Global Economy and Agriculture in Transition presented by Terry Barr with CoBank at the 2013 Agri-Growth Council Annual Meeting and Speakers Conference.

1. The Global Economy and
Agriculture in Transition
Terry Barr, CoBank

2. U.S. Economy and Agriculture Faced Significant Turmoil
Over The Past Decade … What Transitions Are Ahead?

3. A Fragile Global Economy Will Experience Subpar
Growth With Greater Role for Emerging Markets
Percen t ch an g e i n an n u al w o rl d g ro w th (p u rch asi n g -p o w er p ari ty rates)
Rising
Economic
Policy
Middle
Turmoil Realignment
Class
2009-13
2014-18
2004-08
6
???
Avg.=4.5% Avg.=2.9%
4
2
0
18
14
16
10
12
06
08
India
02
04
C hina
98
00
94
96
R e s t of w orld
86
88
82
84
78
80
74
76
70
72
A dv a nc e d c ount rie s
90
92
-2

4. Global Economic Transitions, A New Energy Paradigm and
Building Grain Stocks Will Force Market Realignments
Rising Economic
Policy
Global
Turmoil Realignment
Middle class 2009-13 2014-18
Ag ri cu l tu re co mmo d i ty i n d ex (2005= 100)
250
200
?
150
100
Old Normal
50
0
Data source: World bank
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
12
14
16
18

5. Global Economy Struggling With Major Unresolved
Strategic Issues and Evolving Geo-political Realignments
Europe: Debt/deficits/austerity;
Merkel victory sets stage; ECB
forward guidance and Shinzo Abe
whatever
Prime Minister
it takes! Out of recession but …..
Japan:
devaluation;
central bank QE
Angela Merkel
actions; debt and
Xi Jinping
German Chancellor
consumption tax;
New President of China
U.S.: Policy inaction more stimulus?
limits growth;
China: Leadership
debt/deficit debate
transition; slower
Mario Draghi
Christine Legarde
MothercontinueBlack
Nature & for
ECB President
Managing Director IMF may
exports limit growth;
Swans
U.S. President
years; immigration,
transition to consumer
Emerging markets health care, farm bill,
sector as driver;
Brazil
weakening as trade etc. pending; Federal
vulnerable shadow
Fracking /horizontal
and capital flows slow Reserve tapering.
India
banking system.
drilling bring new
Russia
Emerging markets
Ben Bernanke
John Boehner
energy paradigm!. Majority Leader
FED President
Harry Reid
Senate Leader

6. Euro Region Struggling to Transition
German elections clear way for
potentially significant policy
changes in 2014 but progress
will be slow! New capital
infusions needed!
Angela Merkel
German Chancellor
Mario Draghi
ECB President
Christine Legarde
Managing Director IMF

7. Euro Region Struggling to Transition
Monetary Union
Fiscal Union
Banking Union
No shortcut
Reality is 2-3 year transition with expanded ECB role!
Major structural reform will be required in labor markets.
Countries must forfeit significant sovereignty on banking and
fiscal decisions to permit the transition from a monetary
union to a fiscal and banking union!

8. Japan Tries Abeconomics
Prime Minister Shinzo Abe
“new policy directions”
Competitive devaluations;
Bank of Japan pushes QE;
Government debt requires
consumption tax next year;
stimulus to offset taxes

9. Japan and Brazil Have Dramatic Currency
Realignments That Enhances Their Competitiveness
Indexes of currencies/US$ with January 1999=100
Braz il index
50
100
60
120
70
140
80
160
90
180
100
200
110
220
120
240
130
260
140
S. Korea
China
Japan
Braz il
Euro
280
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Currency changes
Oct 2012 to Oct. 2013
Japan -24%
China
+3%
Euro
+6%
S. Korea +4%
Brazil
-8%

10. Can China’s Leadership Transition to Consumer-Led
Economy and Maintain Political Control
November 9th
3rd Plenum of communist party
• Rural land reform and
agricultural mechanization
• Financial reform and banking
• Energy sector (oil & gas)
• Pollution cleanup and policy
Xi Jinping
New President of China

11. Chinese Growth Likely to Remain Subdued
As Export Markets Remain Weak
Percen t g ro w th rate p er year
15. 0
14. 2
Fiscal stimulus may
be needed to stay
above 7%!
12. 7
12. 5
11. 3
10. 0
10. 4
9. 8
9. 6
9. 3
9. 2
7. 8
7. 6
2012
2013
7. 5
7. 3
5. 0
2. 5
0. 0
93-02
2005
2006
2007
2008
2009
2010
2011
2014

