Market Update Eddison Pres 3 07 08

Slide1: 

March 2008 Commodity Update

2007 in Review: 

2007 in Review Corn, soybeans, wheat, eggs and dairy exceeded or achieved record high prices in 2007 Rising grain costs caused food-price inflation world wide Several countries including India, Russia and Pakistan have limited exports and eliminated import taxes in order to ensure adequate food supplies and price stability Higher costs also led to substantial price increases by such food companies as ConAgra Foods, Kraft, Pizza Hut, McDonalds, Burger King, Nestle, Hershey, Kellogg Co. and General Mills Inc Bottom line performance suffered as these companies could not raise prices fast or often enough to offset rising commodity costs

2007 in Review: 

2007 in Review In short, 4 things drove food prices in 2007. . . China/India – Growing middle class and increased standard of living put more pressure on global food supply Weak US Dollar – A weak US dollar means more export sales of “cheaper” US agricultural products and higher cost imports like palm oil, crude and cocoa Ethanol – Massive increase in speculative buying that drove corn prices to record highs, that spilled over into other grains Weather – 5 of the world’s largest wheat growing areas were impacted last year, greatly reducing supply

Commodity Prices Changes in the Last 6 Months: 

Commodity Prices Changes in the Last 6 Months

What’s Pushing Prices Higher?: 

What’s Pushing Prices Higher? China, the world's largest importer of soybeans, may more than double this month to about 2.5 million metric tons compared with the same period last year Investors are also concerned that rain may delay the soybean harvest in central and northern Brazil, the world's largest exporter of the oilseed after the U.S. U.S. soybean stocks will soon will fall below a 20-day supply Japan, the world's largest corn buyer is wanting to buy more US corn, pushing the price close to $6.00 a bushel Conditions could become more serious if adverse weather trims U.S. crop yields this summer and fall

What to Look for in 2008: 

What to Look for in 2008 There will be a fight for acres between corn, soybeans and wheat Commodity prices will dictate which one will win China and India will be able to impact prices as they continue to import grains to feed their growing middle class Commodity prices will remain volatile through 2009 Other countries like Pakistan, Malaysia and Indonesia introduce more “middle class” consumers this year, putting more pressure on world grain supplies The American Bakers Association has asked government to step and curtail wheat exports in order to protect U.S. consumers from rapidly rising food prices, so far the government has said “No” Consumer response to rising food prices will be critical. When and how drastically consumers change their eating habits will have a huge impact on retail bakers’ success

What to Look for in 2008: 

What to Look for in 2008 There are 3 more months before we start harvesting the winter wheat crop We are also 3 months away from farmers having to decide whether to plant spring wheat or corn, they will keep an eye on commodity prices and go the highest profits commodity Assuming normal weather, wheat and flour prices should decline Keep an eye on wheat plantings and production in the EU, FSU, Australia and Argentina To take pressure of the US, these other wheat producing countries need to have better production than in 2007 For the last 3 years weather has negatively impacted world crop production

What will Wheat do in 2008?: 

What will Wheat do in 2008? Extremely low supplies of old crop wheat prices will keep flour prices at or near record levels USDA February Supply & Demand report took ending wheat stocks in the US down to272 million bushels, the lowest level since 1948 USDA too world wheat stocks to the lowest level in 34 years Despite the higher prices, wheat exports are 32 percent higher than one year ago Milling quality hard spring wheat is being rationed Given normal weather and better production in the other 4 wheat producing countries, we should see prices start to decline by June. Canada will plant more spring wheat than earlier reported which will take some pressure of the US, but not much As we move into the spring, weather will be the critical factor Any sign of a reduction in production will send the markets back to hitting new highs

Bulk Spring Flour Prices Aug 07 – Feb 08: 

Bulk Spring Flour Prices Aug 07 – Feb 08

Sugar : 

Sugar Refinery explosion in Georgia drove prices for refined sugar higher This refinery served mainly the southeast, so Imperial will transfer production to other mills U.S. sugar supplies are in good shape so this should be a short lived situation Strong prices for wheat, corn, soybeans, and other oilseeds and weaker sugar prices will likely reduce 2008 U.S. sugar beet acreage.  Higher 2007/08 U.S. beet sugar carryover stocks will result in a cutback in acreage.  U.S. sugar producers are banking on a new energy plan to stave off a price collapse, but critics see an unwise plan that will cost millions.  Under a new plan approved by the Senate and House of Representatives, the Agriculture Department would buy up excess sugar and sell it to ethanol plants to be used to make the alternate fuel, absorbing any difference in cost.  USDA sees the plan costing $140 million a year. USDA projected 2008/09 U.S. beet sugar production at 4,440 thousand tons, 8 percent below a year earlier.  U.S. sugarbeet planted area in 2008 is likely to fall 10 percent from a year earlier due to higher alternative crop prices.

