David Nelson, Global Strategist, Rabobank

March 13, 2012 

Governor’s Conference on 

Agricultural Trade 

Rethinking the Food and Ag 

Supply Supp y Chain C a 

David Nelson, Global Strategist 

Rabobank International

Outline 

Market Developments & Outlook 

� Crop prices have moved structurally higher and more 

volatile 

• How and why 

� What it means to the poultry supply chain 

� What it means to the grain and oilseed sector and supply 

chain 

2 


For many decades 

productivity gains 

outpaced demand 

growth. But things 

have changed. 

N Now due d to GDP 

growth in the 

developing world, 

demand is 

accelerating. 

Unfortunately 

Unfortunately, 

productivity from 

yield improvement 

is decelerating. 

The world has 

changed from one 

of structural 

surplus to 

structural deficits. 

The basics have remained the same 

But corn is now $6.50, not $2.50 

Global population (in millions) 

Agricultural land (1 (1,000 000 ha) 

10,000 5,000 

1.50 

9,000 

88,000 000 

7,000 

6,000 

5,000 4,600 

1.00 

4,000 

3,000 

2,000 

1,000 


- 

1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 

Total population Rural population 

Urban population 

4,900 

4,800 

4,700 

4,500 

4,400 

4,300 

4,200 

Source: FAO Stat Source: FAO Stat, Rabobank 

3 

1960 1970 1980 1990 2000 2007 

Agricultural land area 

Agricultural land area per capita 

Rabobank International 

1.25 

0.75 

0.50

… and are all in 

the “sweet spot” 

where consumer 

demand for animal 

protein grows at 

an accelerating 

pace – with GDP 

between $3-5000 

per year. 

While economic 

growth in Asia 

may be slowing, it 

i is at t very high hi h 

levels of absolute 

growth. 

Asia is also a grain 

deficit region – 

they will need to 

import grain, or 

animal protein 

GDP growth is accelerating meat demand growth 

China, India and Indonesia alone represent 40% of world population 

Higher GDP growth Hi Higher h protein t i consumption ti Higher grain demand 

Country 

2011 GDP Growth 

Rate 

2012 Forecast GDP 

Growth Rate 

Population 

China 9.3% 8.7% 1,331,460,000 

India 8.0% 8.4% 1,155,348,000 

Indonesia 6.3% 6.5% 229,965,000 

Source: World Bank, CIA 


4 


World GDP growth 

continues to 

outpace animal 

protein production 

growth – so 

demand is 

outstripping 

supply which leads 

to high meat 

prices. 

Animal protein 

production is 

adapting to 

structurally higher 

and more volatile 

grain prices. Given 

the lag factor 

caused by animal 

life-cycles, this 

process will take 

time. 

The shorter life 

cycle for poultry, 

in addition to feed 

conversion 

World GDP growth drives meat demand 

Especially that from developing markets 

40% 

35% 

30% 

25% 

20% 

15% 

10% 

5% 

advantages, g , 

0% 

provides a relative 

advantage to 

other proteins. -5% 


2006 2007 2008 2009 2010 2011 (f) 2012 (f) 

Beef Pork Broiler Total meat GDP 

Sources: World Bank for GDP data and forecast, USDA for meat production, Rabobank for meat production forecast 

5 


US corn used for 

ethanol has 

increased by 

roughly 100MMT 

since 2005, while 

world grain 

demand has risen 

by about 300MMT. 

Biodiesel is a 

factor as well. 

World demand for 

vegetable oil is 

growing by about 

5 million tons per 

year. About 2 of 

that, or 40%, has 

been going to feed 

biodiesel demand. 

Corn for ethanol/US has been 1/3rd of global grain 

demand since 2005 

US Corn Used For Ethanol as a % of Global Grain Production 

7% 

6% 

5% 

4% 

3% 

2% 

1% 

0% 

Source: USDA, 2012 


6 


GMO crops main 

impact has been to 

reduce pesticide 

use, not boost 

yields – though 

reduced insect 

damage helps. 

