Market Outlook – Grains and Oilseeds, 16/02/10

Michael Archer

Senior Analyst, HGCA

Contents

1. Introduction2. Wheat3. Feed Grains4. Oilseeds5. Summary

Prices decline as fundamentals dominate- good N. Hemisphere wheat & US spring crops

70

90

110

130

150

170

CBOT Wheat Dec-09 CBOT maize Dec-09 MATIF wheat Nov-09LIFFE Wheat Nov-09 Nov intervention

£ p

er

ton

ne

Source: HGCA

Grain demand growth despite recession- and production has responded

1975/1

976

1979/1

980

1983/1

984

1987/1

988

1991/1

992

1995/1

996

1999/2

000

2003/2

004

2007/2

008300

400

500

600

700

800

900

Global grain demand

Wheat Maize

Gra

in D

em

an

d (

M t

on

ne

s)

2003/2

004

2004/2

005

2005/2

006

2006/2

007

2007/2

008

2008/2

009

2009/2

010*

400

450

500

550

600

650

700

750

800

Global grain production

Maize Wheat

Pro

du

cti

on

(M

to

nn

es

)

* Forecast Source: USDA

Price Effect

BUT: There are underlying feed grain issues- markets more exposed to weather events

1970/1971

1972/1973

1974/1975

1976/1977

1978/1979

1980/1981

1982/1983

1984/1985

1986/1987

1988/1989

1990/1991

1992/1993

1994/1995

1996/1997

1998/1999

2000/2001

2002/2003

2004/2005

2006/2007

2008/2009

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%Stocks-to-use Wheat Maize

Sto

ck

s-t

o-u

se

(%

)

Maize Critical Zone

Source: USDA

World wheat market

World Supply and Demand for wheat – another year of surplus forecast

Source: USDA

Main wheat exporters harvest less in 2009/10- but begin season with greater stock levels

* Forecast Source: IGC

UK Supply and Demand

000 tonnes04/05 – 08/09

average2008/09 2009/10

Change on 2008/09 (%)

Opening Stocks 1,856 1,720 2,756 60%

Production 15,107 17,227 14,181 -18%

Imports 1,142 1,305 968 -26%

Total Supplies 18,105 20,252 17,905 -12%

Human & Industrial Use 6,530 6,836 6,889 1%

Animal Feed Use 6,696 6,729 6,506 -3%

Total Use 13,588 13,973 13,736 -2%

Exports/ Intervention 2,487 3,523 2,138 -39%

Closing Stocks (five-year average) 2,030 2,756 2,030 -26%

Discount to French

Quality

Exportable Surplus FOREX

UK continues to track French wheat market- quality and exportable surplus key drivers

Jul-0

8

Jul-0

8

Aug-0

8

Sep-0

8

Sep-0

8

Oct-08

Nov-0

8

Dec-0

8

Dec-0

8

Jan-

09

Feb-0

9

Mar

-09

Mar

-09

Apr-0

9

May

-09

May

-09

Jun-

09

Jul-0

9

Aug-0

9

Aug-0

9

Sep-0

9

Oct-09

Oct-09

Nov-0

9

Dec-0

9

Jan-

10

Jan-

1080

90

100

110

120

130

140

150

160

LIFFE (UK) wheat MATIF (French) Wheat

£ pe

r to

nne

KEY: UK follows French market

Jul-9

9

Dec-9

9

May

-00

Oct-00

Mar

-01

Aug-0

1

Jan-

02

Jun-

02

Nov-0

2

Apr-0

3

Sep-0

3

Feb-0

4

Jul-0

4

Dec-0

4

May

-05

Oct-05

Mar

-06

Aug-0

6

Jan-

07

Jun-

07

Nov-0

7

Apr-0

8

Sep-0

8

Feb-0

9

Jul-0

9

Dec-0

9-35-30-25-20-15-10

-505

1015

Relationship between UK and French wheat

£ pe

r ton

ne

Source: HGCA

3

1

UK wheat market - becoming more regionalised?