12. Growth in the Emerging Market Countries
Has Shifted as Trade and Capital Flows Slow
Brazil
India
Russia

13. U.S. Economy Can’t Build Any Momentum
U.S. President
Ben Bernanke
FED President
John Boehner
Majority Leader
Harry Reid
Senate Leader
Deficit / Debt and Major Policy Issues Require Balancing Austerity with
Growth and Jobs and Removing Pressure on Monetary Policy

14. U.S. Policy Inaction Creates Business Strategy of
Domestic Cost Control and International Expansion
Financial sector
Financial sector regulatory reform implementation
Energy sector
New energy paradigm; Fracking technology changes
landscape! Reassessment / infrastructure!!
Immigration
Reform groundwork being laid for 2014?
Health care sector
Affordable Care Act, Medicare / Medicaid reform?
Regulatory oversight
Clean air & water, Food safety
Deficit
reduction
Changing tax policy and entitlement programs (including
farm and food programs).
Virtually every sector of the economy will be impacted and risk management
and investment strategies cannot deal with uncertainties. Companies can
measure and adjust to risk based on a set of rules. Can’t assess uncertainty!

15. U. S. Economic Recovery Remains
Subdued by Historical Standards
Percent change in real GDP
Average growth:
1980-89= 3.2%
1990-99= 3.2%
2000-09= 1.8%
2010-13= 2.2%
8
6
4
2
0
-2
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
14

16. Debt-to-Income Dramatically Improved But
Consumer Still Cautious on Credit Card Debt
Percent (debt-to-income)
140
130
120
110
100
90
Percent (net worth-to-income)
Consumption growth will track
income growth with slow credit
expansion. Consumer seems more
comfortable with debt level and
home prices are up 13% from year
earlier. But jobs and income growth
are issues?
1120
Debt-to-Income
1040
960
880
800
720
80
640
70
560
60
480
Net Worth-to-income
14
12
10
08
06
04
02
00
98
96
94
92
90
88
86
84
82
80
78
76
74
72
400
70
50

17. Consumers Cautious Attitude Regarding
Credit Card Usage Will Limit Spending Gains
Billion dollars (c hang e in 3-m onth m ov ing av erag e of c onsum er rev olv ing c redit)
10
5
0
-5
-10
The change in 3-month moving average of
revolving credit has remained weak!
(Note the 1980-82 recession experience)
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
14

18. Home Prices Edge Steadily Higher But
Price Momentum May Be Slowing
Mo n th l y S&P/ Case-Sh i l l er 20-Ci ty Ho me Pri ce I n d ex
225
200
175
150
125
100
75
August housing prices were 12.8% above a year ago but 20% below peak.
19th consecutive monthly increase after declines in previous 20 months!
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

19. September Job Gains Weaker Than Expected;
Unemployment Rate Improves
Change in nonfarm payrolls (thousand)
500
148,000 jobs created in September!
(126,000 in private sector)
(averaged 185,000 for last 12 months)
250
0
-250
Unemployment rate = 7.2 %
Underemployment = 13.6
Participation rate = 63.2%
-500
Monthly change
12-month moving average
-750
82
84
86
88
19
90
92
94
96
98
00
02
04
06
08
10
12
14

20. Corporate Profits Slowing; But Investment
and Housing Have Good Potential Into 2014
Bi l l i o n d o l l ars i n p ro fi ts; i n vestmen t at an n u al rates
2000
2000
Business fixed
investment
1800
1800
1600
1600
1400
1400
Corporate
profits (after tax)
1200
1200
1000
1000
800
800
600
600
Residential
investment
400
400
200
200
1999
2001
2003
2005
2007
2009
2011
2013

21. Energy Sector Realignments Could Be Major
Impetus for Economic Growth and Jobs

22. Policy Paralysis Is Limiting Growth!
White House
U.S. Treasury Department
U.S. Federal Reserve
Congress

23. Kick the Can to 2015 or Lay Groundwork
for Long Term Budget Agreement?
The government will reopen and will
be funded though Jan. 15, 2014 at
current levels.
The Federal debt ceiling is raised until
Feb. 17, 2014.
A House-Senate committee will issue
a budget resolution by Dec.13, 2013.
Unclear whether the budget
resolution will focus on replacing
sequester with alternative budget
cuts or defining a long term budget
agreement. The 2014 Congressional
elections will play a role.

