The New Realities of the Ag Economy... What It Means for Agri-Marketers

© 2008 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential

The New Realities of the Ag Economy...

What It Means for Agri-Marketers

December 15, 2008

© 2008 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential

Lynn HendersonPublisher

AgriMarketing Magazine

Introduction

• B.S. Iowa State University, Agricultural

Journalism and Mass Communications

• Owner, Henderson Communications, LLC

• Former President/CEO of Doane

Agricultural Services Co.

• Member:

• National 4-H Council Board of Trustees,

• American Business Media’s Agri-

Council,

• National Agri-Marketing Assn. (NAMA),

• St. Louis AgriBusiness Club,

• Farm Foundation Roundtable,

• Board of Directors of the World

Agricultural Forum,

• Board of Directors of the Agriculture

Council of America

© 2008 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential

Agenda

• IntroductionLynn Henderson, Publisher, AgriMarketing

•The Current State of the Grain Markets: Where We've Been and

the Impact on ProducersDr. Kevin McNew - President, CashGrainBids.com

•The Energy Situation and OutlookPaul Corby - Sr. VP Energy, Planalytics Inc.

• Impact on Land Values, Rents and Anticipated Cropping

Plan/Purchase Changes.Jim Farrell - President/CEO, Farmers National Co.

•Key Issues Facing the Ag IndustryMark A. Lakers - President, AgriBusiness and Food Associates

•What This Means for Agri-marketers, and What They Do About It. Dr. David Downey - Purdue University Center for Agricultural Business

© 2008 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential

Dr. Kevin McNew President

CashGrainBids.com

The Current State of the Grain Markets:

Where We’ve Been and the Impact

on Producers

• Bachelors degree from Oklahoma State

University

• Masters and PhD from North Carolina

State University in agricultural economics

• Professor of Agricultural Economics at the

University of Maryland and Montana State

University focusing on commodity markets

• Founded Cash Grain Bids Inc in 1999

• Unique commentary on cash markets can

be seen weekly on Bloomberg,

Agweb.com. Agriculture.com and other

publications

What We Do• Collect prices on over 3,300 local grain

markets…including spot and forward contract price information up to a year in advance.

• Provide intelligence to farmers, grain merchandisers and end-users about where and when to sell local grain.

• Handle trade execution through our electronic platforms direct to the Grain Exchanges.

Grain Market Drivers• Weak Demand

– Livestock

– Exports

– Ethanol

– Economy

• Grain Prices Plummet in the last 6 months– Soybeans off 50%

– Corn off 60%

– Wheat off 70%

US Wheat Price

Verasun - Ethanol

• Currently operate large plants in ND, SD,

IA & NE.

• A few plants have stopped buying corn

in recent weeks.

• What is the impact on local grain markets

if Verasun stops buying corn?

Impact of Verasun

Closing?• Cash Grain Bids collects daily spot and forward

prices on over 3,300 grain buyers around the U.S.

• Utilize our proprietary „grain sourcing‟ model that projects local grain flows and prices.

• Utilize Planalytics satellite-based county-level corn production for 2008.

• Where Does Verasun Get Corn… and if they stop buying, what is the price impact?

Verasun Corn Sourcing Regions

Expected Price Decline if Verasun Stops

Buying Corn

Expected Price Decline if Verasun

Stops Buying Corn

Expected Price Decline if Verasun

Stops Buying CornHankinson, ND

Ord, NE

Steamboat Rock, IA

Albert City, IA

Final Thoughts

• Impact will be largely localized, within 50 to 100 miles of

the plants with price declines normally 5 to 15 cents/bu.

• Basis in the US should be strong this year

– Lower transport costs

– Tight-fisted farmers in the face of falling futures

markets.

• Futures markets should continue to be weak, but a

bottom may be near

• Farmer profitability for 2009 seems dire with rising input

costs and lower crop prices.

Kevin McNew

Cash Grain Bids Inc

GoGrain LLC

231 Bozeman, MT 59715

(866) 290-1196

www.cashgrainbids.com

www.gograin.com

© 2008 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential

Paul Corby Senior Vice President

Planalytics, Inc.