More than 50% cereals

40-50% cereals

20-40% cereals

Less than 20% cereals

4

1 Ensus, Teesside Due on stream to use some of the 2009 wheat crop

www.ensusgroup.com

2 Vivergo, Hull Under construction & due to produce in summer 2010

www.vivergofuels.com

3 Vireol, Immingham at advanced planning stage

www.vireol.com

4 British Sugar, WissingtonSugar- based bioethanol

www.britishsugar.co.uk

Source: HGCA

2

Next season – early indications, very little data currently available

HGCA/Andersons “Early Bird” Autumn planting survey – 2010/11 English wheat area seen up 5.9%

First official estimates from Defra December Survey - English data out on March 2nd, UK data on March 11th

Yields ever more difficult to predict!

Drilling went well – dry & moist across most of UK

Snow cover provided some protection from very cold weather

Strategie Grains - UK 2010 wheat crop = 16.05Mt, up 12% on 09/10

World feed grains market

Feed grain in 2009/10- maize deficit, barley surplus

* Forecast Source: USDA

Maize remains the dominant feed grain- US crop dictating volatility

M tonnes 07/08 08/09 09/10 *

Production 331 307 328

Feed 151 133 137

Ethanol 77 93 107

Exports 62 46 52

STU % 12.7% 14.8% 15.4%

US maize balance

* Forecast Source: USDA

Demand for grain for biofuel grows

* Forecast **EC forecast, March 2009 Source: USDA, Strategie Grains, EC

Can the EU meet increasing demand?- good land availability: set-aside gone

M Hectares 2006/07 2007/08 2008/09 2009/10

Soft wheat 21.7 21.9 23.3 22.7

Barley 13.8 13.7 14.5 14.0

Maize 8.4 8.0 8.8 8.5

Total cereals 56.3 56.3 59.8 58.1

Total oilseeds 10.5 10.8 10.7 11.1

Set-aside / fallow

8.8 9.0 6.1 6.9

Of which equiv. EU-15 set-aside

5.7 5.6 3.0 4.3

• EU has sufficient previously set-aside land for biofuel

• 1.5M ha occupied by sugar beet

• Yield improvements may also be made e.g. GM maize

* Forecast

Source: Strategie Grains

UK barley balance sheet - massive spring plantings, highest since 2001

M tonnes 2007/08 2008/09 2009/10

Opening stocks 0.80 0.76 1.20

Production 5.71 6.14 6.75

DemandH&I

Feed

4.801.752.87

5.031.773.07

5.111.623.28

Exports & intervention

Cumulative exports to end-November

UK Intervention as at Feb 4th

0.40 0.812 1.99

403,914t

66,133t

World oilseeds market

European and UK OSR values - still track CBOT prices closely

World Oilseed S&D – stocks to use ratio rising for soyabeans but down for softseeds

Source: HGCA/ USDA

World soyabean S&D – importantly, assuming record SA crops

Source: USDA

Next season - soyabean & maize price ratio: important when determining future area

Source: HGCA

EU Rapeseed Balance Sheet – production and usage seen up

Mt, Source: Oilworld 2007/08 2008/09 2009/10 forecast

Opening stocks 1.29 0.70 1.52

Production 18.44 19.04 21.41

Imports 0.69 3.22 2.40

Crushings 18.46 20.33 22.70

Other use 0.85 1.02 1.03

Exports 0.40 0.10 0.15

Ending stocks 0.71 1.51 1.45

Stocks-to-use ratio 4% 7% 6%

UK market, production and trade – output lower but imports up sharply to date

Source: HGCA

Source: Defra

Recap – Implications for 2009/10 and beyond

Wheat• Record 2008/09 surplus followed by likely 2009/10 surplus• Huge competition for exports in 2009/10 plus volatile FOREX• Better quality in UK should avoid major discounts, but still a follower

Feed grains• Tight (e.g. US maize), but EU barley at intervention levels• So markets exposed to an unknown supply issue in the future:

volatility• Bioethanol = changing dynamics???

Oilseeds• SA soyabean crop crucial• EU OSR market looks relaxed, UK now OSR net-importer