Nature finds a 

way: weeds and 

insects are 

evolving faster 

Demand is accelerating while productivity growth 

is in decline 

While most yield improvements are decelerating 

World corn yield y % change, g , 5 yr y movingg avgg World wheat yield y % change, g , 5 yr y movingg avgg 

7% 

6% 

5% 

4% 

3% 

2% 

1% 

0% 

‐1% 

than expected . ‐2% 

Investment in 

genetic 

productivity fell as 

the world was 

managing 

surpluses in the 

1980s and 1990s. 

1965 

1967 

1969 

1971 

1973 

1975 

1977 

1979 

1981 

1983 

1985 

1987 

1989 

1991 

1993 

1995 

1997 

1999 

2001 

2003 

2005 

2007 

2009 

Source: USDA 

7% 

6% 

5% 

4% 

3% 

2% 

1% 

0% 

‐1% 

‐2% 

1965 

1967 

1969 

1971 

1973 

1975 

1977 

1979 

1981 

1983 

1985 

1987 

1989 

1991 

1993 

1995 

1997 

1999 

2001 

2003 

2005 

2007 

2009 

Source: USDA 

World soybean yield % change, 5 yr moving avg World rice yield % change, 5 yr moving avg 

7% 

6% 

5% 

4% 

3% 

2% 

1% % 

0% 

‐1% 

‐2% 


1969 

1971 

1973 

1975 

1977 

1979 

1981 

1983 

1985 

1987 

1989 

1991 

1993 

1995 

1997 

1999 

2001 

2003 

2005 

2007 

2009 

Source: USDA Source: USDA 

7 

5% 

4% 

4% 

3% 

3% 

2% 

2% 

1% 

1% 

0% 

1965 

1967 

1969 

1971 

1973 

1975 

1977 

1979 

1981 

1983 

1985 

1987 

1989 

1991 

1993 

1995 

1997 

1999 

2001 

2003 

2005 

2007 

2009 


What is the 

market telling us? 

Brazil will grow 

more, but... 

China will have to 

pay more. 

If corn cost $5.00, 

then soy cost 

$12.00. 

Infrastructure 

hurdles, RR2 

Soy planted area 

increased 3.6% 

and corn 2.8% in 

the current 

campaign – that’s 

probably 

maximum – will it 

be enough? 

Higher prices are not stimulating supply response 

Inherent limitations on planted area expansion 

Brazil soybean y and corn planted p area, , million hectares 

45 

40 

35 

30 

25 

20 

15 

10 

5 

0 

36.5 

13.0 

38.0 

13 13.88 

39.5 

14.5 

23 5 24.2 25.0 

23.5 

09/10 10/11 11/12 

October Mato Soybeans = 37.92 BRL/60kg Soybeans = 38.14 BRL/60kg 

Soybeans = 38.20 BRL/60kg 

Grosso prices: C Corn = 88.35 35 BRL/60k BRL/60kg Corn = 12 12.75 75 BRL/60kg Corn = 18 18.27 27 BRL/60kg 

Source: Conab, Bloomberg 


8 

Soybeans Corn 


Brazil’s farmers 

have not 

benefitted as 

much from rising 

soy prices as in 

the US due to 

appreciating Real 

Prices need to rise 

to stimulate 

incremental 

production 

Real appreciation mitigating price signal 

Brazil crop production: higher but not so volatile 

Percent change g in Brazil and US soybeans y since 2005 

250% 

200% 

150% 

100% 

50% 

0% 

-50% 

-100% 

Source: Bloomberg 


+147% 

+63% 

1/7/20005 

3/7/20005 

5/7/20005 

7/7/20005 

9/7/20005 

11/7/20005 

1/7/20006 

3/7/20006 

5/7/20006 

7/7/20006 

9/7/20006 

11/7/20006 

1/7/20007 

3/7/20007 

5/7/20007 

7/7/20007 

9/7/20007 

11/7/20007 

1/7/20008 

3/7/20008 

5/7/20008 

7/7/20008 

9/7/20008 

11/7/20008 

1/7/20009 

3/7/20009 

5/7/20009 

7/7/20009 

9/7/20009 

11/7/20009 

1/7/20010 

3/7/20010 

5/7/20010 

7/7/20010 

9/7/20010 

11/7/20010 

1/7/20011 

3/7/20011 

5/7/20011 

7/7/20011 

9/7/20011 

11/7/20011 

1/7/20012 

3/7/20012 

Brazil soybeans in BRL Chicago soybeans in USD 

9 


This is the key 

fundamental 

contributor to the 

increase in crop 

price volatility. 

