Grain Price Outlook

China

A picture of China

Food

Fuel

Feed

Fibre

Meat is on the menu

0

20

40

60

80

100

120

140

160

180

200

1996 2000 2010 2015

Pork Beef Mutton Poultry meat Egg Aquatic product

Animal Protein Consumption in China

Source: FAO, Rabobank

144 million tonnes2015

24 million tonnes more than 2010

67 million tonnes more than 1996

Making ends meat

How much grain does it take?

Pork =

Poultry =

Beef =

3.4

1.8

8.0

Fish = 1:2

So how much grain is that?

Pork = 170 million tonnes

Poultry = 54 million tonnes

Beef = 12 Million tonnes

Total = 270 million tonnes +

A Self Sufficient China?

117 million tonnes of wheat

191 million tonnes of corn

13.5 million tonnes of Soybeans

Total = 321 million tonnes +

321mmt

Wheat = 96 million tonnes human consumption.

-270mmt

=51mmt

China’s Plan

1995-1997: More investment on agriculture to increase

grain production, to avoid the reoccurrence of former ag-in-

flation during 1993-1995;

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

050

100150200250300350

0

100

200

300

400

500

600

Grain production Price Index

1993: Deregulation on

grain circulation system

Starting the liberation of

the grain price;

2000: With excessive stocks, government encouraged the

development of livestock raising and deep processing industry to

consume more aging grain inventory; 2001: Four grain-based bio-

ethanol planted were established;

2002: Starting to distribute seed subsidies to farmers;

2004: Agriculture tax was eliminated; direct subsidies on grains; subsidies

on agriculture machineries

More focus on stabilizing production,

increasing farmers’ income &

improving rural infrastructures

2007: General subsidy for agricultural

production supplies; restriction on the

development of corn industry usage to

guarantee the feed corn consumption

Chinese Government Policy

1965

1966

1967

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

Corn Yield Improvements YOY

Is it working?

1965

1966

1967

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

Wheat yield Improvements YOY

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011116

118

120

122

124

126

128

130

132

In 2004, the State Council published “The Decision of the State Council on Furthering the Reform and Intensifying the Land Ad-ministration”.

Cultivated land acreage (all farm crops) in China

Unit: million hectaresValid since August 1st 2006, the

Ministry of Land and Resources

adopted “The Measures for the

Examination on the Balance between

the Occupation and Supplement of

Arable Land”, with the emphasize on

cultivated land requisition-

compensation balance, not only in

terms of quantity but quality as well

Cultivated land acreage is stable

½ Mu

1/30 hectare

3000 hectares

90,000 chinese farms

East meets West

91/9

2

92/9

3

93/9

4

94/9

5

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

07/0

8

08/0

9

09/1

0

10/1

1 (f)

11/1

2(f)

-5,000

0

5,000

10,000

15,000

20,000

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000China Corn Imports

Net Trade Ending Stocks

Million t

onnes

Million t

onnes

Source: USDA, Rabobank

Chinese Corn Import Forecast

05/06 06/07 07/08 08/09 09/10 10/11 F

11/12 F

12/13 F

13/14 F

14/15 F

15/16 F

0

5

10

15

20

25

21

18

12.6

Highest/Highest Base/Base Lowest/Lowest

Million t

onnes

Feed Wheat Demand

2008/2009 2009/2010 2010/2011 2011/2012 2012/2013

461

1,370896

3,5003,000

2,500

4,000

5,000

17,000

15,000

Imports Feed Usage of Wheat

我餐麥

Grain Prices

Wheat FOB prices

Jun-

11

Jun-

11

Jun-

11

Jul-1

1

Jul-1

1

Jul-1

1

Jul-1

1

Aug-1

1

Aug-1

1

Aug-1

1

Sep-

11

Sep-

11

Sep-

11

Oct-1

1

Oct-1

1

Oct-1

1

Nov-1

1

Nov-1

1

Nov-1

1

Dec-1

1

Dec-1

1

Dec-1

1

Jan-

12

Jan-

12

Jan-

12

Feb-

12

Feb-

12200

220

240

260

280

300

320

340

360

Russian US Australian French Argentina

USD

/tonne

What went wrong?

