1. Grain & Feed Outlook 2009-10 Dr. Robert Wisner Ag Marketing Resource Center Iowa State University June 2, 2009

2. Key Grain Market Influences Planting progress - - E.CB. & ND Global economy U.S. $ value Sharp drop in S. America crops China SBM exports or SB cancellations? Crude oil prices Livestock prices & numbers Dry weather – NE China & W. Canada Funds

4. 3 Highly Likely Developments General Econ. Outlook 3 Highly Likely Developments Trend toward weaker $ Increasing inflation, esp. in 2-3 years Higher interest rates– in 2-3 years, possibly sooner Driving forces: huge budget deficits and “cap & trade”

5. What Kind of Recovery? U.S. General Econ. Outlook What Kind of Recovery? looking less likelyV – looking less likely W – temporary recovery U -- gradual recovery extended period of stagnation (with inflation) : can’t be ruled out with higher taxes & cap & tradeL -- extended period of stagnation (with inflation) : can’t be ruled out with higher taxes & cap & trade

6. USDA S-D Report 6/12/09 Likely Changes Argentine SB crop estimate down 36 to 72 mil. bu. (1-2 mil. T.) vs. May. Lower Paraguay soy crop? U.S. 2008-09 soybean exports up15 to 20 mil. bu. ‘08-09 carryover down 10 to15 mil. bu. ‘09-10 carryover down 15 to 25 mil. Bu. Corn – probably not much change

7. Potential Market Impacts Even tighter old-crop soybean supply (It’s already record tight)Even tighter old-crop soybean supply (It’s already record tight) Bullish old & new-crop soybeans & meal, –Especially old-crop meal With inverse, SBM strength is concentrated in July futures, but will shift to Sept. by late June Corn market up $0.29 since 4/30 break-out. Price likely volatile until June 30 acreage report Informa report suggests about 1 mil. A. less ’09 corn acres – via late plantings in E. Corn Belt

8. Cautions in Soy Meal Supply Local shortages of soybean meal in Aug. & Sept -- a definite possibility, with the sharp drop in S. America's spring ‘09 soy harvest.Local shortages of soybean meal in Aug. & Sept -- a definite possibility, with the sharp drop in S. America's spring ‘09 soy harvest. (Tightest since at least 1965)8/31/09 anticipated soybean stocks--much tighter than last year, 2.2 weeks supply vs. 3.5 weeks in 2007-08. (Tightest since at least 1965) Uncertainty: China’s 56 mil. Bu. unshipped purchases. Small S. Am. Crop reduces chances of their cancellations.

9. Corn Supply Old-crop: ample if yield prospects look good New-crop: probable tighter supply even with trend yieldNew-crop: probable tighter supply even with trend yield –Sharp drop in S. America spring ’09 production –China: only small exports expected –Reduced foreign feed-wheat competition –Some increase in corn for ethanol Prices: depend heavily on weather, global oil price, & whether E-15 will be allowed for conventional vehicles

10. Weekly U.S. Dollar Index 5/28/09

11. Weekly December Corn 5/28/09 Downside Risk increasing?

12. Weekly SB Price 5/28/09

13. Weekly SBM Price 5/28/09 Gap @ $395

14. Weekly Ethanol Price 5/29/09 Gap

15. Weekly Crude Oil Price 5/29/09

23. Recent U.S. Energy Dept. Reports U.S. crude oil supplies remain large Distillate supplies are well above year ago Gasoline supplies are only marginally above year ago, strengthening gasoline & ethanol prices going into the Memorial Day weekend Higher gasoline & ethanol prices reinforce corn price strength potential with weather concerns OPEC loses one member

29. Source: http://weather.tradingcharts.com/ Chart is not for public redistribution. Can be obtained from source:

30. 6-10 day Precip. Outlook 5/31/09

31. 30-day Temp. Outlook: June ’09 NWS

32. Corn Balance Sheet – Wisner - 5/29/09

33. May 09420 -- Jul 09428 436 Sep 09436 6 446 Dec 09448459 Mar 10459468 May 10467 8 475 Jul 10474480 Sep 10463466 Dec 10446450 Jul 11466 8 472 Dec 11453458 Corn Futures Close 5/12/09 5/29/09 July ’09 – July ’10 spread = +$0.44

34. Key Assumptions Slow economic recovery until at least Q1-2010 Gradually weakening U.S. Dollar Crude oil prices in the $55-$65 range through 2009, then gradually increasing into 2011 Government approval of intermediate ethanol blends Gradually accelerating inflation beginning in mid-2010

37. Soybean Balance Sheet - Wisner

38. 5/12/09

40. S. America Crop Prospects 5/12/09 USDA Mil. Bu. Chg. Vs. last yr. Argentina corn -355 Argentina SB -450 Brazil corn -320 Brazil SB -147 Paraguay SB -114 –Total corn change -675 –Total SB change -711

41. Rapidly Emerging Longer-term Grain Issues Biofuels mandates: on collision course with GHG regulations & allowable ethanol blend levels If E-15 is allowed, expect about 45% increase in corn use for ethanol vs. current levels – over next 4 yearsIf E-15 is allowed, expect about 45% increase in corn use for ethanol vs. current levels – over next 4 years California: will it become the national standard for GHG emissions? –If so, Midwest ethanol will find it hard to compete on E. and W. coasts. –Alternative fuels with strong GHG competition: Brazil ethanol, compressed natural gas, compressed landfill gas, electric vehicles –Ratings for cellulose ethanol not yet available in California Key element in ethanol & biodiesel GHG competition with other alternatives: indirect land use emissionsKey element in ethanol & biodiesel GHG competition with other alternatives: indirect land use emissions –Look for efforts to eliminate indirect land use from consideration in GHG emissions evaluations –Also look for pressure to increase research on indirect land use emissions- - both scientific & economic

42. Greenhouse Gas Developments Both EPA & California proposed air quality regulations are negative to ethanol & biodiesel -- especially biodiesel California proposal would lock out Midwest ethanol in 4-5 years, but would allow California- produced ethanol to continue as motor fuel See our forthcoming report on this at: http://www.agmrc.org/renewable_energy/agmrc _renewable_energy_newsletter.cfm http://www.agmrc.org/renewable_energy/agmrc _renewable_energy_newsletter.cfm USDA projected soy oil use for biodiesel in ’09-10 is about 60% of mandated level. This tempers soybean & oil price prospects for ’09-10USDA projected soy oil use for biodiesel in ’09-10 is about 60% of mandated level. This tempers soybean & oil price prospects for ’09-10

45. Take-Home Points Severe drop in S. American crops to bring tighter corn & SB supplies until next spring Summer ‘09 bean supply record tight: expect high & volatile meal prices through early Oct. Expect adequate SB & meal supplies beyond spring 2010 Look for tightening ‘09-’10 corn supply Biofuels & Greenhouse Gas policy are on collision course: Look for policy changes Wild cards: China, weather, & crude oil

46. Thanks! Questions? Web Site http://www.econ.iastate.edu/faculty/wisner/