Presented by: Terry Barr, Senior Director of Industry Research Knowledge Exchange Division, CoBank, ACB E-mail: tbarr@

1. Trends in the Global Marketplace: Volatility and Opportunity 14th Annual Farmer Cooperatives Conference November 3, 2011 Presented by: Terry Barr, Senior Director of Industry Research Knowledge Exchange Division, CoBank, ACB E-mail: tbarr@cobank.com

2. Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary) The near term outlook for the food, fiber and agriculture sector is strong but the drivers of that prosperity will change in the decade ahead! In the past decade net cash income has averaged one-third higher than the previous decade, farm prices have reached record levels, land prices have increased over 80 percent and the value of exports has nearly tripled. And the sector has been resilient through a severe global recession!

3. Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary) • The major drivers of this past decade have been: • rapid growth in the ethanol industry • weather • the rapidly growing emerging markets, particularly China, and • the massive amounts of global liquidity fostered by accommodative monetary policy and the extraordinary lack of fiscal discipline in the advanced economies.

4. Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary) • The major drivers of this past decade have been: • rapid growth in the ethanol industry • weather • the rapidly growing emerging markets, particularly China, and • the massive amounts of global liquidity fostered by accommodative monetary policy and the extraordinary lack of fiscal discipline in the advanced economies.

5. Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary) The next decade will be dramatically different as the world confronts the fact that these drivers are not sustainable. At the same time the opportunity to position for that future has never been better. The cost of investment and debt capital is as cheap as we are likely to see for many decades. The future will be about the agility of balance sheets, management and farmer cooperative boards!

6. Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary) Commodity Markets Pressured Lower With Reduced Growth Prospects Supply issues and liquidity seeking returns will drive commodity markets!

7. Dollar Erosion Has Boosted Foreign Buying Power and Commodity Prices Weak dollar benefits exporters and sectors facing import competition! From October 2010 …... -0.2% From 1997-03 average … . -28% Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

8. A Lack of Confidence While Passing Through a Global Minefield Deficits, Debt & Stagnation: Operation Twist and Fiscal Follies Sovereign debt, defaults and Who Pays? China focus on inflation and monetary tightening Geopolitical challenges and energy: Arab Spring transitioning to Fall Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

9. Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary) No Confidence That U.S. or Europe Has Political Will for Needed Action Over the past few months virtually every major risk to the global economic recovery seems to have resurfaced and occupied the front page. Sovereign debt issues in Europe and the United States, rising inflation in China, oil market volatility and deteriorating expectations for U.S. housing and job markets. This will be like “Groundhog Day”!!!!!

10. Global Economy Facing Crisis of Confidence Regarding U.S. and Europe Advanced economies accounted for over half of world growth rate from 1970 to 2008. From 2010 to 2016 they will account for less than one-third. This will be a world with a 2-speed recovery reliant on emerging markets! Growth prospects in Europe and the U.S. are weakening! Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

11. U.S. Agriculture Export Destinations Have Increasing Asian Flavor Top 15 Markets 2000 Top 15 Markets 2012 Bil. US$ Bil. US$ 9.3 7.5 6.5 6.3 2.5 2.0 1.5 1.2 1.1 0.9 0.7 0.7 0.7 0.5 0.5 50.8 19.5 18.5 17.0 14.0 10.5 6.5 3.3 3.5 3.0 2.9 2.8 2.0 1.5 1.5 1.4 137.0 1.Japan 2. Canada 3. EU-27 4. Mexico 5. South Korea 6. Taiwan 7. China 8. Hong Kong 9. Egypt 10. Philippines 11. Turkey 12. Indonesia 13. Russia 14. Dominican Rep. 15. Saudi Arabia Total all exports 1.China 2. Canada 3. Mexico 4. Japan 5. EU-27 6. South Korea 7. Hong Kong 8. Taiwan 9. Indonesia 10. Turkey 11. Egypt 12. Philippines 13. Thailand 14. Viet Nam 15. Russia Total all exports Asian markets account for 43% of U.S. exports and occupy 9 of the top 15 market destinations. China has become the #1 market with Thailand and Viet Nam growing rapidly! Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