Supply Response

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

07/0

8

08/0

9

09/1

0

10/1

1

11/1

2 (f)

12/1

3(f)

0

50,000

100,000

150,000

200,000

250,000

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

Wheat & Corn Ending Stocks

Corn ending stocks Wheat ending stocks Corn stocks-use ratio

Wheat stocks-use ratio

Tough Competitors

Black Sea

94/9

5

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

07/0

8

08/0

9

09/1

0

10/1

1

11/1

2f0%

10%

20%

30%

40%

50%

60%

The Black Sea’s Share of World Trade

Barley Exports Wheat Exports

Aus Ending Stocks vs. Exports

0

5

10

15

20

25

0

1

2

3

4

5

6

7

8

9

10

01/02 03/04 05/06 07/08 09/10 11/12f

Mill

ion t

onnes

Mill

ion t

onnes

Ending Stocks Exports

Eurozone Organisational Chart

GDP Growth

US Eurozone China Brazil

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

-7.5

-5.0

-2.5

0.0

2.5

5.0

7.5

10.0

12.5

15.0

GD

P gr

owth

%Yo

Y

-7.5

-5.0

-2.5

0.0

2.5

5.0

7.5

10.0

12.5

15.0

0

10

20

30

40

50

60

70

80

2001 2003 2005 2007 2009 2011 2013

China's GDP, % of US

China’s GDP as a % of US

46%

11%

70%

When written in Chinese the word “crisis” is composed of two characters.

On represents danger and the other opportunity.

Speculators

46%

11%

70%

20

30

40

50

60

70

80

90

100

110

J an 08 J an 09 J an 10 J an 11 J an 12

Gro

ss P

osi

tion (

thousa

nd c

ontr

act

s)

Short Long

Investor concerns over supplies could lead to short covering rallies

The Forecast - Wheat

387% increase

Q4'08

Q1'09

Q2'09

Q3'09

Q4'09

Q1'10

Q2'10

Q3'10

Q4'10

Q1'11

Q2'11

Q3'11

Q4'11

Q1'12(f

)

Q2'12(f

)

Q3'12(f

)

Q4'12(f

)

150

170

190

210

230

250

270

290

310

USD/mtAUD/mt

$/m

t

  unit Q1'12 (f) Q2'12(f) Q3'12(f) Q4'12(f)

CBOT USD/mt 235 231 226 219

CBOT AUD/mt 224 229 222 212

CBOT USDc/bu 640 630 615 595

Quarterly Price Forecast in $/mt

Wheat price forecast

The Forecast - Canola

387% increase

Wheat price forecast

64/6

5

68/6

9

72/7

3

76/7

7

80/8

1

84/8

5

88/8

9

92/9

3

96/9

7

00/0

1

04/0

5

08/0

9

12/1

3 (f)

0100020003000400050006000700080009000

0.0%2.0%4.0%6.0%8.0%10.0%12.0%14.0%16.0%18.0%20.0%

Ending Stocks Stocks/Usage

800

900

1000

1100

1200

1300

1400

USd

/ bu

shel

CBOT soybeans Previous forecast Rabobank forecast

Soybean price forecastCanola Ending Stocks

• Prices to remain firm.• Low ending stocks• Significant risk in Europe/Black Sea

Filling the bucket

There’s only so much land....

1960 1970 1980 1990 2000 2007

4,200,000

4,300,000

4,400,000

4,500,000

4,600,000

4,700,000

4,800,000

4,900,000

5,000,000

0.50

0.75

1.00

1.25

1.50

Agricultural land area Agricultural land area per capita

Agricultural Land (1,000 ha)

Source: FAO, Rabobank

The answer isn’t more deforestation...

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

0

5,000

10,000

15,000

20,000

25,000

30,000

Brazilian Deforestation

Deforestation in Brazil [sq km]

Source: FAO, Rabobank

Meat Consumption in China

1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000 Global Population – Urban vs. Rural

Total population Rural population Urban population

million

s

Source: FAO, Rabobank

X marks the spot

X

VolatilityHigher PricesCrisis Point

Thank you for your time

Contact Details

Dean SmithSenior Grains Analyst, Food & Agribusiness Research and Advisory

t. 02 8115 2368

e. Dean.Smith@rabobank.com

DISCLAIMER

Professional advice is recommended for all financial and strategic decisions. However, this information is not professional advice and has not been

prepared to be used as the basis for, and should not be used as the basis for, any such decisions. This information is general in nature only and does not

take into account an individual’s personal circumstances. No representation is made that any forecast or projected information is correct or will

eventuate. Although reasonable efforts have been taken to ensure the accuracy of the contents of this publication, no warranty is given in regard to the

total accuracy of the printed contents. The persons involved in the preparation and distribution of this information and their related persons disclaim all

liability for any loss or damage suffered due to any use of or reliance on the information