Other big factors 

include low 

stockpiles and the 

increase of 

managed money 

into commodities 

Russia/Ukraine has become THE incremental 

grain producer 

… but due to unreliable weather, production is volatile 

Black Sea share of world exports p 

60% 

50% 

40% 

30% 

20% 

10% 

0% 

Source: USDA 


Barley Exports Wheat Exports 

10 


Despite a recovery 

of 60MMT of grain 

production from 

the FSU last year, 

the world grain 

still declined 

slightly. 

Structurally, 

demand is 

growing faster 

than supply. 

Higher protein prices: grain demand exceeds 

supply growth – structural surplus to shortfall 

World Grain Stocks to Use Ratio 

40% 

35% 

30% 

25% 

The world has 

shifted from an 

era of structural 20% 

surplus to 

structural 

shortage. 15% 

10% 

5% 

0% 



20.4% 

16.5% 

60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 

World World - China 

11 


Volatility is rising 

Global Food Production vs. Price 

(Production ( of g grain, , rice, , major j oilseeds, , PO, , FSHM vs. corn/soybean/wheat / y / futures price p index) ) 

Source: Cargill 


12 


An increase of managed money adds to prices… prices 

… and to price volatility 

Managed g money y net long g in 1,000 , contracts 

1,400 

1,200 

1,000 

800 

600 

400 

200 

0 

Source: Bloomberg, 2012 


Managed money net long (LHS) S&P GSCI ag index spot (RHS) 

13 


600 

550 

500 

450 

400 

350 

300 

250 

200

The flow of 

investor money 

into and out of the 

futures markets 

exacerbates 

volatility. 

Managed Money is Exacerbating Price Swings 

Change in Managed Money’s Net Corn Position vs Change in Price 

Change in Price P 

100.00 

80.00 

60.00 

40.00 

20.00 

0.00 

-20.00 

-40.00 

-60.00 

-80.00 

-100,000 -80,000 -60,000 -40,000 

-100.00 

-20,000 0 20,000 40,000 60,000 80,000 100,000 

Change in Managed Money Net Position 

Source: Bloomberg, CFTC 


14 


But big swings in currency affect competitiveness 

It’s not just about feed costs and conversions anymore 

15% 

10% 

5% 

0% 

-5% 

-10% 10% 

-15% 

1/7/ /2011 

1/21/ /2011 

2/4/ /2011 

2/18/ /2011 

Source: Bloomberg, 2012 


3/4/ /2011 

3/18/ /2011 

4/1/ /2011 

4/15/ /2011 

4/29/ /2011 

5/13/ /2011 

5/27/ /2011 

6/10/ /2011 

6/24/ /2011 

7/8/ /2011 

7/22/ /2011 

8/5/ /2011 

8/19/ /2011 

9/2/ /2011 

9/16/ /2011 

9/30/ /2011 

10/14/ /2011 

10/28/ /2011 

Euro/USD BRL/USD RUB/USD 

15 

11/11/ /2011 

11/25/ /2011 

12/9/ /2011 

12/23/ /2011 

1/6/ /2012 

1/20/ /2012 

2/3/ /2012 

2/17/ /2012 

3/2/ /2012 



Adjustments to higher and more volatile crop 

prices 

How the global meat protein 

supply chain is adapting 

16 


With higher and 

more volatile feed 

input costs, the 

relative advantage 

is shifting toward 

protein production 

with short lifecycles 

and feed 

efficiency 

-- namely poultry 

Higher and more volatile feed input costs work to 

the advantage of poultry 

Cost of Production - Efficiency Production Cycle - Flexibility 

Feed conversion rate, , kg g feed/kg / g meat Months of production p cycle y 

Source: FAO, Rabobank, 2011 


17 


Income growth is 

fastest in 

countries with 

large populations, 

this is driving 

demand growth 

…and that demand is coming from developing 

markets 

Developing p g Markets Developed p Markets 

140% 

120% 

100% 

80% 

60% 

40% 

20% 

0% 

-20% 

-40% 


Argentina Brazill 

China India 

Iran Mexico 

Russia South Africa 

18 

140% 

120% 

100% 

80% 

60% 

40% 

20% 

0% 

-20% 20% 

-40% 

Source: USDA, 2011 Source: USDA, 2011 

United States EU-27 Japan 


For US protein 

companies and 

their suppliers, 

part of the 

challenge is that 

the US market has 

matured. 

