Transcript Slide 1

Outlook Presentation
Updated 3.24.11
Darrell Holaday
Advanced Market Concepts/Country Futures
[email protected]
800.292.4038
Wamego KS
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How Did This Happen?
Is the Recession Over??
• GDP improved
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Is the Recession Over??
• GDP improved
• Consumer Expenditures Increased
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Is the Recession Over??
• GDP improved
• Consumer Expenditures Increased
• Inflation under control??
– Food and Energy
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Is the Recession Over??
• GDP improved
• Consumer Expenditures Increased
• Inflation under control??
– Food and Energy
• What about Employment?
– How do you explain 9%?
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Is the Recession Over??
• Debt issues still haunting this economy
– Public and Private
• Explosion in Asian Economies
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Why are Food Commodities so much
higher?
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Corn Yield in 2010 was the flame
The drought in Russia was the spark
Asian economies growing at 6-10% annual rates.
US Exports benefiting from other problems.
US and World Consumers are going to see a much
larger piece of their income pie going to food and
energy.
– Ultimately this is negative for GDP growth.
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This was the flame that
changed everything!
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Percentage Change in US Exports
40
35
30
25
20
15
10
5
0
Wheat
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Soybeans
Corn
Beef
Pork
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Corn/ Feed Grains
• Corn is still the backbone of the strength
• Yields disappointing
• Down 5%-7 from Trend and Expectations
• Still a lot of questions as to why
• Energy drives corn
– Has been true since US Govt Initiative in Ethanol
– Tax Credits Important but the Mandate is much more
IMPORTANT. How would mandate work without Tax
Credits.
• What is the impact of Ethanol on the price of
corn?
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2000
US
Corn Use
Ethanol
7%
2010
US Corn Use
FSI
9%
FSI
13%
Feed
40%
Exports
20%
Feed
60%
Ethanol
35%
Exports
16%
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450000000
Corn Used For Ethanol (US) (Bushels)
400000000
350000000
300000000
250000000
200000000
150000000
100000000
50000000
0
Sep Oct Nov Dec Jan Feb Mar Apr May June July Aug
2006-07
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2007-08
2008-09
2009-10
2010-11
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Corn / Feed Grains
• Price has not seemed to trim use of corn domestically
(or internationally).
– Somebody has to stop. The markets job is to make
someone lose money using corn.
– It cannot live with ending stock to use ratio at 5%.
– Who will stop first??
• Did the Japanese Earthquake Trim Use??
• Tremendous pressure to increase acres to 93 million
with at 160 bushel yield.
• Acreage “fight” will be more interesting than any year
in the past.
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How is this at a tight stock
situation?
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Corn
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• What I Like
Tied To Energy and Overall
demand for energy is still
growing.
We have not rationed supplies.
Stocks for the current crop
year have to increase.
The fight for acreage will be
fierce.
Corn Inventory in strong
hands.
There will be much more
concern about prospective
yields after last year.
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• What I dislike
A lot of feed wheat in the
world.
Japan’s purchases will be
reduced in the short run.
Tax credits may be on their last
leg.
How do we exist with no tax
credits and a mandatory
blending level?
Cattle and ethanol use may
both decline at the same time.
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Wheat
• Fundamentally this market is generally the
weakest of the sector.
• The Russian drought changed the “ world
psychology”
– Started a small avalanche of production problems
• The problems in Russia and Australia have
pushed business to the US.
• Also had Canadian and EU Problems this year
• USSOUTHERN PLAINS GETTING ATTENTION !!
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World Wheat Production
700
650
MMT
600
550
500
450
400
93
94
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95
96
97
98
99
00
01
02
03
04
05
06
07
08
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World Wheat Ending Stocks
210
190
170
MMt
150
130
110
90
70
50
93/94 94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11
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China Wheat Production and Imports
130
14
125
12
120
10
115
110
8
105
6
100
95
4
90
2
85
80
0
93
94
95
96
97
98
99
00
01
China Prod
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02
03
04
05
06
07
08
09
10
11
Chin Imports
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Wheat
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• What I Like
Bullish Psychology
Weather problems in the
world. US and China,
Russia.
Will be another fight for
acreage that may trim
some wheat acres from
the high expectations.
Wheat is a competitive
feed in many parts of the
world.
CORN
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US and World Stocks still
in reasonable shape if
yields come through
without big acreage
increase. Still a lot of
wheat in the US.
Australia will “fill the
boat” with wheat acres.
Could be a false price
signal and will attract too
many acres
Basis and the possible
contract changes
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Soybeans
• Overall long term growth in demand remains
strong.
– Still a growing protein market and China consumption
reflects this fact.
• We are beginning to see the growth in yield
capability.
– Started in 2009
– New Genetics will promote additional yield gains.
• South American production will slow US exports,
but Argentine crop stunted.
• China carries the big stick in this market.
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Soybeans
• Overall long term growth in demand remains
strong.
– Still a growing protein market and China consumption
reflects this fact.
• We are beginning to see the growth in yield
capability.
– Started in 2009
– New Genetics will promote additional yield gains.
• South American production will slow US exports,
but Argentine crop stunted.
• China carries the big stick in this market.
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% of World Use of Soybeans by China
28.0%
26.0%
24.0%
22.0%
20.0%
18.0%
16.0%
14.0%
12.0%
10.0%
2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11
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World Soybean Use (mmt)
280
260
240
220
200
180
160
140
120
100
2002/03
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2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
2009/10
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World Oilseed Ending Stocks (mmt)
80
70
60
50
40
30
20
10
0
2002/03
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2005/06
2006/07
2007/08
2008/09
2009/10
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Total World Oilseed Use
400
350
300
250
200
150
2002/03
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2004/05
2005/06
2006/07
2007/08
2008/09
2009/10
2010/11
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Soybeans
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Market cannot deal with
ending stock number near 100
million bus in the US
Chinese Consumption
Argentina crop has questions
and a long way to go.
Macro Psychology of inflation
still dominates
Soyoil Demand still strong
despite biodiesel.
The industry cannot let acres
slip like they did the last time
US corn acres jumped up over
93 million (2007)
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CHINA, but no sign of trouble
yet.
If inflation play disappears,
soybean values will retreat.
There is no pullback in South
American production.
Price will eventually destroy
some market.
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Crop Insurance and Marketing
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RMA offers very Puts and Calls
Don’t Exclude the Harvest Option
Consider selling “Puts”?
Consider selling “Calls”?
Crop Insurance allows for more aggressive
forward pricing.
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Meats
• Inventories Have declined significantly in US and
Much of the World
• Beef Demand Exploding in Asia (Until
Earthquake).
– Poultry Increasing supplies gradually
– Can’t Build Beef Consumption if Supplies Shrinking
• But World supplies of protein Very Tight
• Good Demand in Asia extremely positive
– Beef and Pork Exports the big story
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Cattle
• Corn Price and Overall Economy (Unemployment driving
near term psychology
• Cattle have been marketed very orderly and that has been
critical.
• Calf supplies continuing to shrink and COF numbers
declining should eventually decline
• Numbers do not indicate any herd building
– The lack of grass is the number one impediment to herd
rebuilding
• Corn is the next problem
• THE LACK OF GRASS IS THE LIMITING FACTOR FOR COW
HERD EXPANSION!!
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Meats Cont’d
• Poultry product still grow 2-3% this year. Will
gain US market share in the US versus pork
and beef
• Cattle and Hog futures have built in steep
premium to cash anticipating substantial drop
in supplies.
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