Refined Sugar Prices Aug 07 – Feb 08: 

Refined Sugar Prices Aug 07 – Feb 08

Mexican Sugar: 

Mexican Sugar So far, January 1, 2008 border opening has been a “non-event” for sugar. Limited amounts of Mexican sugar have been sold in the US to refiners for further processing. Limited amounts of US sugar have been sold into Mexico for Mexican re-export (IMMEX) use. Producers in both countries are looking to markets in their own country first. Prices are similar in Mexico and the US. Distribution costs are higher to the other country than to local customers Mexican sugar usually requires further grinding to work in US products

Shortening : 

Shortening At our current export sales pace, 33 percent of the U.S. soybean crop will be shipped out of the country Nearby soybean futures are at the highest level in 34 years. February soybean oil futures strengthened to 67 cents a pound, 10 cents above a month ago, and 43 cents above a year ago U.S. soybean oil used in biodiesel production in January declined for the fourth consecutive month due to weakening margins, but biodiesel continues to fuel speculative buying of soybean oil. South American soybean crop is being stressed by lack of rain and will probably be smaller than the USDA is predicting Still the crop is progressing satisfactorily and should put pressure on U.S. prices by early March Soybean oil will continue to trade in conjunction with crude oil and be heavily influenced by speculative buyers China will influence the world market as they become amore aggressive buyer of US and South American soybeans Soybean oil is now trading at a premium to palm oil, which despite record inventories, has set new record high prices for 3 consecutive days

Bulk Soybean Oil Aug 07 – Feb 08: 

Bulk Soybean Oil Aug 07 – Feb 08

Refined Palm Oil Aug 07 – Feb 08: 

Refined Palm Oil Aug 07 – Feb 08

Eggs: 

Eggs Prices should continue at or near current levels Feed prices are up (corn makes up 70%of feed costs) Weak U.S. dollar continues to fuel exports Strong consumer demand both here and abroad EPA and government regulations will continue to reduce number of birds per coop High farmer debt and construction costs will prevent new coops from being added to relieve supply problem

Whole Liquid Eggs Aug 07 – Feb 08: 

Whole Liquid Eggs Aug 07 – Feb 08

Dairy: 

Dairy Whey - Inventories have been building since Nov. of last year and really got heavy in Dec. due to lack of contracting compared to Dec. of '06 when supply was tight. Projections are that there is still room for decline in whey. Market expected to settle in the $0.30 - $0.31/lb range. Buttermilk Powder – Prices will continue to decline. Cream inventories are building. Projections are buttermilk may settle in the $1.20 - $1.25/lb range. Nonfat Dry Milk – Same situation. Inventories are building and prices are projected to move lower. Projections are that the market has up to another $0.25 - $0.30/lb downside.

Cocoa: 

Cocoa The March future price for cocoa beans hit a new record high of $2800 a metric ton on Thursday. Speculative buyers now own approximately half of all the bean contracts Adding to price pressure are growing concerns that dry weather along the Ivory Coast and Nigeria will reduce this year’s mid crop Nestle, the word’s largest user of cocoa, has already announced their second price increase of the year and expect more will follow

Fruit: 

Fruit Apple Increased fresh apple demand is “pulling” up fruit from lower value uses & processes, creating increased competition for fruit and higher fruit prices Demand has outstripped production which only adding to pricing woes Blueberries – Small carry over from last year and growing demand keeping prices high Raisins – Drought and record summer temperatures reduced crop size and quality

In Summary: 

In Summary Volatility continues to be the “norm” in the agricultural markets Unfortunately, for food companies this volatility has been translated into record high raw material and buy/sell costs Farmers have increased plantings, but there are only so many acres of farmable land available Outside influences like corn and oilseed markets are incredibly tight even after record crop production Gold and crude will have huge impact on commodity prices too The dollar continues to struggle to gain on other currencies 2008 has already started out wilder than 2007, making predicting market price direction impossible