Animal protein 

companies must 

now look to 

export. 

The good g news is 

that the US is a 

grain surplus 

country and a low 

cost animal 

protein producer. 

Another positive 

factor is that 

except for chicken 

breast meat, meat 

protein prices are 

rising faster than 

per capita 

consumption is 

falling – a sign of 

strong demand – 

even in this 

economy. 

…while demand in the developing world has 

matured 

US per Capita Annual Meat Consumption 

Lbs cwe for pork p and beef, , lbs rtc for chicken 

300 

250 

200 

150 

100 

50 


0 

253 250 258 256 

90 89 

260 259 260 259 252 

94 95 98 100 101 99 

66 65 67 67 66 65 64 66 

97 

245 

93 

64 65 

240 239 

95 98 

232 

93 

60 59 58 

98 96 98 94 95 94 95 94 90 88 85 82 81 

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011f 2012f 

Source: USDA, Rabobank estimates 

Beef Pork Broiler 

19 


Overall, US meat 

and poultry 

production is 

expected to 

decline 1.8% in 

2012. 

This is an 

unprecedented 

decline which 

should lead to 

further increases 

in prices. 

The US adjustment to higher and more volatile 

feed costs 

2012 US protein production decline will be unprecedented 

Beef Pork Broiler Total 

Q1 2011 % 10 2.6% 2.0% 6.4% 4.0% 

Q2 2011 % 10 0.2% 1.3% 3.4% 1.9% 

Q3 Q 2011 % 10 ‐0.5% 1.5% 0.5% 0.4% 

Q4 2011 % 10 ‐3.7% 1.0% ‐6.6% ‐3.6% 

Q1 2012 % 11 ‐1.7% 17% 24% 2.4% ‐4.7% 47% ‐1.9% 19% 

Q2 2012 % 11 ‐2.2% 2.2% ‐4.8% ‐2.3% 

Q3 2012 % 11 ‐5.3% 2.0% ‐3.6% ‐2.7% 

Q4 2012 % 11 ‐8.5% 1.7% 3.8% ‐0.5% 



20 


The supply chain is easier to control in poultry 

…but there are big challenges in developing markets 

Corn 


Feed 

milling/blending & 

animal health 

21 

Grow 

out 

Processing 

Distribution: 

retail/ 

foodservice 


KFC is adding 

almost one new 

store per day in 

China. MCD also 

growing rapidly. 

Suppliers are 

struggling to keep 

up. 

+ hard to secure 

an assemblage of 

land 

The struggle for supply growth in China 

KFC and McDonald’s Restaurants in China 

4,500 

4,000 

3,500 

3,000 

+ labor costs are 22,500 500 

rising rapidly, 

labor availability 

in decline 

+ biosecurity a 

huge challenge 

(disease, 

antibiotics) 

+ these chains 

only use about 

20% of the bird 

2,000 

1,500 

1,000 

500 


0 

2008 2009 2010 2011f 2012f 2013f 

Source: Company data, Bloomberg, Reuters, 2011 

KFC McDonald's 

22 


While pork is the 

predominant meat 

in China (over 

60% of meat 

consumption) 

poultry is growing 

more rapidly 

(about 3.5%/year 

compared to about 

2% for pork). 

China produces 

about 85% as 

much chicken as 

the US – so if 

consumption rises 

toward US per 

capita levels, the 

world would need 

to increase 

chicken production 

by 50% 

China’s population 

grows by about 16 

M per year, even 

with the one child 

policy p y 

Chicken demand growth – lots of room in China 

Per Capita Chicken Consumption 

Kg/year g/y 

60 

50 

40 

30 

20 

10 

0 

Source: USDA 


Brazil United States Argentina Mexico EU-27 Japan China 

23 



Closer to home 

US Poultry Adjusting 

24 


The environment 

has changed, changed the 

industry needs to 

do so as well. 