The Energy Situation and Outlook

• Manager of Planalytics’ Energy Division

• Provides risk management, decision

support and forecasts

• Responsible for product development,

client services, sales and marketing

• Chief architect of Planalytics’

EnergyBuyer® and ImpactPower

• Regular presenter at Public Utility

Commissions as well as National

Association of Regulatory Utility

Commissioners meetings.

© 2008 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential

The Current Energy Situation How We Got to Where We Are Today

• Nuclear explosions following Tokyo earthquake in Summer of 2007

• Asian Demand for Liquid Natural Gas (LNG) skyrockets

• Prices increased dramatically on rumors U.S. would run out of natural gas

• By end of ’07, hedge funds started bidding up prices of natural gas

• Other commodities – including crude and corn for ethanol – followed

Late ’07 around $9

$10-11 early ‘08

$13-14 summer ‘08

Currently

under $6

CRUDE OIL

Late ’07 around $70-85

NATURAL GAS$147 peak in summer ‘08

Currently below $50

© 2008 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential

• By end of 2007, global funds were pushing more dollars into Energy

• $140 Billion in Energy funds before the end of March ’08

• Natural gas increased to $13.00 by summer, crude was $147/barrel

• Assumption by many that prices would continue to go up

• Fear of running out led companies to buy contracts through 2009

The Current Energy Situation How We Got to Where We Are Today

Late ’07 around $9

$10-11 early ‘08

$13-14 summer ‘08

Currently

under $6

CRUDE OIL

Late ’07 around $70-85

NATURAL GAS$147 peak in summer ‘08

Currently below $50

© 2008 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential

• Crude is currently trading in low-$40s… Natural gas around $6.00

• Companies that locked in contracts at high prices are facing:

Margin calls from exchanges

Collateral calls from banks... cash is scarce

Higher production costs going into 2009

The Current Energy Situation After the Crash

© 2008 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential

The Current Energy Situation What We See Happening Leading into 2009

• Begun to see the fallout among ethanol companies and others

• Terra’s announcement that they are shutting down their fertilizer plant

• Low Energy prices will remain for first six-months

• Second half of 2009 will be very volatile

• Domestic supply will not be an issue

© 2008 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential

Paul Corby Jed LaffertySenior Vice President, Energy Managing Director, Life Sciences

PCorby@planalytics.com Jlafferty@planalytics.com

Planalytics, Inc.

1325 Morris Drive

Suite 201

Wayne, PA 19087

800.882.5881

www.planalytics.com

© 2008 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential

Jim Farrell President/CEO

Farmers National Co.

Impact on Land Values, Rents and

Anticipated Cropping Plan/Purchase

Changes

• Grew up on a grain and livestock farm in

northwest Iowa, near Storm Lake, and

graduated from high school in Fonda,

Iowa.

• BA Degree from Iowa State University

• University Of Pennsylvania ESOP

Program for CEO's

• President and CEO of Farmers National

Company since November of 2004.

• Serve on the FNC Board of Directors as

Chairman.

• Continue to supervise the Marketing/Sales

Department for Farmers National

Company.

Professional Farm Management70 Professional Farm Managers

• Our Clients - Non Operating Land Owners

• We Manage - 3,825 Farms – 1.3 Million Acres

• 20 States – Midwest & Mid South

40% Crop Share

20% Custom Operated

40% Cash Rent

Professional Farm Managers

• Work for Non Operating Land Owners

Own 50%+ of Land in Midwest & Mid South

• Select Operators

• Complete Lease Negotiations

• Make Planting Decisions

• Make Buying Decisions

• Currently Creating 2009 Budgets

Rural Real Estate Brokerage

• 200+ Licensed Professionals

2008 Fiscal Year Volume

• 220 Farm & Ranch Auctions

• 765 Total Properties Sold

• $390,000,000 Total Consideration

LAND MARKETDemand has softened

During November

15 Confirmed Auctions in NE

10 Sold above comparative sales

5 Sold below comparative sales

22 Confirmed Auctions in IA, IL, IN

15 Sold @ Avg. 3.85% below comparative sales

7 No Sales – 4 had below market leases for 2009

2 Sold later

1st Week of December

5 No sale auctions

Iowa

Led the Market Up

Has had the most resistance this Fall

Factors Impacting . . .

