Up, Up and Away!The Increasing Costs

of Crop Inputs!

Mike MlezivaGeneral ManagerAgVentures, LLC

Ag Prices ConferenceWisconsin Dells

“Hungry People are

Angry People”

- U.N. Secretary-General, Ban Ki-moon

High Food Prices

• High Oil Prices

• Changing Diets

• Urbanization

• Expanding Population

• Extreme Weather

• Growth in Biofuel Production

• Speculation

What is Needed?

• More Food Aid

• African Green Revolution Package

• Fewer Export Bands and Tariffs

• More Agricultural Research

• Build Market Infrastructure

• Promote Technology Innovation

• Avoid Counterproductive Policies

Why have nutrient prices increased?

Many of the Same fundamentals causing record grain prices

=> Combination of demand-pull and cost-push factors• Extraordinary nutrient demand growth!• Cost pressures from higher energy and raw

materials prices!

• Higher costs of transporting raw materials and fertilizer materials!

• Falling value of the U.S. dollar!

Commodity

Markets!

U.S. Crop and Fertilizer PricesJune 2008 vs. June 2007

Source: Prices received (crops) and paid (fertilizer) by farmers, National Agricultural Statistics Service, USDA.

Commodity Price Change Soybeans + 80 % Fertilizer + 77 % Corn + 74 % Wheat + 65 % Cotton + 28 %

U.S. Crop and Fertilizer PricesJuly 2008 vs. July 2007

Source: Prices received (crops) and paid (fertilizer) by farmers, National Agricultural Statistics Service, USDA.

Commodity Price Change Fertilizer + 104 % Soybeans + 88 % Corn + 69 % Wheat + 41 % Cotton + 33 %

World Fertilizer Consumption

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

110,000

120,000

130,000

140,000

150,00019

61/6

2

1962

/63

1963

/64

1964

/65

1965

/66

1966

/67

1967

/68

1968

/69

1969

/70

1970

/71

1971

/72

1972

/73

1973

/74

1974

/75

1975

/76

1976

/77

1977

/78

1978

/79

1979

/80

1980

/81

1981

/82

1982

/83

1983

/84

1984

/85

1985

/86

1986

/87

1987

/88

1988

/89

thou

sand

met

ric

tons

nut

rien

t

N P2O5 K2OSource: IFA.

U.S. Consumption of Primary Plant Nutrients

0

5

10

15

20

251

96

0

19

62

19

64

19

66

19

68

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

Year ending June 30

Mill

ion

Sh

ort

To

ns

Nu

trie

nt

Nitrogen P2O5 K2O

Fertilizer Nutrient Demand, FY00/01 and FY05/06

0

20

40

60

80

100

120

140

160

180

United States Rest of World World

mil

lion

sho

rt to

ns n

utri

ent

Demand in FY00/01 Demand Growth - FY00/01 to FY05/06Source: IFA, TFI.

21.2

148.7169.9

18.7 mil. nutrient

tons

5-year growth in world nutrient demand outside the United States nearly equal to adding a new U.S. market to world fertilizer demand!

+ 12.7 %

U.S. NUTRIENT DEMAND

FY2006/07

U.S. Corn Used For Ethanol ProductionU.S. Corn Used For Ethanol Production

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

1980/81 1984/85 1988/89 1992/93 1996/97 2000/01 2004/05 2008/09

Billion bushels

Source: USDA; Doane forecast.

U.S. Corn Acres Planted

0

10

20

30

40

50

60

70

80

90

100

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007

mill

ion

acr

es

93.6 million acres+ 19.5 percent

U.S. Nutrient Use

0

2

4

6

8

10

12

14

16

18

20

22

24

2004/05 2005/06 2006/07

Mill

ion

Nu

trie

nt

To

ns

Nitrogen Phosphate Potash Estimate

22.15 Mil.Tons(Down 5.3 %)

21.25 Mil. Tons(Down 4.1 %)

22.7-22.9 Mil.Tons(Up 7-8 %)

Supply Factors

Energy Costs !Ra

w M

ater

ial C

osts

!

U.S. Ave. Annual Natural Gas Price

0

1

2

3

4

5

6

7

8

9

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

$ M

MB

tu

Source: Spot-delivered-to-pipeline price, Natural Gas Week.

U.S. N Imports by Material, FY2005/06

Urea27.2%

Nitrogen solutions7.5%

Ammonium nitrate4.0%

Other1.4%

Anhydrous ammonia59.9%

11.48 million short tons N

Source: The Fertilizer Institute and the U.S. Department of Commerce.

U.S. N Imports by Country, FY2005/06

Trinidad & Tobago35.5%

Canada19.3%

Middle East11.7%

Ukraine10.1%

Russia7.6%

Romania3.6%

Venezuela2.9% Other

9.2%

Source: The Fertilizer Institute and the U.S. Department of Commerce.