12. U.S. Exports Provide Significant Boost to Agriculture Sector Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

13. High Value Products Lead Surge in U.S. Agriculture Exports Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

14. Much of Global Trade Strength Linked to China Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary) 60% to China 40% to China

15. Global Walk-About Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

16. Middle East and North Africa Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

17. Global Walk-About: Middle East The Middle East-North Africa market represents 5 percent of world economy and 6 percent of world population. Oil and geopolitical instability characterize a region that may now be in transition and has future market potential! Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

18. Middle East Turmoil Will Keep Oil Markets Unsettled Well into 2012 Top World Oil Exporters* Thousand barrels per day Exports Suez canal 2 mil. barrels/day SUMED pipeline 2 mil. barrels/day 7,322 7,194 2,486 2,303 2,132 2,124 1,939 1,878 1,807 1,764 1,748 1,525 1,299 1,144 1,066 Saudi Arabia Russia Iran UAE Norway Kuwait Nigeria Angola Algeria Iraq Venezuela Libya Kazakhstan Canada Qatar Straits of Hormuz 16 mil. barrels/day Bahrain is home to U.S. 5th Fleet Strait of Bab el-Mandeb 3 mil. barrels/day Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

19. Oil Price Tracks Global Growth and U.S. Dollar During Turmoil 2009 avg. $62 2008 avg. $100 2012 avg. $90-95 2007 avg. $72 2011 avg. $92 2010 avg. $79 Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

20. Asia- World’s Growth Engine Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

21. Global Walk-About: Asia Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

22. Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary) China Has Made Inflation a Priority Issue for the Future Monetary tightening to combat inflation and asset bubbles may slow growth! No new stimulus. Food price inflation is priority issue. 13.4%+ food Data source: International Monetary Fund, WEO

23. Latin America and Caribbean Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

24. Global Walk-About: L. America The Latin America and Caribbean market represents 9 percent of world economy and 8 percent of world population. Young populations and abundant natural resources make this region a significant competitor for the U.S., in both European and Asian markets. Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

25. Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary) Capital Flows to Latin America Boosted by Foreign Direct Investment

26. Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary) South American Expansion Setting Supply Tone in Oilseeds Market

27. Euro Region Remains in Chaos (17 countries) Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

28. Euro zone Countries Have Significant Deficit and Debt Challenges Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary) 2008 2009 2010 Portugal Portugal 2008 2009 2010 Ireland Ireland 2008 2009 2010 Italy Italy Greece 2008 2009 2010 Greece 2008 2009 2010 Spain Spain Fiscal deficit as percent of GDP Government debt as percent of GDP Data source: International Monetary Fund, WEO

29. European Government Bond Spreads Accelerate Efforts to Find Solution Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary) two-year yield spreads over German bunds two-year yield spreads over German bunds Data source: International Monetary Fund, WEO

30. Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary) Current Proposal 1. Voluntary reduction in private sector Greek debt held by private sector. 2. Recapitalize Euro zone banks to minimum 9% tier I capital. 3. Expand capacity of European Financial Stability Facility.

31. Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary) 1. Voluntary Bank Losses Reduce Greek Debt by Only 30 Percent Total Greek debt = 340 bil. euros ($473 bil.) Debt held by institutions = 140 bil. European Central Bank, IMF and others will not take a haircut! Debt held by private sector = 200 bil. Voluntary reductions will not constitute a default in terms of credit default swaps! Private sector takes voluntary 50% haircut = 100 bil. euros! Data source: International Monetary Fund, WEO

32. Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary) 2. Recapitalize European Banks with 9% Tier I Capital Target Estimated New Capital Required by European Banks = 106 bil. euros This requirement basically covers Greek haircut. Stress test by European Bank Authority (EBA) does not assume EU recession or future defaults in other Euro zone countries! Data source: European Bank Authority

33. Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary) 3. Expand the Size of the European Financial Stability Facility Total EFSF goal =1 trillion euros ($1.39 trillion) lending capacity Provide partial protection (20%) for investors against any initial defaults of Euro zone country bonds. Create several funds seeded with EFSF money and solicit funds from outside investors. Current EFSF = 440 bil. 190-240 bil. euros committed ! Data source: International Monetary Fund, WEO

