Changing Trade flows

Stuart Richardson

McDonald Pelz Global Commodities LLC

AGIC July 2011

July 26, 2010

Stuart Richardson

Wheat 2011/12

July 27, 2011 2

Corn SND Update

July 27, 2011 3

Global Oilseeds 2011/12

July 27, 2011 4

China influences

• Strong growth forecast to continue

July 27, 2011 5

SR1

Slide 5

SR1 Stuart Richardson, 10/07/2011

Example;China: All of the Growth In Soybean Import Demand

China: All of the Growth In Soybean Import Demand

China’s Corn Imports: Economics Or Policy

Over 1 MMT of U.S. purchases

$/MTU.S. Exports

TMT

Source USDA Outlook Conf 2011

FSU continues to emerge as significant

exporter of cereals...

July 27, 2011 9

Significant market impacts

July 27, 2011 10

Russian

Drought 2010

Exports

Back again

Russian

drought

2010

FSU Wheat Exports grow

July 27, 2011 11

Source PSD Online

FSU milling wheat

• Milling and feed grade move to Med/EU/North Africa

• Middle East markets – Egypt, Persian Gulf

• Maybe 20% inclusion into Asia possible based on price

– Feed wheat into Korea and Philippines

– 11.5% protein competes against APW

• Price dependent

• Quality concerns – can it remain cheap enough to buy demand.

Price impacts on trade flows

US Ethanol demand

United States ForeignMMT MMT

Source USDA outlook conference 2011

U.S. Corn Production Responds to Ethanol, Foreign Production Responds to Growing Feed Demand

Other factors – Funds?

July 27, 201115

US carry charges - VSR

Return

incentive to

store wheat

US carry charges - VSR

• “The concept is designed to improve cash-futures convergence at futures contract expiration”. CME website "An

introduction to variable storage rate in wheat futures" 2009.

• Volatility likely to continue – US is residual supplier

• If Natural demand for SRW – Latin America

– GASC!!

– China?

• Hedging – opportunity or necessity?

• Incentive to store grain.

• Stimulus to invest in storage– New capital from funds?

So how is Aussie going....

Australian Wheat Bulk shipment pace

Aussie wheat (bulk) exports

2008/09 to 2010/11

Source Own data

How is Aussie competing?

Increasing competition to secure

demand

Whats coming....

Canada – Wheat and barley

deregulation 2012

• Conservative government has majority

• Agenda in place for 2012 deregulation

• Fall 2011 intro of legislation

• But there is resistance.......

• Talk of Plebiscite for all growers by CWB

July 27, 2011 24

CN Network

Canada – deregulation 2012

• Likely impacts;

– Canadian wheat flows to Northern US

• Natural flow to demand

• Increases US Supply

– Evolution of business models in market

• Traders increase

• Origination strategies – choices for the grower

July 27, 2011 25

Canada opening up• Our view

– More Canadian wheat into US

• Increase from 500kt to ~2.0Mmt

– Strong competitor to US grades

• Growers experiment with new wheat classes (mid-pro)

• Generic North American grades

• NS/HRW/Soft wheat

July 27, 2011 26

Canada opening up– Competition for logistics capacity

will increase.• Wheat

• Barley

• Canola

• Pulses

– Direct control of logistics task may see efficiency increase

• No more grade mismatches to demand

• Add 2-4mmt of capacity p.a.

– Investment in domestic milling and malting

– Canadian wheat “on the market”

July 27, 2011 27

CN Network

Source CWB website

Historical Canadian Wheat exports

Impact of Canadian wheat dereg;• Similar themes to Australian since 2008

– Growers will see many buyers• CWB controlled cash buying so far

• CWB has also controlled the domestic market for wheat

– Elevation capacity has value• Competitive elevator market on prairies for volume

– Port control has value• Elevators are privately owned – easy transition.

• Blending increases

– Multiple buyers marketing grain • Market share strategies?

– Grain buys demand when it needs to.

Conclusions

• We use the US for global price discovery – but is this true in the future

• “New origins” adding competition –– North America morphs into one large supply

– Black Sea supply

• Do alternate markets like ASX develop become proxy’s for transparent market?

• Volatility – Funds have cash may look to extend investment

strategies

– Basis volatility remains strong.

The end

Conclusions

People are going to bring different business models to

the market

July 27, 2011 33

$15 - 35Country Silo-Handling-Cleaning-Drying-Storage-Blending

$5-8

Country Logistics-Trucks-Rails-Barges-Insurance

-$10 - $2?

Port Silo-Handling-Blending-Storage

$4-8

Origination margins Distribution marginsOcean Freight

Port Silo-Handling-Blending-Storage

Customer Distribution-Parcel size-Logistics-Risk Mgmt Advice-Finance

$1-2

Sea Freight

$4-8 $2-8

Farm Relation-Finance-Risk Mgmt

$ ?

Domestic originator – to FOB

Eg, Pools, BHC, Domestic trader

CFR sales

Multi-National

Growers/Track to CFR, including finance and freight

Grower

financing

options

Sometimes distribution strategies;

Port assets, Financing, CMA, incountry

demand assets (eg crush or processing)

Destination specialistMay operate

from FOB

FOB to CFR trader

Supply continues to hit the market

July 27, 2011 34

July Aug Sep Oct Nov Dec Jan Feb Mar Apr May June

Source USDA WASDE

Black Sea

Winter and Spring

87Mmt (R/U/K)

Europe

Winter

132Mmt

Canada - 25Mmt

USA

Winter and Spring

56MmtArgy - 15mmt

Aussie - 25Mmt

300mmt Wheat supply

Canada competes with Aussie

• Hard wheats

• Softer style

wheat

• Durum

• Feed wheat