Connecting the World’s Best Premium Grains Producers With the World’s Best Customers

1. Connecting the World’s Best Premium Grains ProducersWith the World’s Best Customers Midwest Shortline & Regional Railroads Conference July 18, 2011 – Rutger’s Sugar Lake Lodge Panel – New Directions in World Food Markets – Implications for Transportation

2. Panel Presentation “Your Ticket on the Orient Express – New Directions in the World Food Markets” (Or should we make it… “...the Mexico/India/Dubai-Middle East/North Africa …& Orient Express”) Bruce Abbe – Midwest Shippers Association Mark Schmidt – BNSF Railroad David Pope – CHS

3. MSA Presentation Overview About the Midwest Shippers Association Recent Headlines – Global and U.S. Grain Trade USDA projections global grain & oilseed demand through 2020 Some trends and implications for transportation providers and ag shippers Mark and Dave Wrap-up of group discussion + Shameless advertising – Why you should attend 2011 Midwest Specialty Grains Conference and Trade Show in Seattle to see & learn about export grain shipping – rail and ocean --at the Ports

4. Midwest Shippers Association • Non-profit, regional, trade association cooperative. Est. 2002 • Mission – to promote and facilitate marketing and shipping of premium value specialty grains from the Upper Midwest. • Serves Minnesota, North & South Dakota, Iowa and Wisconsin. • Members – individual producers, value-added processors, export traders, country elevators, seed and grain industry suppliers. Shipping & logistics suppliers, including regional railroads, freight forwarders/NVOCC associate members, grain transloaders in Midwest and at Ports. Large, medium, small companies. • Strong membership of food grade soybean processors and exporters, identity preserved specialty grain exporters – global customer base. • Strong focus on working to improve competitive container, intermodal shipping from Upper Midwest region. • Entreprenurial members focused on meeting ever-growing consumer demand for high quality, safe food

5. MSA – Services to Members & Industry • International Marketing Services – Trade leads service, matchmaking of IP grain buyers and sellers, international specialty grains trade show, overseas trade mission participation, facilitating direct trade. • Services for Growers and Processors – ‘Grower Contracts Available’ service; networking of processor/trader purchasers of premium value grains and oilseeds with producers; network to seed and input suppliers, certification services. • Shipping Services – Network facilitation of transportation logistics services for worldwide delivery, shipping education and advocacy. • Member Information Services -- Internationally-focused Web Portal linking buyers, growers, processor/trader suppliers, industry partners. News services and education. Promotion of opportunities in high value specialty grains.

6. Current headlines & news -- • “Grain Production Not Keeping Up with Demand, Purdue Economist Says” – July 14, 2011 – Purdue University news service • “Grain Crops are being gobbled up faster than farmers can grow them, and that could portend trouble down the road if production doesn’t catch up, said a Purdue University economist - Chris Hurt • Inventories of corn, soybeans are near “bare minimums” in the U.S., wheat stocks better • 59% of growth in corn use in entire world over last five years is for industrial (ethanol) use. 27% of corn use in U.S. is for ethanol, compared to 10% in 2005 • U.S. experienced 60% growth in soybean exports between 2005 and 2010, with China accounting for the growth. China tripled its soybean purchases during that time – from 8 million acres to 23 million acres. • Farmland values are soaring. • Expected returns to corn and soybean farmers are extraordinarily high in 2011. But prices expected to be lower in 2012 and 2013.

7. Current headlines & news -- • USDA “World Ag Demand & Supply Estimates” – released July 12, 2011 • Global wheat exports raised 2.4 mill tons higher – exports from U.S. & Russia. Wheat supplies globally slightly higher. • Coarse grain supplies projected to be 10.3 mill tons higher, on U.S. stocks & production. • Soybeans and oilseeds – U.S. down 2.3 mill tons to 96.3 mill tons total. • These will all change. Many analysts believe projections fail to account for extreme wet weather, prevented plantings in ND, late planting quality issues. • Of note – USDA projections for China corn imports were raised for 2011-12 from .5 to 2 mill tons. • BUT – USGC forwarded a Reuters story out of Singapore that gave the projections of 10 prominent analysts and traders for China’s corn imports – lowest was 4 mill tons, the two highest were 10 mill tons. Average was 6.5 mill tons. • As of two years ago, China did not import any U.S. corn. In fact, was an exporter, competitor in Asia. • Currently – trade dispute with China over alleged DDGS dumping. If settled favorably, DDGS exports to China likely to resume strong growth.