24. Budget Debate Will Not End This Year!
Long Term Budget Challenges Remain
Defi ci t i n b i l l i o n d o l l ars
200
Reagan
G.
Bush
Percent of GDP
Clinton
G.W. Bush
Obama
2
0
0
-200
-2
-400
-600
-6%
-800
-1000
-1200
-1400
-4
-2.4%
-6
-5.3%
Deficit as
percent
of GDP
-8
Assumptions:
 phase-out in Iraq/ Afghanistan
American Taxpayer Relief Act of 2012
 Sequestration
-10
2013 Deficit
estimate
-11%
-14
21
23
17
19
13
15
09
11
05
07
01
03
97
99
93
95
89
91
85
87
-16
81
83
-1600
-12
Source: Congressional Budget Office (September, 2013), BEA and Treasury Department and forecast

25. Monetary Policy Uncertainties Continue
U.S. Federal Reserve
U.S. Treasury Department

26. Federal Reserve Will Continue To Promote Growth and
Employment in 2014-15 But Tapering?
Percent
9
8
7
Federal Reserve actions:
 Extend near-zero rate guidance to mid-2015.
10-year Treasuries
 Total of $85 bil. per month in purchases in 2013.
 6.5 % target unemployment; inflation below 2%!
6
5
4
3
2
Federal
Funds Rate
1
0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
26

27. Federal Reserve Will Continue To Promote Growth and
Employment in 2014-15 But Tapering?
Chart source: Cumberland Advisors

28. Yield Curve Moves on Expectations of
Tapering in The Near Future
Percent rate
6
5
Jan, 2007
Jan, 2010
4
Jan, 2008
Oct. 2013
Jan, 2011
+ 75 basis pts.
3
Jan. 2013
2
Jan, 2012
1
0
1 2 3
yr yr yr
5
year
7
year
10
year
20
year
30
year

29. World’s Central Banks Are in Uncharted Waters
But How Will Global Unwinding Work?
Bank of
England
Bank of
Japan
U.S. Federal
Reserve
Bank
European
Central
Bank

30. World’s Central Banks Are in Uncharted Waters: Zero
Interest Rates, $6 Trillion Added to Balance Sheets
How do they unwind in a coordinated manner?
Chart source: Cumberland Advisors

31. U.S. Dollar Has Gained Steadily Since 2011 and
Future Path is Linked to Mix of Global Policy Actions
Inde x e s of ma jor c urre nc ie s /U S$ ( Ma rc h 1 9 7 3 = 1 0 0 )
150
From 2002 to 2011 ………....... -38 %
From August 2011 bottom
to October 2013 ……….… +10 %
140
130
120
110
100
90
80
70
74
76
78
80
82
84
86
88
90
92
94
96
98
00
02
* Currencies weighted by relative market importance to total U.S. trade.
04
06
08
10
12
14

32. Transitioning from Tight Supplies to Building Stocks,
Lower Feed Costs and More Global Competition

33. Global Economic Transitions, A New Energy Paradigm and
Building Grain Stocks Will Force Market Realignments
Rising Economic
Policy
Global
Turmoil Realignment
Middle class 2009-13 2014-18
Ag ri cu l tu re co mmo d i ty i n d ex (2005= 100)
250
200
?
150
100
Old Normal
50
0
Data source: World bank
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
12
14
16
18

34. A Recovery in Global Grain Stocks Will Require
Two Years of Large Harvests; Volatility Remains
Mi l l i o n metri c to n s o f w h eat & co arse g rai n s
Sto cks-to -u se p ercen tag e
500
One good harvest will
not remove volatility!
40
400
32
300
24
200
16
100
8
W o rl d sto cks
Sto ck/ u se
34
14
10
12
06
08
02
04
98
00
94
96
90
92
86
88
82
84
78
80
74
76
0
70
72
0

35. Global Coarse Grain Supplies Have Been
Driven By Foreign Production Increases
Million metric tons of coarse grains
1000
900
800
Since 2007 non-U.S. coarse grain production has
been volatile but above the 2007/08 level every
year and may be 20% above in 2013/14!
700
Non-U.S. coarse grain output
600
500
400
300
Since 2007 U.S. grain production has been at or below the
2007/08 level every year but may be 5% above in 2013/14!
200
U.S. coarse grain output
14
10
12
06
08
02
04
98
00
94
96
90
92
86
88
82
84
78
80
74
76
70
72
100

36. Other Countries Have Stepped Up to
Provide Coarse Grains to the Export Market
Million metric tons of coarse grains
80
70
U.S.
60
50
40
30
Other major non-U.S. exporters*
20
FSU-12
10
Brazil
0
87
89
91
93
95
97
99
* Argentina, Australia, Canada and South Africa
36
01
03
05
07
09
11
13