Demand will no 

longer bail us out 

of excess supply 

situation. 

Industry needs to 

learn supply 

discipline. 

2011 was the worst year ever 

US Broiler Production Margin 

Source: EMI Analytics, 2012 


25 


Pullet placements 

show industry 

supply discipline – 

down 7% in the 

most recent data. 

Companies need to 

rebuild the equity 

in their balance 

sheets. 

2012 should be a 

good year – 

probably p y not a 

great year. 

Key concerns: feed 

costs, exports, US 

consumer 

So far, far so good on supply discipline 

Pullet Placements 

1,000 , chicks 

9,000 

8,500 

8,000 

7,500 

7,000 

6,500 

6,000 

5,500 

5,000 

Jan-05 

Apr-05 



Jul-05 

Oct-05 

Jan-06 

Apr-06 

Jul-06 

Oct-06 

Jan-07 

Apr-07 

Jul-07 

Oct-07 

26 

Jan-08 

Apr-08 

Jul-08 

Oct-08 

Jan-09 

Apr-09 

Jul-09 

Oct-09 

Jan-10 

Apr-10 

Jul-10 

Oct-10 

Jan-11 

Apr-11 

Jul-11 

Oct-11 


Jan-12

Inventories are being worked down 

Total Chicken Meat in Cold Storage 

950,000 

900,000 

850,000 

800,000 

750 750,000 000 

700,000 

650,000 

600,000 

550,000 

500,000 

Jan-05 



Apr-05 

Jul-05 

Oct-05 

Jan-06 

Apr-06 

Jul-06 

Oct-06 

Jan-07 

Apr-07 

Jul-07 

27 

Oct-07 

Jan-08 

Apr-08 

Jul-08 

Oct-08 

Jan-09 

Apr-09 

Jul-09 

Oct-09 

Jan-10 

Apr-10 

Jul-10 

Oct-10 

Jan-11 

Apr-11 

Jul-11 

Oct-11 


Jan-12

But demand is 

strong due to 

developing market 

demand 

Exports share of volume growth has slowed 

US Broiler Exports as a % of US Production 

Exports p in 1,000mt , cwe 

25% 

20% 

15% 

10% 

5% 

0% 

18% 



15% 

15% 

14% 

15% 15% 

17% 

19% 

19% 

19% 18% 18% 

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 

Exports/Production (LHS) Exports (RHS) 

28 

3,500 

3,000 

2,500 

22,000 000 

1,500 

1,000 

500 

0 


We think 2012 will 

be a recovery year 

for the industry. 

The outlook is 

good, but not 

great. 

Export markets 

remain strong 

with leg quarter 

prices above 

$0.50/lb, but 

breast meat 

prices are still 

weak. 

Breast meat still will be difficult 

US Boneless Skinless Breast Price vs Broiler Consumption Per Capita 

(USD/lb) 

breast price 

B/S 

2.40 

2.20 

1988 

2.00 

180 1.80 

1.60 

1.40 

1.20 


1989 

1990 

1991 

19921993 

1994 1998 

1995 1996 

1997 

1999 

2012f 

2003 

2010 

2001 2000 

2004 

2007 

2002 

2009 2008 

2011 

2005 

1.00 

60 65 70 75 80 85 90 95 100 105 

US broiler consumption per capita (lbs, cwe) 

Source: USDA, Rabobank forecast, 2012 

29 

2006 


B/S Breast/Leg Quarter Price Ratio 

900% 

800% 

700% 

600% 

500% 

400% 

300% 

200% 

100% 

0% 

03/10/01 

07/10/01 

11/10/01 

03/10/02 

07/10/02 

11/10/02 

03/10/03 

07/10/03 

11/10/03 

03/10/04 

07/10/04 

11/10/04 

03/10/05 

07/10/05 

11/10/05 

03/10/06 

07/10/06 

11/10/06 

03/10/07 

07/10/07 

11/10/07 

03/10/08 

07/10/08 

11/10/08 

03/10/09 

07/10/09 

11/10/09 

03/10/10 

07/10/10 

11/10/10 

03/10/11 

07/10/11 

11/10/11 

03/10/12 



30 


Such estimates 

are imperfect by 

nature, and highly 

subject to changes 

in currency. 