8. USDA Agricultural Projections to 2020 – released February 2011 • Assumes global economic growth at 3.4% per year. Continued high growth rates in emerging markets – China, India, return to growth in other developing countries. • U.S. economy projected average annual growth at 2.6% over next decade. • Stronger economic growth contributes to slowing of population growth. • Population growth in developing countries to remain above rest of world. Increased urbanization and middle class important to projected growth in global food demand. • Value of dollar to depreciate some over next decade. • Oil prices to increase – over $110 per barrel av. by end of projection • Biofuels were considered to continue to grow, though somewhat slower. Corn still main feedstock • “Prices for major crops are projected to decline in the near term as production globally responds to prices.” “…after near term declines, long term growth in global demand….combined with continued U.S. ethanol demand and EU biodiesel demand for vegetable oils – holds prices for corn, oilseeds, many other crops at historically high levels.” • My take – ethanol growth will slow or stabilize. Blender tax credit likely to go away. RFS continuation will the key. High corn price periods to lead to plants operating more on-and off. High crop prices will moderate biofuels…..unless oil prices take off.

9. USDA Agricultural Projections to 2020 – released February 2011 • “Africa and the Middle East....region is projected to have some of the strongest growth in food demand and agricultural trade over the next decade.” • Mexico projected to be a large growth market. (meat & poultry, in particular) • Egypt maintains is position as #1 wheat importer…Imports by Africa, Middle East countries rise 11.6 mil. tons, nearly 60% of increase in world wheat trade. • Saudi Arabia has decided to phase out of wheat production due to water concerns. • Big 5 wheat exporters – U.S., Arg., Can., Aussies, EU – will see growth but declining share as Black Sea countries expand. • U.S. dominant share of corn exports declines from 60% to 53% as FSU, S. America grows. • Global trade of soybeans to increase by 30% in coming decade, soy meal 21%, soy oil 19%. • China’s per capital income project to continue drive rapid expanding consumer demand for meat and vegetable oils. China’s soybean imports now more than 50% of world trade. China projected to account for 90% of projected 30 mil ton world soybean import growth over next 10 years. • U.S., Brazil, Argentina account for 89% of soybean and soy product production now. Brazil will continue to grow. U.S. share to decline slightly from 29% to 26% by 2020

10. USDA Agricultural Projections to 2020 – released February 2011 “World ag production will rise in response to high prices and technology…….. ….But there are constraints to increased food production globally – • “Water supply constraints in many countries. • “Limited ability to expand planted acres in many countries. “In the coming decade overall gains in global grain trade come from a broad range of countries, but particularly from countries in Africa and the Middle East.” - USDA * * * “China’s Water Crisis Threatens to Leave Economy High and Dry” – July 15, 2011 feature story- The Nation (Thailand) * * * So ….future is a mixed bag. There will undoubtedly be strong growth in ag export demand. But other countries will play a role. And the growth markets are not only in Asia.

11. Trends and Implications • Current entrée of major new investment in agriculture trade is for real – Gavillon, Riverland, more. • Often hedge fund investors. Will they last? • Yet…..Recent huge price spikes caused by weather, as much as anything – Unprecedented drought in Russia, E. Europe last year. Seemingly greater variances in weather patterns globally in recent years – wet weather in U.S. now, and parts of last year with drought in Canada. Floods in U.S. and on Mississippi. • Current ag markets, prices characterized by ….. Volatility. • Prices can look like they can only go higher for all sorts of fundamental reasons. Wall Street sees growth and $ are coming in. But Wall Street investors will want to realize their profits at some point. • Greater risk at all stages – farmers, country elevators (margin calls), processors, import buyers. Land prices climbing to new record heights. Bubble? • “Once prices retreat, which many experts believe will happen, production costs won't follow suit - or at least not at the same rate. 2011 will be our high-water mark, (but) it's not all a bed of roses," said Kelvin Leibold, Iowa State University Extension farm management specialist. "Record profits are usually destroyed by rising inputs."

12. Trends and Implications • Foreign investment in agriculture by importing countries, leading foreign companies is on the rise. • U.S., has seen careful foreign investment for some time by Japanese trading companies– • Zen Noh- huge Mississippi River export facility in LA…now 30 years old. • Itochu owns Continental Grain and Barge, long standing river shipper and Midwest grain sourcing company • Marubeni – recent purchase of Columbia Grain – MT, ND presence. • Japanese trading companies U.S. ag sourcing are not just for Japan. For their global food supply operations. • China has developed major agriculture trading companies. Investing heavily in S. America. • Rich Gulf Cooperation Countries (GCC) – UAE, Saudi, Qatar, Kuwait – extremely concerned about food security. Import nearly all food. • Huge, growing food market. Increasing storage. Looking to invest in Africa…face many challenges. U.S. products held in high regard. Quality. Shipping costs key.

