u.s. wheat the world’s reliable choice u.s. wheat associates moscow 12 september, 2006 world wheat...

U.S. WHEAT

the world’s reliable choice

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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Peterson’s Grain Marketing Strategy anno 1861

• “I want you to sell my corn…..

• sell at $1.50 per bushel don’t 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

Courtesy Molino Moreto, Mollet de Valles, Spain

Wheat Quotation Board

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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)

618

598

624

615

500

520

540

560

580

600

620

640

91/92 94/95 97/98 00/01 03/04 06/07

MM

T

Production Use

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U.S. Wheat Prices (FOB Gulf)

Source: U.S. Wheat Associates, Price Report as of August 11, 2006

120

140

160

180

200

220

240

Aug-06Jun-06Apr-06Feb-06Dec-05Oct-05Sep-05

$/M

etri

c T

on

HRS 14% HRW ords SRW

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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

0

5

10

15

20

25

30

35

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

E.U 25 U.S. Canada Australia Argentina

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Baseline Wheat ExportsOther Exporters

0

2

4

6

8

10

12

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Russia Ukraine India China Other CIS

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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

m ik e @m ik e @ th e m o n e y fa r mth e m o n e y fa r m .c o m.c o m

U .S . C O R N IN E T H A N O LU .S . C O R N IN E T H A N O L(0 0 0 B U S H E L S )(0 0 0 B U S H E L S )

5 0 0

1 0 0 0

1 5 0 0

2 0 0 0

2 5 0 0

3 0 0 0

2 0 0 2 -0 3 2 0 0 3 -0 4 2 0 0 4 -0 5 2 0 0 5 -0 6 2 0 0 6 -0 7 2 0 0 7 -0 8 2 0 0 8 -0 9

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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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mike@[email protected]

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• 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 runningon 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

u.s. wheat the world’s reliable choice u.s. wheat associates moscow 12 september, 2006 world wheat...

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