 3/06/08 Corn +29% vs. year ago HRW Wheat +118% SRW +54% HRS +33% All Wheat +52% Soybeans 00% Barley +89% Sorghum +138%

58. Capacity: 159% of 2006 Crop Iowa Corn Processing Plants, Current & Planned, 7/25/07 72 Potential Iowa Plants 11 Just across IA Borders Figure 2.

62. Basis Examples, Corn 9/28/07 Garner Kebler Milling Hobartan Global Lakota (ethanol) Algona Emmetsburg - Ethanol Range Harv. Delivry July Delvry 3.18 (-.55) 3.66 (-.42) 3.41 (-.32) 3.86 (-.22) 3.29 (-.44) 3.80 (-.28) 3.28 (-.45) 3.73 (-.35) 3.20 (-.53) 3.66 (-.42) 3.33 (-.40) 3.78 (-.30).23.20 N.C. Iowa

63. Basis Examples, Corn 9/28/07 Coon Rapids ethanol Denison ethanol Creston Elevator Corning ethanol plant Bunge, Council Bluffs Onawa Lamoni Shenandoah eth. plant Range Harv. Delivry July Delvry 3.27 (-.46) 3.74 (-.34) 3.51 (-.22) 3.84 (-.24) 3.30 (-.41) 3.78 (-.28) 3.32 (-.41) 3.85 (-.23) 3.29 (-.44) est. 3.75 (-.33) 3.43 (-.35) N.A. 3.18 (-.53) N.A. 3.49 (-.24) 3.95 (-.13).33.21 W.C. & Sw. Iowa

67. Add biodiesel Now $0.65

69. http://www.ams.usda.gov/lsmnpubs/PDF_Weekly/Ethanol.pdf Source of USDA Ethanol Plant Prices Corn DDGS Ethanol

70. Take-Home Points Grain Markets: driven by energy prices Current corn supplies adequate Major concern about tight ‘08-12 corn supply World Soybean & wheat supplies very tight More soybeans, wheat (cotton?) likely to reduce corn acres in 2008 Acreage battle likely to intensify in 2009 & 2010Acreage battle likely to intensify in 2009 & 2010 Higher govt. biofuels mandate supports ethanol infrastructure capacity & Profits

71. Take-Home Points: II All grain markets extremely sensitive to U.S. & foreign weather ISU Climatologist Elwynn Taylor sees 70% probability of below trend ‘08 U.S. corn yield Corn & SB basis likely stronger, May-August Strong basis creates high risk for livestock feeders Options Mkts. more important than in the past Options look expensive, but out-of-money strike prices can provide upward price flexibility

72. Thanks! Questions?

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