13. Transportation / Shipping

14. Trends and Implications - Transportation • Should question be changed? Instead of – • What will this new agriculture investment and export expansion mean for transportation? ……to….Will the right transportation system be there for the U.S. to realize the ag export opportunity? • And what is the make up of the ‘right’ transportation system?

15. Trends and Implications - Transportation • Water-inland river shipping will remain critically important for bulk commodity grain shipping. (Facing hurdles now. Investment and maintenance funding are sorely needed.) • Railroads have greater ability to serve more types of ag and food product shipping. Yet seem ever-focused on that same bulk commodity shipping. • Class 1 railroads gearing – exclusively? -- on unit train operations. • Greater efficiency for some – if at the right location. • For feed, commodity grains big volume unit trains can offer efficiency….but necessarily for not all products, where the growth will occur. • Greater consolidation, higher volume-driven, price-favored systems serve some well…but can disadvantage others. Are greater volume’s from fewer locations always the answer? • Observation -- Making “Hub and Spoke” railroad concept truly work will be key for U.S. to have wider serving ag transportation system….

16. Trends and Implications - Transportation • And that portends a stronger role for Shortline and Regional Railroads. • Must utilize all resources more effectively. No more land to build railroads. • Issue are not just infrastructure investment. And not just Class 1 railroad investment. • The issues preventing realization of full capability are policy and operational as well. • Many ag shippers and railroad customer believe we need a more competitive environment, and support a stronger role for a stronger STB. • USDA and NITL have both recently called for STB to adopt new “switching” rules. • Short lines, regional railroads will need investment too. Stronger competitive positions, lack of paper barriers, can strengthen their ability to attract investment.

17. Trends and Implications -- • Major current and future growth trend in agriculture – with big implications for transportation -- that gets overlooked: • Ever-growing consumer demand for high quality food, increased food safety – • Consumers globally – U.S., Japan, China, Middle East, Europe – all becoming greater aware of food safety, and seeking healthier foods. • Greater demand for organic foods, specialty foods. • No-trans fat foods, whole grains, fresh foods, healthier diets. • Traceability – from farm to table, is becoming ever increasingly demanded. • Intermodal, containerized shipping is well suited to serve this trend for segregated, identity preserved products. Bulk rail car and ships, blended grain systems may work for livestock feed – but are counter to this trend for food quality.

18. Trends and Implications – Intermodal in the Upper Midwest • Container shipping – highest value for ag exports. Fruits, vegetables, growing meat and poultry exports. Smaller but steadily growing share of grain, oilseed exports. • Upper Midwest region is poorly served by intermodal container rail and ocean carrier service. • Just a pass-through to Chicago. Or by-passed all together by S. Cal.-Chicago and back transit. • Midwest Shippers identity preserved food soybean exporter members regularly told we are $500 to $900 higher per container shipped to Asia countries compared to Chicago, southern Ontario – though we’re closer to the ports. • Price disparities a growing competitive problem. Plus periodic shortages of equipment-container supply. Serious threat to value-added ag industry here.

19. Trends and Implications • It’s truly a Global thing….. • U.S. also imports a huge volume of food. Seasonal fresh products from S. America. Specialty, organic products from China. • Are we using the most efficient transportation in U.S. to move food imports? • Is there an opportunity for increased inland use of reefer containers, and two-way hauls of increasing U.S. meat and dairy exports going out. Trucking rules now. • ‘Cool Train’ – new idea being pioneered…high-tech reefer train. • (But…..only goes from PNW to Chicago….rolls right through the TC..once again.)

20. Trends and Implications - Transportation • We need a wide-geographic serving, multi-dimensional transportation system. • Shortline and regional railroads must be empowered….and can play a stronger role.

21. Shameless Advertising -- MSA’s Main Event -- You’re Invited Midwest Shippers Association’s - • 2011 Grain Export Shipping/Midwest Specialty Grains Conference & Trade Show August 22-24 – Seattle Hilton Airport Hotel & Conference Center • Learn about and see first hand: • Ocean ship container loading at Seattle and Tacoma ports • Expanding bulk grain ship loading operations in the PNW • See transloading, rail car handling operations • Learn from USDA export inspection procedures • Meet foreign trade delegations from China, Japan, Taiwan, S.E. Asia-Singapore • Opening reception dinner cruise on Puget Sound

27. Midwest Specialty Grain Conference

28. Networking Opportunities

29. Midwest Shippers Association • 7500 Flying Cloud Drive, Suite 900 • Eden Prairie, MN 55344 • Ph. 952-253-6231 • www.midwestshippers.cominfo@mnshippers.org • Bruce Abbe, Executive Director