U.S. WHEAT ASSOCIATES Moscow 12 September, 2006

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U.S. WHEAT ASSOCIATESMoscow 12 September, 2006

• World Wheat Markets
• The Past and the Future
• Goris van Lit
• Assistant Regional Director
• Europe and North Africa

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Petersons Grain Marketing Strategy anno 1861

• I want you to sell my corn..
• sell at 1.50 per bushel dont take no less...
• unless corn will not sell for that much
• and if corn falls, sell anyhow..
• be sure and sell it before the weevil gets into
  it too bad.

Note found in the Peterson family bible, which
Great-Great Grandfather Peterson wrote to his
brother before he left for the U.S. Civil War.
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Mollet de Valles (Barcelona)Grain Exchange Anno
1900
Wheat Quotation Board
Courtesy Molino Moreto, Mollet de Valles, Spain
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Plant/animal products for light.

• Since roughly 3000BC
• animal fats are used to
• make candles.
• Since approximately
• 1500BC vegetable oils
• are used in oil lamps.

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Agricultural crops for transportation

• The basic concept

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Agricultural crops for transportation

• The first demonstrated diesel engine run on
  peanut oil (1898).
• Diesel engines kept
• running on vegetable
• oil (bio-fuel) till 1920
• when a suitable mineral
• oil fraction became available.

Rudolf Diesel
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World Production and Use
Source All data is from USDA, World Agricultural
Supply and Demand Estimates, August 11, 2006
release (unless otherwise noted)
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U.S. Wheat Prices (FOB Gulf)
Source U.S. Wheat Associates, Price Report as
of August 11, 2006
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Summary 2006/07 Wheat Markets

• Global production down 21 MMT
• Hard milling wheat supplies tight
• Ample soft wheat supplies
• Global feed use down, food use stable
• World Stocks-to-Use ratio at historic low
• Prices strengthen
• World trade to fall 5 MMT
• India to import 4 MMT
• Black Sea, U.S. exports fall

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Baseline Wheat ExportsMajor Traditional Exporters
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Baseline Wheat ExportsOther Exporters
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Important Trends for the Future

• Consolidation
• Genetically Engineered Crops
• Bio Fuel Production
• Investment Money in Commodities

Bio Ethanol Plant Fort Dodge, IA
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Consolidation

• Larger farms
• Fewer grain exporters and importers
• Shorter supply chains
• Larger transportation units
• Trade and industry mergers, acquisitions and
  joint ventures
• Vertical integration

100 car unit train transports 10,000 tons of
grain
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Contra Consolidation Trends Exist as well

• Ongoing dismantling of government import and
  export entities
• Niche markets require smaller shipments.
• Shorter supply chain can require smaller
  transportation units
• Freight opportunities can
• be rather small scale
• (even containers)

Typical ship carrying max. 10.000 tons of wheat
from the US Great Lakes to Europe
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Genetically Modified Organisms (GMO)

• Widely applied for corn and soybean production.
  Showing major agronomic advances.
• Commercialization of GMO wheat is delayed by the
  commercial food chain rejection as a result of
  negative consumer sentiment.
• The same supply chain (supermarkets) is using the
  consumer fear factor falsely to improve their
  customer care for image.
• In most markets the issue is mainly
  sociopolitical and has little to do with food
  safety.

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Genetically Modified Organisms (GMO)what is next
for wheat?

• First commercially available trait (herbicide
  resistance) is not released due to the negative
  sentiment in different markets.
• Fusarium resistant GMO wheat will be available in
  3 to 5 years.
• Often, wheat is loosing the competition for
  acreage as GMO oilseeds and corn show better
  economic returns for the farmer. Bio fuel
  production may reinforce this trend.
• When and where will the first commercial
  transgenic wheat be produced?

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Bio Fuels today

• Government incentives and regulations and strong
  oil prices drive the production and developments
  of bio fuels.
• Of the 2006 US corn crop 19.6 or 54.6 MMT,
  grown on 6.2 million hectares, will be used for
  fuel ethanol production.
• For 2006 bio diesel production in the EU is
  forecast to total 6,1 MMT, consuming, among other
  oils and fats, close to 60 of the EU rape seed
  crop.
• Brazil has a long history of fuel alcohol
  production. Sugar cane is a very efficient
  source for alcohol production. New more efficient
  technologies emerge.
• With a supply not able to satisfy demand, profit
  margins on bio fuel production are very healthy.

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U.S. Corn use in Ethanol Production
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Bio Fuels the Future

• U.S. fuel alcohol and bio diesel consumption will
  rise as U.S. laws require and markets demand a
  growing volume of bio fuels. ( 100
  by 2012)
• The E.U. will show the same trend with more
  emphasis on bio diesel.
• Bio fuels will become cheaper as supply and
  demand will be more balanced and , new
  technologies emerge.
• Cheaper raw materials will be used like cellulose
  (from straw, grasses and other plants) and animal
  fats from rendering and slaughtering operations.
  

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Wheat and Bio Fuels

• Sugar crops produce fuel alcohol more efficient
  than starchy crops like grains and root crops.
• Corn and root crops (tapioca) will produce
  alcohol at a lower cost and larger efficiency
  than wheat.
• Fuel alcohol production from wheat only makes
  sense in economically protected and/or remote
  surplus wheat growing areas (E.U.).
• The importance of bio fuels for wheat production
  is mainly the competition for acreage with bio
  fuel crops (often GMO).

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Investment Funds and Wheat Prices

• Increasing amounts of money are invested in
  commodity funds including the grain derivatives.
• Hedge Fund, Index Fund and Commodity Fund
  managers put a lot of emphasis on technical
  analysis.
• U.S. futures markets for wheat have also seen a
  healthy rise in volume and open interest.
  (Tripled for COT wheat since 2003)
• Fund investment is adding to the volatility of
  the wheat market as funds move in or out of
  markets based on technical indicators.

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Investment Funds and Wheat Prices
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Investment Funds and Wheat Prices

• Buyers and sellers of wheat have to add technical
  analysis to their tool box in order to make a
  decision on physical wheat transactions.
• The more volatile movements of markets pose
  threats for the unprepared buyer or seller and
  create opportunities for prepared ones.
• Especially for analyzing short term price
  developments, technical analysis become essential.

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Questions Remain

• Consolidation, is bigger better at the end or is
  the survival of the fittest idea making the
  dinosaurs extinct ?
• Where and when will the first commercial
  transgenic wheat be produced ?
• Do we need transgenic crops to feed the world ?
• Is bio fuel from food and feed crops a
  sustainable energy source ?

U.S. Indy Car Series is running on ethanol in 2007
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Thank your for your attention

• U.S. Wheat Associates is at your service
  wherever you are.

www.uswheat.org