34. Questions Will Remain Will countries maintain fiscal disciplines? A referendum on the Euro versus austerity measures in early December or new elections! Is the proposal big enough to address other defaults? How will emerging recession in Europe impact numbers? Will role of European Central Bank change under new Italian president? Do the actions address the fundamental problems of fiscal discipline and the lack of competitiveness of member countries? Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

35. Global Walk-About: Europe ? Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

36. Central and Eastern Europe and Commonwealth of Independent States Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

37. Global Walk-About: Europe & CIS The Central and Eastern Europe market represents 3.5 percent of world economy and 3 percent of world population. The Commonwealth of Independent States market represents 4.2 percent of world economy and 4.2 percent of world population. Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

38. Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary) Net Financial Flows to CIS and Central and Eastern Europe Still Weak

39. North America Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

40. Global Walk-About: N. America The North American market represents 23 percent of world economy and 7 percent of world population. Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

41. Recovery Shaped by Cautious Consumer and Financial Headwinds Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary) Recovery path dramatically different! This recession began in financial sector and the recovery is heavily reliant on a consumer sector that is now facing significant challenges in debt, jobs and home prices!

42. Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary) Double Dip Concerns Have Eased But Growth Remains Weak 3rd qtr was driven by consumer saving less!

43. A Deleveraging Consumer Will Temper Potential Demand Growth Consumption growth will track income growth unaided by credit expansion. When will consumer be comfortable with debt level, jobenvironment and home prices? Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

44. Job Gains Remain Weak and Consumer is Uneasy With High Unemployment 103,000 jobs created in September! (137,000 in private sector) Unemployment rate = 9.1% Underemployment = 16.5% Participation rate= 64.2% Average duration= 40.3 weeks Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

45. Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary) Home Prices: Is the Decline Coming to an End? August prices were 3.8% below a year ago, 32% below the peak in 2006! Is housing no longer an investment and being priced as shelter?

46. Home Prices Continuing to Fall in Many Regions of the Country Seattle Year ago …….. -6% From peak .... -29% From 2000 …. +34% Minneapolis Year ago …….. -9% From peak .... -35% From 2000 …. +12% Detroit Year ago ……… +2% From peak .... -44% From 2000 …. -29% Denver Year ago …….... -2 From peak .... -12% From 2000 …. +22% Charlotte Year ago …….. -3% From peak .... -17% From 2000 …. +10% Dallas Year ago …….... -2% From peak ..... -9% From 2000 …. +14% Chicago Year ago …….... -6% From peak ..... -31% From 2000 …. +16% Los Angeles Year ago ………. -4% From peak .... -39% From 2000 …. +66% Phoenix Year ago ………. -8% From peak .... -57% From 2000 ….. -1% Atlanta Year ago …….... -6% From peak .... -27% From 2000 …… +0% Tampa Year ago ………. -6% From peak .... -47% From 2000 …. +28% Case-Schiller Home Price Indexes 20-city (through August 2011): Year ago ………….... -3.8% From peak ……….... -32% From Jan. 2000 …. +40%

47. Business Investment Lags Corporate Profit Growth; Housing Weak Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

48. Financial sector Financial sector regulatory reform implementation Comprehensive energy policy/climate change ; transition from fossil fuels! Energy sector Immigration Reform groundwork being laid for 2012 Health care sector Uninsured, medicare / medicaid reform? Regulatory oversight Clean air & water, Food safety Deficit reduction Tax policy; entitlement programs (including farm and food programs). Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary) U.S. Economic Policy Transitions Will Create Headwinds for Recovery! U.S. is proposing to undertake major policy reform: Virtually every sector of the economy will be impacted and risk management and investment strategies will have to reflect the growing uncertainties

49. U.S. Federal Reserve Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary) Monetary Policy: Setting Stage for 2011 and Beyond U.S. Treasury Department

50. Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary) Federal Reserve Will ContinueTo Promote Growth into 2013 Fed commits to holding rates low through mid-2013!