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8/6/2019 2004 Grains Outlook
1/21
CommodityMarket &Futures IndustryUpdate
By: Rich Feltes
V.P. & DirectorRefco Global Research
2003 Global Futures Volume by Category
0
500
1000
1500
2000
2500
3000
3500
4000
EquityIndice
s
Inte
restRa
teSSF
AgCom
md.
Energy
Produ
cts
Non-Pr
ecMetals
Mil contracts42%
27%
15%
31% 4% 26%
% change vs 02 on top of bar
- Foreign markets growing faster than US
- Foreign dominated by electronic trade
8/6/2019 2004 Grains Outlook
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8/6/2019 2004 Grains Outlook
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2003 Futures Volume by Exchange
00.2
0.40.60.8
11.21.4
1.61.82
KoreaStockExch Eu
rex
Euronext CME CB
OT
Mil contracts 50%
27% 0%15%
32%
% change vs 02 on top of bar
03 Dalian Futures Ex. Vol.up 54.9% vs. 02 to 75 mil con.
Why is CRB Booming?
Weakening dollar
Low interest rates
Range bound equity market
Surging PRC economic growth Energy demand outpacing supply
Online access/Electronic execution
Simultaneous crop shortfalls globally
90s Dot com boom discouraged investment incommodity capacity
8/6/2019 2004 Grains Outlook
4/21
8/6/2019 2004 Grains Outlook
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ChinaDemographics
1.3 bil populationgrowing by 10.4 mil/yr
8 mil people enter work force yearly
Average factory wage 61 cents/hr vs. $16.14 US
Average farm size 1.6 acres vs. 140 acres in US
61% rural vs. 79% in 82 (must build city size ofHouston/mo. to house flow from rural to urban)
Chinas demographics are their destinythe 21st
century belongs to the Chinese
8/6/2019 2004 Grains Outlook
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ChinaEconomy
Worlds fastest 5th largest & fastest growing economy
Autoskey economic driver next 30 years (GM 1stQ04 car sales up 70%)
Building 1900 miles of expressways/year Worlds largest soybean importer & steel producer
2nd largest crude oil consumerconsumes 5 mbd vs.20 mbd in US (US pop only of PRC)
Will buy 1900-2300 airplanes next 20 years
If Wal-Mart were a nation it would be Chinas 8th
largest trading partner
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8/6/2019 2004 Grains Outlook
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Chinese Soybean Meal Consumption
0
2
4
6
8
10
12
14
16
18
2022
24
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Source: USDA -Jul 2004
2220% increase 1990 to 2004
13% Population growth same period
Protein consumption outgrew
population by 170X past 14 years
Chinese Soybean Oil Consumption
0
1
2
3
4
5
6
7
8
9
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Soybean Oil Consumption
Source: USDA -Jul 2004
31-fold expansion
in 20 years...
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0
50
100
150
200
250
1980 1985 1990 1995 2000 2005
Ending Stocks
CHINA ENDING STOCKS: WHEAT, CORN & SOYBEANS COMBINED
MMT
With reduced area and
reduced yield. production
has declinedand with
consumption climbing
(including corn
EXPORTS), China has
reduced its carryout
stocks by nearly 150
million tons!
We do not know the correct figures for China
stocks, but we do know that the five-year change
has been enormous. Is the stage set for reduced
corn exports, maybe even imports?
PRC: Ag CommodityWrap Up:
Info on PRC ag output & trade more transparent
World markets nervous about over re-entry of PRCas a grain buyer; risk--grain stocks are state secret!
Decline in PRC grain yields, stocks & acreageportends renewed emphasis on production
PRC 04/05 soybean import growth may slow asworld production poised to surge
Bottom line: watch trends in domestic PRC prices &agribusiness margins
8/6/2019 2004 Grains Outlook
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Soybean harvest followed by planting of double crop corn(31 combines & 12 planters)
Expansion in Brazil is the most important shift in globalagriculture since the Midwest was settled in the 1800s.
- USDA Economist
Soybean Harvest - Mato Grosso, Brazil
10
15
20
25
30
35
40
45
50
55
60
50-51 55-56 60-61 65-66 70-71 75-76 80-81 85-86 90-91 95-96 00-01 05-06 10-11
Brz Actual
Brz Trend1960 to 2000
Trend + Stdev
Trend - Stdev
Trend 1990 to2003
Brz = 28 % of world all wheat production, latest year
PRXfile:PSD_YieldAnal_PrezCN. PRXrev. 28-Nov-03. USDA: Nov-03.
For GTB-03-11.
Exceeding 40-year trendsince 1990, with new,rainfed land in cerrado.
