Opportunity and Interesting Times for

Agriculture

Brian Schouvieller

Senior Vice President, Ag Business

DTN/Progressive Farmer, Chicago, Ill.

December 2014

Farmer-owned

with global

connections.

TODAY’S TOPICS

• Global competition

• U.S. transportation system

• Global food demand

• U.S. energy boom

• Global nitrogen fertilizer production

WHO WE ARE

• Nation’s leading cooperative, owned by farmers, ranchers and

co-ops

• Core business global grains, agronomy, energy and foods

• Cenex® brand

• Focused on helping our owners grow

• More than 10,000 employees in the U.S. and 24 other countries

RECENT CHS HIGHLIGHTS

• Fiscal 2014 net income

$1.1 billion

• Fiscal 2014 net revenues

$43 billion

• 2014 patronage refund est.

$518 million

LOOKING BACK

Let the good

times roll!!

HISTORIC CORN, SOYBEAN, WHEAT

PRICES

Ethanol mandate

U.S. FARM INCOME IN BILLION DOLLARS

0

20

40

60

80

100

120

140

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*

Source: USDA ERS

FARM MACHINERY SALES

0

20

40

60

80

100

120

140

160

180

200

220

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*

(thousand units)

Tractors Combines

Source: AEM

LOOKING FORWARD

CURRENT MARKETPLACE DRIVERS

regulation

Cost of capital

Lower commodity prices

Global competition Foreign investment

Volatility

Land prices

Pricing

Counterparty risk

Transportation Currency

Weather

Energy Prices

Input costs

Global food demand

Technology

GLOBAL CORN PRODUCTION

COMPARISON - 10 YEAR CHANGE

UNITED STATES +21% +25% +52%

CHINA +52% +24% +88%

UKRAINE +310% +81% +642%

BRAZIL +27% +67% +111%

ARGENTINA +34% +16% +56%

HARVESTED

AREA YIELD PRODUCTION

GLOBAL CORN TRADE FLOWS – 10 YEAR

Fd

COST OF CORN PRODUCTION MAJOR

EXPORTERS

0

50

100

150

200

250

US C/SB US C/C UKR BRZ MG ARG

Land

Logistic

Production

192 198 216

171

216

$ p

er

ton

U.S. transportation

system takes

center stage

CURRENT RAIL SITUATION

• Drivers of performance

• Lack of resources

• Growth in all sectors

• Extreme weather

• Outcomes

• Unpredictable service

• Longer cycle times

• Higher car costs

• Outlook

• Significant investments pay off longterm

CURRENT WATERWAY SITUATION

• Weather related delays

• Growing demand in all sectors

• The waterway system is operating under capacity

• De-bottlenecking pinch points could add 50%

additional capacity

• Who will fund needed improvements

CURRENT TRUCK SITUATION

• Underinvestment in

infrastructure during recession

• More than 10% of drivers left

industry (2008 – 2012)

• Continued driver shortage

• Changing regulatory climate

• Hours of service rules adding

to capacity constraints

• Impact like reducing labor

force by 5%-10%

• Strong demand for trucking

services from all sectors

Opportunity

ahead: The world is hungry;

especially China

POPULATION GROWTH BY CONTINENT

0

2 000

4 000

6 000

8 000

10 000

12 000

Predicted Population by Continent, in millions

WORLD

AFRICA

ASIA

EUROPE

LATINAMERICA

NORTH.AMERICA

9.3B

7.1B

A GROWING MIDDLE CLASS

0

1

2

3

4

5

6

2012 2020 2030

In billions

190 million per year

1.8

3.2

4.9

Asia will account for 85% of growth

A HUNGRY CHINA

0

200

400

600

800

1,000

1,200

1,400

1,600

1960 1980 2000 2020 2040

Mil

lio

n T

on

s

Source: EPI from USDA, IMF, UNPop

Grain Consumption in China, 1960-2010, with Projection for 2035

Ea

rth

Po

lic

y In

sti

tute

- w

ww

.ea

rth

-po

lic

y.o

rg

NET GRAIN IMPORTS IN DEVELOPING

COUNTRIES

Source: FAO

Increase of 6.6 billion bushels

U.S. energy

independence,

what does it mean?

SHALE DEPOSITS AND HYDRAULIC

FRACKING

U.S. CRUDE OIL PRICE (WTI)

Source: EIA

$60

$70

$80

$90

$100

$110

$120

Nov-2

009

Ma

r-201

0

Jul-20

10

Nov-2

010

Ma

r-201

1

Jul-20

11

Nov-2

011

Ma

r-201

2

Jul-20

12

Nov-2

012

Ma

r-201

3

Jul-20

13

Nov-2

013

Ma

r-201

4

Jul-20

14

Nov-2

014

ADVANTAGES IN NORTH AMERICAN

ENERGY

• Cheaper fuel prices?