Profitability can 

vary substantially 

within a country – 

by region, and by 

operation. 

Regions with 

inherent 

advantage are the 

Americas and the 

Black Sea Region. 

We believe the US 

has a cost 

advantage with 

our primary export 

competitor, Brazil, 

at today’s 

exchange rates. 

Competitiveness Starts with Feed Cost 

Broiler Cost of Production 

Euro/kg / g cwe 

1.2 

1 

0.8 

0.6 

0.4 

0.2 

0 

Argentina US Brazil India Thailand Russia EU China 

Source: FAO, Rabobank, 2010 


31 


Even though exports to Russia have declined declined… 

Russian Poultry Production and Imports 

Thousand metric tons 

2,500 

2,000 

1,500 

1,000 

500 

0 

-500 

-1,000 

-1,500 

-2,000 



2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 

Production Imports 

32 


US chicken 

producers are 

offsetting 

shrinking exports 

to Russia with 

increased 

shipments to 

Mexico, 

China/Hong Kong Kong, 

Angola and other 

smaller markets 

… the US has adapted with new markets 

US Broiler Meat Exports 

Metric tons 

3,500,000 

3,000,000 

2,500,000 

22,000,000 000 000 

1,500,000 

1,000,000 

500,000 

0 

Source: USDA FAS, 2011 


2005 2006 2007 2008 2009 2010 

Russia Mexico China +Hong Kong Angola Iraq Vietnam Taiwan Other 

33 


Brazil’s poultry 

industry has 

benefited from 

growing exports to 3,500 

the Middle East 

and Asia (as well 

as strong domestic 

growth) 3,000 

Brasil Foods to 

build USD 120 

million plant in 

United Arab 

Emirates 

Brazil poulty 

exports just to 

China were $423M 

last year. 

Compared to ___ 

total for the U.S. 

However However, Brazil is doing a better job 

Brazil is taking chicken export share from the U.S. 

Thousand metric tons 

2,500 

22,000 000 

1,500 

1,000 

Ultimately, Russia 

and Ukraine will 

be competitors 500 

0 



2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 

EU imports SE Asia Imports Middle East imports Brazil exports 

34 



Brazil’s Brazil s dominance in global poultry trade 

Market segment Ranking 

Brazil 

market 

share 

Main 

competition 

Whole birds 1 80% EU 

Breast meat 1 85% Argentina g 

Other cuts 2 30% US, EU 

Processed chicken 3 15% Thailand, 

China 

35 


Section III 


Grain and Oilseed Company 

Implications 

36 


China is extremely 

concerned 

Announcement Date; 

regarding its food 

Sector; 

supply. Efforts to 

Deal type; 

secure farmland 

directly for 

production have 

Jun-2011 

run into political 

Agriculture 

and practical 

Joint Venture 

problems. 

The new strategy 

appears to be 

investment in 

infrastructure, 

origination and 

ports – in return 

for offtake. 

Lots of 

announcements, , 

but we will see if 

these come to 

pass in reality. 

China Ag investments into Brazil/Argentina 

Chinese Investments into South America 

Jun-2011 

Agriculture 

Investment 

Jun-2011 

Agriculture 

Investment / Off take 

Jun-2011 

Agriculture 


May-2011 

Agriculture 



Status / Time Horizon Asian Company Target company / region Deal size (USD bln) Investment Details 

PENDING 

(An initial agreement with 

Argentina Cresud AS has 

been signed) 

PENDING 

The foundation stone has 

been laid (06/21/2011) 

PENDING 

5-10 years 

PENDING / 5 years 

(The governor of Bahia has 

signed a Protocol of Intention 

relating to an investment in 

the Barreiras municipal area 

in Bahia) 

PENDING 

(Signed na MO with Goias 

state government to invest 

7.5 billion to develop over 2.5 

million hectares of grain 

producing land for export) 

Source: Company data, CEBC, Bloomberg 

Heilongjiang 

The cooperation between the companies will focus on 

soybean production, said the chairman of the Beidahuang, 

Beidahuang Argentina Cresud SA N.A. Sui Fengfu, in a report published on a company website. The 

Nongken Group Cresud and Rio Negro deals appear aimed at avoiding a 

backlash against foreign ownership of farmland in Argentina. 