Rising Energy and Feedstock Costs

PRODUCTION COST IMPACTS

Ammonium Phosphates

=> higher energy prices

=> higher phosphate rock prices

=> higher sulfur prices

=> higher ammonia P’s

Potash

=> higher electricity and natural gas P’s

Phosphate Rock - Tampa (1980-2006); Morocco (2007-08)

0

50

100

150

200

250

300

350

400

450

500

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

$ p

er s

ho

rt t

on

mat

eria

l

Source: Green Markets.

Morocco, March 24, 2008: $180-$200

Morocco, March 24, 2007: $42-$46

Morocco, April 21 - June 30, 2008: $150 - $400

Morocco, July 2008: $400 - $500

Recovered Sulfur - Tampa

0

50

100

150

200

250

300

350

400

450

500

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

$ p

er lo

ng

to

n m

ater

ial

Source: Green Markets.

April 21- July 7: $450.50 - $453.50

Jan. 21 - April 20: $252

Cost of Major Inputs into DAP Production

$-

$250

$500

$750

$1,000

$1,250

2005 July 14, 2008

Phosphate rock Sulfur Anhydrous ammonia

$ 144

$ 1,077

World K2O Production - 2007Canada; 32.6%

Russia; 19.1%

Belarus; 14.9%

Germany; 10.8%

Israel; 6.4%

China; 5.6%

Jordan; 3.2%

USA; 2.3%

Spain; 1.4%

U.K.; 1.3%

Brazil; 1.2%

Chile; 1.2%

Source: IFA.

33.4 millionmetric tons K2O

ConcentrationTop 1 - 33 %Top 2 - 52 %Top 3 - 66 %Top 4 - 77 %

World K2O Exports - 2007Canada; 39.0%

Russia; 19.9%

Belarus; 16.1%

Germany; 11.2%

Israel; 7.5%

Jordan; 3.7%

Spain; 1.2%

U.K.; 0.8%

USA; 0.5%

Chile; 0.1%

Source: IFA.

27.2 million metrictons K2O to over

100 countries

ConcentrationTop 1 - 39 %Top 2 - 59 %Top 3 - 75 %Top 4 - 86 %

Over 80% of production

exported compared to

12.5% for world grains

North American Potash ProducersMonthly Ending Inventory

500

700

900

1,100

1,300

1,500

1,700

1,900

2,100

2,300

2,500

1989

-07

1990

-01

1990

-07

1991

-01

1991

-07

1992

-01

1992

-07

1993

-01

1993

-07

1994

-01

1994

-07

1995

-01

1995

-07

1996

-01

1996

-07

1997

-01

1997

-07

1998

-01

1998

-07

1999

-01

1999

-07

2000

-01

2000

-07

2001

-01

2001

-07

2002

-01

2002

-07

2003

-01

2003

-07

2004

-01

2004

-07

2005

-01

2005

-07

2006

-01

2006

-07

2007

-01

2007

-07

2008

-01

tho

usa

nd

sh

ort

to

ns

K2O

Source: IPNI and TFI.

Tight Stocks!

Sinkhole Threatens Russian Potash Shipments

Silvinit• 9% of global potash capacity• Only available rail link from Silvinit mines• Sinkhole currently 100 meters from rail link• Safety officials will shut down if it gets within 70-80 meters• Would be disrupted for “… several weeks at least …” as govn’t considers options for a third rail spur.

Best case Worst CaseUncertainty Disruption in Shipments

OTHER FACTORS

• Exchange Rates• Labor Issues• Shipping/Distribution Costs• Food and Fertilizer Export Curbs

Canadian Exchange Rate Example January 2003 December

2007 Change

Exchange Rate: $ CAN/$ US 1.5410 1.000 - 35%

Price of Product X $ 100.00 $ 100.0 0%

Receipts in $ CAN $ CAN 154.10 $ CAN 100.00 -35%

Price Rise in $ U.S. Necessary to Maintain Receipts in $ CAN:

Price of Product X $ 100.00 $ 154.10+54%

Receipts in $ CAN $ CAN 154.10 $ CAN 154.10 0%

Shipping/Distribution Costs are UP!

RISING:

• Ocean Freight Rates

• Rail Rates, especially for ammonia

• Barge Rates

• Truck Rates

Countries also curb fertilizer exports

Export tariffsor

“instructions” to sell product in the domestic market

ChinaRussiaUkraineBelarusEgypt

VietnamIndonesia

Chinese Fertilizer Export Tariffs, Effective April 20, 2008

Source: The Chinese Finance Ministry.

Ammonia 0 100 100Urea 35 100 135Ammonium Sulfate 0 100 100Ammonium Nitrate 0 100 100Potash 30 100 130DAP 35 100 135MAP 35 100 135NPK 35 100 135

percent

Original Tax Rate

Special Tax Rate

Revised Tax RateProduct

May 12 earthquake: Sichuan Prov.

urea & MAP production!