2009 Planning

• Late Harvest

• Wet/Cold Soil Conditions

• Drop in Commodity Prices

• Crop Insurance – Revenue & Production Claims

• High Fertilizer Prices

• Increases in Seed Cost

• Negative Projected Cash Flows

Sample

Corn Budget

2009 Adjustments

• Later Leasing

• Later Crop Planning

• More Soybeans

• Less Fertilizer – Will Impact Yields

• More Credit Problems

• More Crop Insurance

Volatility and uncertainty – along with Inability

to forward price gain has limited our willingness

to lock in inputs.

© 2008 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential

Mark A. Lakers President

Agribusinesss and

Food Associates

CHALLENGES for Agri-Marketers

Winners and Losers!

What we see coming down the road. . .

• 17 years in major agribusiness firms

including 13 years with Ralston Purina

• VP First National Bank of Omaha

• Former McCarthy Group agribusiness

partner

• Founded AFA in 1999

• MBA from Washington University

Intro to Ag and Food Associates

(“AFA”)

• Investment banking firm established in 1999;

• Headquartered in Omaha, NE;

• Premier middle market merger &

acquisitions advisor West of the Mississippi

River;

• Specializes in agribusiness, livestock

production, renewable fuels, food

processing, and financial services;

• Mergers/acquisitions, restructuring debt,

raising capital, building equity, mezzanine

debt and equity.

1. New Technologies (fractionation and fluidized beds);

2. Tight Credit;

3. Lower Future Crush Margins;

4. Ethanol may become the by-product rather than the primary product;

5. Developers driven out of industry;

6. Integration from back and front;

7. Need for Economies of Scale;

8. Large equity and credit market losses in sector NOW!

9. “Deterioration” of Lenders‟ Mindset

Drivers of Ethanol Production

Consolidation

Ethanol‟s Likely 3 – 5 Year Picture

• Go from 150 producers to 25 – 50 – and

could be FASTER!

• Expect 5 – 10 producers to go to Chapter 11

in 4th Quarter 2008!

• Expect Foreign-Owned Banks and Non-

Traditional Lenders and Farm Credit to

dominate ethanol production credit markets.

Ethanol‟s Grim Short-term

• Expect about 40 plants to be in Chapter 11

by January 31, 2009!

• Big Winners and Big Losers in early ‟09.

Protein Market Changes

USA‟s Beef Production Industry Will Shrink!

[up to 10-20% in Five Years]

• USA is the only developed country where

beef consumption exceeds pork (but

demand has weakened in 2007 & 2008);

• Relative Efficiency in Converting Feed to

Protein

– Beef is 8:1

– Pork is 2.8:1

– Chicken is 2:1

– Fish is 1:1

Protein Market Changes

(continued)

• Five time the historical “normal” number of feed yards over 10,000 head capacity for sale today;

• 2008 was second year for large production losses;

• Worldwide recession may reduce per capita consumption of beef nearly 20% domestically!

• Domestic pork and chicken demand may not increase 1:1 with reductions in beef consumption.

• 95% of capital is “mobile”.

Ag Credit Markets

• Expect Mega Trends to Accelerate!

– Foreign-owned banks gain market share

– Non-traditional (often supplier-owned) lenders grow market share

– Domestic commercial banks consolidate and lose market focus

– Farm Credit Services is a “Wild Card” –may grow shares or may get distracted

• Federal Policies for Energy, Food, and Ag will drive Credit, Production and Processing MORE than in the past.