Noble Group Limited Mato Grosso, Brazil 0.2 - 0.25 

Heilongjiang 

Beidahuang 

Nongken Group 

Rio Negro Province, 

Argentina 

1.5 

Chongqing Grain Barreiras, Bahia, Brazil 2 - 2.5 

Hopeful Sanhe 

Hopeful Grain and 

Oil Group Co., Ltd. 

37 

Goias, Brazil 7.5 

This is the biggest investment ever made by the group in 

Brazil and will build the complex that will house a soy 

crushing unit and another unit for producing biofuel. 

Lease and develop farms on 300,000 hectares in Argentina´s 

Rio Negro Province. Over a 5 to 10 year period, the 

company plans to grow wheat, corn, soybeans, fruits, 

vegetables and wine grapes for export to China 

Invest USD 2.4 billion in Bahia to stablish a crushing plant 

that will process 1.15 million tons of soybean per year; 

storage for 400,000 tons of soybeans; a fertilizer plant; and 

related logistics systems. In return, Bahia government has 

promised tax deductions and 100 hectares of land. 

Invest USD 7.5 billion in the production, storage and 

transport of soybeans in Brazil to ensure the supply to 

ensure the purchase of six million tons of soya. In addition 

to capital, China might still provide inputs such as fertilizers, 

pesticides and seeds to increase agricultural production in 

the state. China will also increase imports of soybeans and 

its byproducts. 


The Power Shift East 

Enterprise Values (million USD) 

West East 

12/29/06 12/30/11 

ADM 26,007 , 26,495 , 

Bunge 12,904 13,347 

12/29/06 10/12/11 

Wilmar 8,137 , 59,128 , 

Noble 4,150 15,108 

Viterra 856 4,907 Olam 4,862 10,865 

Source: Bloomberg 


38 


Dissolution of CWB could create opportunities 

Western Canadian Grain Market Share 

50% 

45% 

40% 

35% 

30% 

25% 

20% 

15% 

10% 

5% 

0% 

Source: Viterra, 2011 


45% 

23% 

13% 

19% 

Viterra Richardson Cargill Other 

39 



Central Canadian Elevators 

40 


Higher, more 

volatile prices 

cause inherent 

increase in 

working capital 

Working capital needs are rising 

Working Capital / Sales 

80% 

70% 

60% 

50% 

40% 

30% 

20% 


Sep-033 

Dec-033 

Mar-044 

Jun-044 

Sep-044 

Dec-044 

Mar-055 

Jun-055 

Sep-055 

Dec-055 

Mar-066 

Jun-066 

Sep-066 

Dec-066 

Mar-077 

Jun-077 

Sep-077 

Dec-077 

Mar-088 

Jun-088 

Sep-088 

Dec-088 

Mar-099 

Jun-099 

Sep-099 

Dec-099 

Mar-100 

Jun-100 

Sep-100 

Dec-100 

Mar-111 

Jun-111 

Sep-111 

Source: Company data, 2011 

41 

Bunge ADM 



Value and Profitability are Shifting Upstream 

… as a consequence of structurally higher and more volatile prices 

� ADM’s Ag g Services segment g reported p operating p g p profit of $ $922 million in 

2011, up 38% over last year. The positive trend continues in 2012. In FQ1 

2012 (just reported), Ag Services reported operating income of $244 

million, up 85% over last year. 

� Bunge reported a big miss in their Agribusiness segment last quarter after 

several very good quarters. On an LTM basis, Bunge is still outperforming 

the prior year by 110%. 

� Cargill’s Origination and Processing segment led 2011 earnings. Total 

earnings from continuing operations totaled $2.69 billion, a 35% increase 

from $1.99 $ billion in the prior p fiscal year. y FQ1 Q 2012 fell YOY. 

� Mixed results this quarter highlight the volatile nature of the business. 

However, results are good when averaged over several quarters. 