Trendline fits with r-square = 0.79
Bushels/acre
BRAZIL SOYBEANS YIELD HISTORY AND TREND
8/6/2019 2004 Grains Outlook
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South American Ag: Big Potential& Low Cost of Production
05 S. America soybean prod. up 20 mmt (vs.4.5 mmt decline in 04);
Brazil is 2nd
largest beef exporter Brazil broiler cost of production 22% below US
Undeveloped Brazil land = total US crop area
Deforestation in Brazil since 1995 averaged 5mil acres/yr (equal to 7 football fields/minute)--PRC lost 3.7 mil acres/year since 1998
8/6/2019 2004 Grains Outlook
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US Share of Global Trade
0
10
20
30
4050
60
70
80
Soyb
eans
Soym
eal
Soyo
il
Wheat
Corn
Beef
Pork
Poult
ry
'92/93
'03/04
%/Mkt Share
Usshretrade
*17.8% prior to 12/23/03 US BSE discovery
*
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225
197184
1041 07 1 17
118
138
124
132
158 160160
175
0
30
60
90
120
150
180
210
90/91
91/92
92/93
93/94
94/95
95/96
96/97
97/98
98/99
99/00
00/01
'01/'02
'02/
03
'03/
04
'04/05
est
Other
So. Am.
U.S.
World Soybean Production (MMT)
World population up 19%
Production up 90% from 90 to 04
Soy product use driven by income growth
Source: USDA July 2004
Soy prod. exceeds pop. growth by 4.7X!
189
8/6/2019 2004 Grains Outlook
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Global Soybean Meal Production(Million Metric Tons)
0
20
40
60
80
100
120
140
160
83/84
85/86
87/88
89/90
91/92
93/94
95/96
97/98
99/00
'01/'02
'03/'04
Source: USDA -Nov 2003
Production up 2.6x in 22 years...
55
144
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Global Soybean Oil Production(Million Metric Tons)
0
4
8
12
16
20
24
28
32
36
40
83/8
4
85/8
6
87/8
8
89/9
0
91/9
2
93/9
4
95/9
6
97/9
8
99/0
0
'01/'0
2
'03/'0
4
Source: USDA -Nov 2003
152% growth over 20 years...
13
32
Stunning Global Food-demand Growth
Global equity market collapse in 2000
September 11, 2001 terrorist attack
Three-year global economic slump
Afghanistan and Iraq wars
S.A.R.S. & Bird Flu outbreaks
Food-safety challenges
On-going international trade disputes
In Spite Of:
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World Night Picture
Veg oil Use Per Capita
(kilos)
US 34
PRC 14
FSU 12.5
India 10.3Cuba 9.3
N. Korea 8.7
Free-market principles, progressivepolicies, and the indomitable human spiritcombine to advance human condition
Threats to Global Economic Expansion
Rise of isolationism/nationalism
Broadening protectionism
Extreme terrorism (closing ship lanes/ports)
Food-supply contamination issues (B.S.E.,Avian flu, Hoof & Mouth)
Reversion to failed policies of the past (e.g.protectionism, socialism, communism)
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Global grain stocks tightestsince early 70s
US/Global GDP trending up
$ easing/low interest rates
Low tolerance for CN/BNyield adversity in 04
PRC grain stocks down 100mmt since 9/01
Easing Ocean Freight
Market Low Carb craze
54 new US ethanol plantsin planning stage
Neutral E.N.S.O. suggeststrend or higher 04 US yields.
S. America poised to increasesoy production 20 mmt in 05
US soybean export marketshare shrinking
Economic recovery could pullmoney away fromcommodities
40-45 mmt rebound in 04
global wheat prod likely Fragile state of PRC crushers
could slow pace of BNimports
04/05 Grain MarketsA look ahead
Positives Negatives
0
25
50
75
100
125
150
175
200
225
250
70-71 75-76 80-81 85-86 90-91 95-96 00-01 05-06 10-11
US
China
Major importers
WORLD CORN ENDING STOCKS
PRXfile:PSD_Anal_CornOV.PRXrev. 12-Jan-04. USDA:
Jan-04. For GTB-04-01.
Million metric tons
World total stocks (per
USDA) in 03-04 will be down24 mmt, led by China (whos
goal remains to reduce its
huge stocks), but with
increase in US.
China stocks
history not
revised before
1980.
China stocks from 80-81 forward revised
by USDA May-10-02.
8/6/2019 2004 Grains Outlook
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0
5
10
15
20
25
30
35
40
45
50
55
60
50-51 55-56 60-61 65-66 70-71 75-76 80-81 85-86 90-91 95-96 00-01 05-06 10-11
World Actual
World Trend1960 to 2000
Trend + Stdev
Trend - Stdev
World = 100 % of world all wheat production, latest yea
PRXfile:PSD_YieldAnal _PrezCN. PRXrev. 31-Jan-04. USDA: Jan-04.
For GTB-04-01.
Last three years havebeen noticeably below
40-year trend.
Trendline fits with r-square = 0.98
Bushels/acre
WORLD WHEAT YIELD HISTORY AND TREND
WORLD WHEAT
8/6/2019 2004 Grains Outlook
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Low Carb Update
1 in 14 Americans on low carb diet
US wheat flour production down 7 lbs perperson to 139 lbs from 2000-2003
1863 low carb products introduced FH 04
Livestock prices higher than suggested by S/D
reflects low carb & improving income
Short term fad or long term trend? (Stillclimbing but losing steam)
US Ag Commodity Outlook
Even with trend 04 corn yields, difficult to build stocksdue ethanol growth & expanding livestock
Grain prices retreat from 04 highs but stay above
average for 05greater downside in soy prices Cattle prices firm to higher next 1-2 yrs, then flatten/top
out; hog prices work lower next 2 years.
Bottom line05 US farm income robust
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