1. Feedgrain and Wheat Situation & Outlook John D. Anderson Mississippi State University

2. Commodity Markets in the News Record high commodity prices leading to… – … credit crunch for grain elevators and reduced forward pricing against deferred contracts – … proposed tighter limits on speculative trading – … possible early out for some CRP land – … discussion of partial waiver of RFS biofuel mandates – … export taxes in several countries (see, e.g., Argentina)

3. What’s behind all this? It depends – mostly on who you ask Plenty of suspects – Wheat crop failures in 2006 and 2007 – Economic growth in India and China – High crude oil prices – Bioenergy production in developed countries – Commodity market speculation

4. World Production of Grains

5. World Stocks/Use Ratio: Total Grains

6. Corn Highlights Corn prices began moving sharply higher in Fall 2006 In 2008, prices moved well past previous record set in July 1996 Futures prices reflect expectations of relatively high prices as far out as contracts are traded

7. Weekly Chicago Corn (Cash)

8. CBOT Corn: September 22, 2008

9. Corn Highlights Corn prices began moving sharply higher in Fall 2006 In 2008, prices moved well past previous record set in July 1996 Futures prices reflect expectations of high prices as far out as contracts are traded Current economic uncertainty creating huge volatility Pullback from June highs reflects… – … improving crop condition ratings – … effect of outside markets (esp. crude oil, dollar) – But longer term fundamentals are exceptionally strong

10. Corn Market Volatility: CZ8 DateCloseChange Sep 15562’0-1’2 Sep 16532’2-29’6 Sep 17554’0+21’6 Sep 18527’2-26’6 Sep 19542’2+15’0

11. DEC08 Corn

13. Crop Condition: Good + Excellent

15. Corn Balance Sheet 2004/052005/062006/072007/082008/09 Planted Ac.80.981.878.393.687.0 Harv. Acres73.675.170.686.579.3 Yield160.4148.0149.1151.1152.3 Prod.11.80711.11410.53513.07412.072 Ethanol1.3231.6032.1173.0004.100 Exports1.8182.1472.1252.4252.000 Total Use10.66211.27011.21012.82012.645 End. Stks.2.1141.9671.3041.5761.018 Price2.062.003.044.205.00-6.00

16. Feedgrains Balance Sheet 2004/052005/062006/072007/082008/09 Planted Ac.97.096.492.5109.1101.9 Harv. Acres86.085.980.198.490.8 Yield (MMT)3.713.473.53.573.56 Prod.319.2298.6279.9350.9323.5 Dom. Use239.9244.7242.6277.0285.2 Exports51.459.858.369.554.7 Total Use291.3304.5300.9346.5339.9 End. Stks.58.854.736.243.830.2

17. Corn Stocks/Use

18. Does the RFS Matter? RFS mandate has an enormous impact on market participant expectations – With respect not just to the level but also to the stability of demand – Because of mandates, corn demand from ethanol sector should be less price responsive than other sectors Effect of oil prices is also critically important – High oil price supports corn use for ethanol despite higher corn prices

19. RFS Mandate History

20. Corn Use Components

21. Corn Use: US Ethanol v. Foreign Feed

22. Two Models of Corn Demand No MandateMandate

23. RFS Mandate and Demand

24. Distribution of Corn P & Q PriceQuantity

25. Summary High prices for corn High offtake of corn despite high prices – Weak dollar – Ethanol production A bit of slack showing up in world grain stocks, but US corn balance sheet tighter in 2008/09 – Lower 2008 plantings – And potential for late-season damage But corn fundamentals will likely be overwhelmed by outside market influences

26. Wheat Highlights Declining world stocks in 2006/07 and 2007/08 due largely to production problems in key production regions Soaring prices in winter 2008 Larger production in 2008 increasing stocks, decreasing prices – But, strong fundamentals for corn and beans will continue to support prices Weak basis, high production costs likely to reduce US acreage this fall

27. Wheat Balance Sheet 2004/052005/062006/072007/082008/09 Planted Ac.59.757.257.360.463.5 Harv. Acres50.050.146.851.056.6 Yield43.242.038.740.543.5 Prod.2.1582.1051.8122.0672.462 Dom. Use1.1691.1521.1401.0661.294 Exports1.0661.0030.9081.2641.000 Total Use2.2352.1552.0492.3302.294 End. Stks.0.5400.5710.4560.3060.574 Price3.403.424.266.486.70-7.80

28. Wheat Stocks/Use

29. US Avg. April Fertilizer Prices Source: USDA-NASS, Agricultural Prices, April.