Recap: Factors Resulting in Higher Fertilizer Prices

• Dramatic Increase in World Nutrient Demand• More Recently, Rise in U.S. Nutrient Demand• Decline In Domestic N Supply – Natural Gas P’s!• Which resulted in Increased U.S. Imports of Nitrogen• Rising Energy P’s => Higher Production Costs• Rising Raw Material P’s => Higher Production Costs Tighter supplies of all nutrients!• Increased Shipping/Distribution Costs (ocean freight; rail; barge; truck)• Falling Value of the U.S. Dollar• Curb on food and fertilizer exports by selected countries

Longer-Run Supply/Demand Factors

World Urea Production Capacity

0

10

20

30

40

50

60

70

80

90

2003 2004 2005 2006 2007 2008 2009 2010 2011

thou

sand

met

ric

tons

N

Source: IFA.Growth: Primarily China and the Middle

East

World DAP Production Capacity

0

5

10

15

20

25

2003 2004 2005 2006 2007 2008 2009 2010 2011

thou

sand

met

ric

tons

P2O

5

Source: IFA. Growth: Sooner - China & Morocco Later – Saudi Arabia &

Algeria

World Potash Production Capacity

0

5

10

15

20

25

30

35

40

45

2003 2004 2005 2006 2007 2008 2009 2010 2011

thou

sand

met

ric

tons

K2O

Source: IFA. Growth: North America, China, Middle East,

Russia, Belarus & Argentina

Capacity Expansions Coming on Stream

Source: PotashCorp

World Nitrogen Consumption

-

20

40

60

80

100

120

FY1995/96 FY2000/01 FY2005/06 FY2010/11

mil

lion

sho

rt to

ns N

United States Rest of World

+ 5 %

+ 11 %

+ 20 %

Source: TFI and IFA.

World Phosphate Consumption

-

5

10

15

20

25

30

35

40

45

FY1995/96 FY2000/01 FY2005/06 FY2010/11

mil

lion

sho

rt to

ns P

2O5

United States Rest of World

+ 6 %

+ 13 %

+ 18 %

Source: TFI and IFA.

World Potash Consumption

-

5

10

15

20

25

30

35

FY1995/96 FY2000/01 FY2005/06 FY2010/11

mil

lion

sho

rt to

ns K

2O

United States Rest of World

+ 7 %

+ 17 %

+ 21 %

Source: TFI and IFA.

USA 1.00 : 0.37 : 0.39China 1.00 : 0.39 : 0.20India 1.00 : 0.41 : 0.19

Other Factors

• U.S. Nat Gas P’s to Remain High

• Energy Prices to Remain High

• Shipping/Distribution Costs to Remain High

• $ U.S. Dollar – No significant recovery soon

Summary• Nutrient markets could be tight until 2009 as demand has

expanded more rapidly than was expected a few years ago.

• While urea supply is projected to grow, the supply/demand balance will remain tight in 2008, possibly easing somewhat in 2009. If planned capacity expansions materialize, a surplus could emerge in 2010 or beyond.

• The DAP, MAP and TSP market will be balanced throughout most of the forecast period. Very few producers have available swing capacity for export.

• Potash supplies will eventually increase in most exporting countries. Because of a shift towards more balanced fertilizer use, no significant surplus will likely develop before 2011, at the earliest.

Fertilizer Prices at Record Levels

Index of Fertilizer Prices Paid by Farmers, Jan. 1995 - June 2008

75

100

125

150

175

200

225

250

275

300

325

350

375

400

1995

July

1996

July

1997

July

1998

July

1999

July

2000

July

2001

July

2002

July

2003

July

2004

July

2005

July

2006

July

2007

July

2008

1990

-199

2 =

100

Source: National Agricultural Statistics Service, USDA.

Increase of 268 percent

January 2000 – June 2008

Fertilizer Price Comparison

Jan. 2006 Jan. 2007 Jan. 2008 Aug. 2008

46-0-0 $385 $365 $570 $885

11-52-0 $372 $360 $625 $1195

0-0-60 $272 $268 $510 $838

Crop Protection Product Comparison

May 2006 May 2007 May 2008 Aug. 2008

Atrazine 9-0 $2.60 $2.58 $3.28 $3.45

Glyphosate $19.75 $19.50 $27.50 $36.35

Lumax $38.65 $43.20 $48.75 $48.75

Surfactant $24.10 $23.30 $24.35 $24.95

Seed Price Comparison

May 2006 May 2007 May 2008 Aug. 2008

Corn Bt RR $134 $189 $194 $246

Soybean RR $27.10 $31.50 $35.00 $60.00

Alfalfa $3.20 $3.20 $3.90 $5.10

Wheat $9.00 $10.60 $18.50

Thank you!

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