� Our view. As grain markets become more volatile, 

power and profitability are shifting up the value 

chain h i and d even ttowards d production. 

d ti 

42 


ADM Ag Services and Bunge Agribusiness Segment Operating Profits 

Million USD 

500 

400 

300 

200 

100 

0 

(100) 

Sep-011 

Jan-022 

May-022 

Sep-022 

Jan-033 

May-033 

Sep-033 

Jan-044 

May-044 

Sep-044 

Jan-055 

May-055 

Sep-055 

Jan-066 

May-066 

Sep-066 

Jan-077 

May-077 

Sep-077 

Jan-088 

May-088 

Sep-088 

Jan-099 

May-099 

Sep-099 

Jan-100 

May-100 

Sep-100 

Jan-111 

May-111 

Sep-111 

Source: Company data, 2011 


43 

ADM Bunge 


Grains & Oilseeds 

Sugar & Bio-energy 

10/10: Gavilon acquired 

DeBruce Grains to become the 

third-largest U.S. trader 

12/10: Bunge N.A. acquired the 

assets of Pacific International 

Rice Mills from Anheuser-Busch 

05/10: Viterra acquired 21 st 

Century Grain Processing and 

03/10: Dakota Pasta Growers 

Company and 6/11: Premier 

Pulses International 

Grains & Oilseeds global M&A 

Selected recent sector activity 

03/11: ADM acquired crush 

and biodiesel facilities of 

Prairie Pride, Inc. 

12/09: Bunge’s acquisition 

of five sugar mills from 

Usina Moema for $1.2 BN 

03/11: / Cargill g acquired q Fort 

Dodge ethanol facility from 

Tate & Lyle for $57 MM 

12/10: Noble acquired two 

ethanol refineries with annual 

capacity of 7.6 MM MT from 

Cerradinho Group for $940 MM 

04/11: ADM acquired the 

remaining 51% stake in 

Limeira Do Oeste Ethanol 

Mill 

Sources: Capital IQ, mergermarket, Company information 


11/10: Bunge N.A.acquired 

Morristown Grain Company 

08/10: Cargill acquired 

a minority stake in 

Lípidos Santiga 

06/11: Ag Processing Inc 

acquired the assets of East 

Fork Biodiesel LLC 

01/10: Olam acquired the 

04/11: Cereal Docks Spa 

Crown Flour Mills Nigeria acquired crushing plant from 

Limited for $110 MM Bunge Limited Limited 

44 

05/11: ADM acquired grain 

elevator l in Riesa ffrom 

Muskator-Werke GmbH 

08/11: ADM acquired Elstar 

Oils for $145 MM 

07/11: GrainCorp 

acquired GermanMalt 

for $83 MM 

11/11: CHS announced 

its intent to acquire 

Solbar for $140 MM 

6/10: Noble Group acquired 

upstream palm oil assets from 

PT Henrison Inti Persada 

for $162 MM 

07/10: / Wilmar acquired q 

CSR’s sugar business 

Sucrogen Ltd for $1.5 BN 

08/10: Agrium acquired 

AWB Limited for $1.8 BN to 

expand its retail footprint in 

Australia 

06/10: Rusagro Group 

acquired a 29.74% stake in 

Nikiforovsky Sugar Plant 

from Cargill 

12/11 12/11: B Bunge announced d it its 

intent to acquire the edible 

oils/fats business from Amrit 

Banaspati for $50 MM 

04/11: Cargill acquired a 

85% stake in PT Sorini Agro 

Asia, a producer of starch and 

derivatives, for $395 MM 

02/10: Cargill sold CTP 

PNG’s palm assets to New 

Britain Palm Oil for $219 MM 

10/10: Wilmar acquired a 90% 

stake in PT Rimba Harapan 

Sakti, for IDR 470 MM 

07/11: COFCO acquired 

Tully Sugar for $144 MM 

11/11: Mitr Phol offered 

$330 MM to acquire 77% of 

MSF Sugar 

12/10: Cargill acquired AWB’s 

grain trading and commodity 

management business from 

Agrium for $860 MM 

Australia Agrium for $860 MM 


Thank you 


45

David Nelson, Global Strategist, Rabobank

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