Agriculture: The Next Super Cycle

Demand for ConsumerGoods Rising

• Global markets are benefitingfrom the strongest economicgrowth in nearly three decades.

• It is this growth that is drivingthe demand for food, shelterand energy.

• Asia and Latin America areexperiencing significant GDPgrowth.

• Growth in China and India wasmore than double US growth in2004, 05 and 06 - and Chinahas four times the populationof the US.

• As a result of rising worldincomes, demand for food andfertilizer are increasing rapidly.

Improved Diets are a Priority

• The first expectation of manyconsumers in regions withaccelerating economic growthis better quality food.

• This means a diet with moreprotein, primarily from meat,which requires additional grainto feed more animals.

• It takes approximately 7kilograms of feed grain toproduce 1 kilogram of beef, 4kilograms per kilogram of porkand 2 kilograms per kilogramof poultry.

• Rising meat consumption hasan immediate effect on grainconsumption, thus substantiallymore fertilizer will be needed.

Diminishing Land Base forAgriculture

• As world population growsand urban areas expand, thequantity and quality of landavailable for agriculturedeclines.

• By 2020, there will be justover 0.2 hectares per personfor animal and cropproduction.

• This puts significant pressureon farmers to boost cropyields to get production out ofa diminishing land base.

• Fertilizer becomes even moreimportant to help boost thatproduction.

Consumption Growth isExpected

• Phosphate demand isgrowing.

• Economic growth in countrieslike China, India and Brazilcontinue to be strong,providing increasing incomesfor their population, which aredemanding better qualityfood.

• These three countries aloneadd up to the potential growthof an additional 14.5 milliontonnes of P2O5.

The Intersection of World EnergyDemand and US Agriculture

• “We have never had theAge of Food, Feed andEnergy collide before.”

• Ethanol production isincreasing rapidly, pullingmore corn away from thefood chain.

• Last year ethanol consumed2.15 billion bushels of cornand is estimated to consume3.4 billion bushels in2007/08, surpassing the U.S.corn market.

• Biodiesel production is alsogrowing rapidly, pulling moresoybeans away from the foodchain.

Increased Corn Usage for Ethanol

• Grain markets aresignaling the need formore production tomeet growing demand.

• US farmers areexpected to harvest thethird largest corn cropon record, but theharvest is expected tofall short of projecteduse by one billionbushels.

Ethanol Plant Constructionon the Rise

Improving Corn Demand Prospects

• Unlike the past, US cornstocks are not expectedto fall as a result of asupply shock but ratherdue to impressivegrowth in corn use.

• Exponential increases inethanol production areexpected to fuel evenlarger increases in N.A.corn use during thenext few years.

Increased Corn Prices

• The new price of corntoday is more than onedollar per bushel higherthan a year ago and thatdifference looks like it willcontinue throughout 2007and 2008.

Increased Crop Margins

• Cash margins per acre areexpanding, favoring greatercrop input use.

Increased Fertilizer Use

• With demand driving theprice of corn higher,farmers will look toincrease their yields byapplying more phosphatesper acre.

Global Biofuel DemandAccelerating

• Ethanol is well established inBrazil where roughly half ofsugar cane production is usedin the production of ethanol.This has caused sugar prices toincrease by 300%.

• The EU has a target that5.75% of all petrol and dieselused in transport in 2010comes from biofuels. Thatchoice could require up to 9%of EU agricultural area.

• Biofuels are:Ethanol, produced mainly fromcorn or sugarBiodiesel, produced mainlyfrom oilseeds

All Three Nutrients areNecessary

• With farmers working toimprove the size andquality of their crops, morefertilizer will be needed.

• All three nutrients accountfor less than 15% of thetotal cost of producing abushel of corn.

• A $100 per ton increase inthe price of phosphate(DAP, MAP) results in acost increase of about 4cents per bushel for corn.

• Accelerated global growth,particularly in Asia and LatinAmerica.• An estimated 25 millionpeople currently enteringmiddle class per year.• Improved standards ofliving creating demand forhigher protein diets.• A shrinking land base.• Global increase in Ethanolproduction.

All point to acceleratedphosphate consumption

Accelerated PhosphateConsumption

Last but not least-World Grain Stocks

• World grain stocks touse ratio are decliningrapidly and have nowreached a 30 yearlow.

• World ending stocksfor corn are at thelowest since 1983 andthe stock/usage ratiois the lowest onrecord (since at least1960).

China’s Demand for Corn

Crop Prices vs. Fertilizer Stocks

Exponential growth inbiofuels production andcontinued strong food andfeed demand is pullingdown grain stocks andfueling an impressive rallyin grain prices.Note the strong historicalrelationship between theperformance of fertilizerstock prices and grainprices.