• Gasoline

• Diesel

• Impact on renewable fuels

• Domestic

• Export

• Nitrogen fertilizer production

• Global economy

• Oil producing economies at risk

Cheap reliable

natural gas fuels

U.S. nitrogen

fertilizer expansion

NATURAL GAS TRENDS

2013 U.S. UREA IMPORTS

China

RussiaCanada

568

5411,654

UAE

547

Quatar

1,093

Bahrain

315

Saudia Arabia

497

Oman

553

Kuwait

425

Egypt

135

Indonesia

271

Trinidad

423

United States

7,212

United States Urea Imports (2013)Thousand Tonnes

BUT UREA IMPORTS TAKE TIME

Agree to Price (5 days) Fix ship/Under load spout (10-20 days) Load ship (6 days) Sail time via Suez Canal (30-35 days) Unload ship (5 days) Barge transit to St. Paul (16 days) Unload at destination (2 days) Total time to dealer +70+ days

MENA

New Orleans

St. Paul

NITROGEN PRODUCTION PROJECTS

Medicine Hat, AB

CF Industries

1.3 million tons NH3

Beulah, ND

Dakota Gas

400K tons NH3

Borger, TX

Agrium

650K tons NH3

Enid, OK

Koch Industries

1.2 million tons NH3

Donaldsonville, LA

CF Industries

4 million tons NH3

Port Neal, IA

CF Industries

1.2 million tons NH3

Spiritwood, ND

CHS Inc.

800K tons NH3

Grand Forks, ND

Northern Plains

800K tons NH3

Weaver, IA

Orascom

2 million tons NH3

Mount Vernon, IL

Midwest Fertilizer

800K tons NH3

Proposed new facility Under construction

American Falls, ID

Magnida

800K tons NH3

Total Expansion Capacity:

6M tons

Tuscola, IL

Cronus Chemical

800K tons NH3

GLOBAL SUPPLY AND DEMAND

FORECAST

WORLD UREA COST COMPARISON

$310

$250

$177 $170 $160

$80 $124

$404

$345

$271 $250

$190 $179

$139

0

10

20

30

40

50

60

70

80

90

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

E. Europe China Russia LatinAmerica

NorthAmerica

MENA Spiritwood

M t

on

s

Pri

ce

(p

er

me

tric

to

n U

rea

)

Production Source

AdditionalCosts

Cash CostofProduction

Capacity Mtons

U.S. UREA IMPORTS VS. PRODUCTION (MILLION TONS)

0

1

2

3

4

5

6

7

8

9

10

2010 2011 2012 2013 2014 2015 2016 2017

Imports

Production

Source: Informa Economics

AMMONIA

• Tight international market

• Unrest in Ukraine

• Trinidad gas curtailments

• Trinidad is largest origin of ammonia imports to U.S.

• Government promised improvement by year-end would bode well for 2015

• Risk aversion throughout the system

• International supply picture should improve, but when?

• Phosphate curtailments help, but price is still climbing

UAN

• Big summer fill!

• Suppliers sold forward

• Still fulfilling those orders

• Buyers still waiting for

purchased tons

• Some allocation due to

lack of inventory

• Logistics will play a key

role

UREA

• Focus on late harvest, yields, grain prices, 2015 acres

• Urea is a relative bargain based on cost per unit of N

• Lack of buyer commitment suggests length in distribution chain

• Record-high fleeting and barge rates discourage trader positioning and spot vessels

• Open-origin more accepted than in the past

FINAL THOUGHTS

• Transition from a strong agricultural environment to one

that is softer

• Global demand remains strong creating a need for more

food production

• Strong United States energy markets provide United States

farmers with opportunity

FEDERAL RENEWABLE FUEL STANDARD

(2008 - 2022)

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Biomass-based Diesel 0.50 0.65 0.80 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00

Non-cellulosic Advanced 0.10 0.20 0.30 0.50 0.75 1.00 1.50 2.00 2.50 3.00 3.50 3.50 3.50 4.00

Cellulosic Advanced 0.10 0.25 0.50 1.00 1.75 3.00 4.25 5.50 7.00 8.50 10.50 13.50 16.00

Conventional Biofuels 9.00 10.50 12.00 12.60 13.20 13.80 14.40 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00

Billi

on

s o

f G

all

on

s

KEYSTONE WOULD UNLEASH TRAPPED

CRUDE SUPPLIES TO THE WORLD