Mark Lakers, President

Ag and Food Associates, LLC

100 Millennium Plaza I

15858 W. Dodge Road

Omaha, NE 68118

Phone: (402) 933-8700

Fax: (402) 933-4411

Email: mlakers@af-advisors.com

© 2008 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential

W. David DowneyExecutive Director

Center for Food and Agricultural

Business, Purdue University

What This Means for Agri-Marketers

….And What They Can Do About It

• Professor Emeritus of Agricultural Sales

and Marketing at Purdue University

• Consultant to Agribusiness Industry

• Recognized by American Agricultural

Economics Association

• B.S. Agronomy, M.S. and Ph.D in

Agricultural Economics from Purdue

Center for Food and Agricultural Business Purdue University

The Center for Food and Agricultural Business provides professional development programming for Agribusiness and AgriMarketers, backed by ongoing research into a variety of agribusiness topics.

The most recent is a nation wide study of the buying behavior and attitudes of over 2500 large commercial producers that is now available through the CAB. For more information, contact Aissa Good, CAB Program Manager

The Outlook For AgribusinessesThe long term outlook for agribusiness is positive and strong

World population growth is strong and will continue to grow

The number of people entering middle classis dramatically increasing and they want to live better

US Ag is in a strong position to provide Food, Fiber, and Fuel

Great natural resources (climate, soil, water)

Good infrastructure (waterways, rail, roads)

Well educated farmers who adopt technology quickly

Land Grant system of research and education

System of property rights and sanctity of contracts

A strong agribusiness industry to support production Ag

The issue is….How do we get there from here?

National Agri Marketing Webinar

The Short Term Climate for Farmers• In general, agriculture may not be impacted as much as others

• Many crop farmers are coming off a good year and have cash

• Many livestock and dairy farmers have had it really tough

• All are dominated by --- Uncertainty – Nervousness -- Caution

-- From the general economic recession and fear of reduced exports

-- From the sudden rise and drop of commodity pricesand for many……commitments to high production costs

• Higher costs: Cash Rents; Interest; Seed; Chemicals; Fertilizer

• Dramatically higher feed and nutrition costs

• Tighter credit and capital markets ….especially for livestock

• Increased risk because of market volatility

National Agri Marketing Webinar

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$50

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Rotation CORN Rotation BEANS Wheat

$/A

cre

Estimated Variable Costs/Acre: Average Quality Indiana Land (158 bu. corn; 49 beans; 70 wheat)

2005 2006 2007 2008 2009

+50%+52%

+59%+39%+40%

+29%

National Agri Marketing Webinar

Implications for AgriMarketersAnticipate:

More nervousness and caution….. slow to decide

More resistance to higher prices

Some shift to lower cost alternatives

Much wider variation in financial situations of farmers

Many highly interested in ‘09 pre-payments(but they will want price protection if they can get it)

More discerning ….careful decisions

Consolidation of farms will continue

National Agri Marketing Webinar

Implications for AgriMarketersAnticipate: Consolidation of Agri-businesses will continue

maybe even faster as some are in difficult positions

Cash flow and working capital problemswill be major challenges….especially for some

Dramatic volatility of ag commodities and inputswill continue as grain prices follow energy prices

and general economic conditions

Short term inventory challenges because of reluctance of farmers to commit

putting Agribusinesses in difficult position

More demand for credit from farmers

National Agri Marketing Webinar

Implications for AgriMarketersPlan to:Work harder and longer to sell added value

Educate, Communicate, Demonstrate value

Prioritize and target coveted prospects carefully

Spend time helping customers understandthe terms of sale and risks involved

Be pro-active with selling strategies….targeting, planning, preparation, professionalism

will be more important than ever before

Work strategically ….targeting the farmers you believe are best positioned to grow

….. to consistently be a valued sustaining resourcewho understands and delivers unique value

National Agri Marketing Webinar

Thank you for Attending

The recording of today’s presentation will be available in approximately 48 hours on the

AgriMarketing Website at www.agrimarketing.com

© 2008 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential

The recording of today’s presentation will be available in

approximately 48 hours on the AgriMarketing Website

at www.agrimarketing.com

Thank you for Attending