37. Sharp Recovery in Feed Use and Exports Is Key
Boost to Corn Demand in 2013/14
Billion bushels change :
Year-over year of corn
7. 0
6. 0
5. 0
20122013
Corn price … +12% - 31%
Feed use ….. 0% + 14%
Exports ……. - 52% + 67%
Ethanol ……. - 7%
+ 5%
Feed and residual
DDG's
4. 0
3. 0
Exports
2. 0
1. 0
Food, seed & industrial
Ethanol
37
14
10
12
06
08
02
04
98
00
94
96
90
92
86
88
82
84
78
80
74
76
70
72
0. 0

38. Global Soybean Stocks Reflect Record
World Crops in 2012/13 and 2013/14
Mi l l i o n metri c to n s o f so yb ean s
Sto cks-to -u se p ercen tag e
80
40
En d i n g sto cks
Sto cks-to -u se
10
10
5
0
0
38
10
12
20
06
08
15
02
04
30
98
00
20
94
96
40
90
92
25
86
88
50
82
84
30
78
80
60
74
76
35
70
72
70

39. China Demand Remains Major Focus of
Grain, Oilseed and Cotton Markets
27% to N. Africa &
Middle east
Million metric tons or bales
175
150
Wheat
125
100
66% to
China
Coarse grains
75
Soybeans
25
Cotton
06
08
02
04
98
00
94
96
90
92
86
88
82
84
78
80
74
76
70
72
0
29% to
China
10
12
50

40. Low Cattle Inventory, Record Exports and Declining
Feed Costs Spur Meat and Dairy Sectors

41. Liquidation Phase of Cattle Cycle Signaling
Less Beef Output; Turnaround in 2015-16?
Million
head
of
inventory
Billion pounds
130
32. 5
January 1 Cattle inventory
120
30
110
27. 5
100
25
90
22. 5
Beef production
lowest since 1952
41
13
11
09
07
05
03
01
99
97
95
93
91
89
87
85
83
81
79
77
75
20
73
80

42. Beef Exports Limited by Reduced
Production; Pork and Broiler Exports Rising
Billion pounds (2000-2014)
8
Export share of
2013 U.S. production
 Broilers ….. 20%
 Beef ………. 9%
 Pork ……… 22%
 All meat .......18%
 Dairy (skim) ..16%
7
6
5
4
3
2
1
0
01
03
05
07
09
11
Beef
13
01
03
05
07
09
11
13
01
03
P ork
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
42
05
07
09
11
Broilers
13

43. U.S. Nonfat Dry Milk and Cheese Exports
Have Risen Rapidly As World Markets Grow
Thousand metric tons (2004-2013)
500
400
300
200
100
0
04
06
08
10
12
Nonfat dry milk
04
06
08
10
Cheese
12
04
06
08
10
12
Butter
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
43
04
06
08
10
12
Dry whole milk

44. Protein and Dairy Complexes Responding
to Lower Feed Costs and Strong Demand
Billion pounds of milk
Billion pounds of meat
40
240
Broilers
Percent change in total meat output
2010
2011 2012 2013 2014
1.3% 0.7% 0.2%
1% 0 to +1
35
210
Milk
30
25
180
150
Beef
20
120
Pork
15
90
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
44
60
30
0
14
12
10
-5 to -6%
+3 to +4%
+1 to +2%
08
-1.2%
+0.6%
+0.7%
06
98
96
92
90
88
86
84
82
80
78
76
74
0
94
Pork
Milk
04
5
02
Broilers
Beef
00
10
Production Change
2013
2014
+2.0%
+2 to +3%

45. Lower Crop Prices and Stronger Livestock Prices
Bringing Needed Realignment But Costs Rising
Index (1990-92= 100)
250
Sector is operating at higher price and cost levels
with greater volatility …… more working capital to received: crops
Prices
play, less leverage permitted and more emphasis
on well-defined risk management policies!
225
200
175
Prices paid*
150
125
100
Prices received: livestock
13
20
12
11
20
20
10
20
09
20
08
20
07
06
20
20
05
20
04
20
03
20
02
01
20
20
00
20
99
19
98
19
97
19
96
19
95
19
94
19
19
93
75
*Prices paid commodities & services, interest, taxes and wage rates
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
45

46. Farm Income Will Realign with Emerging Transitions
And Better Balance Among Commodities
Billion
dollars
150
125
100
Improving margins in the protein and dairy sectors
could emerge with large 2013 harvests. Declining
crop prices would be offset with larger volumes. Net
cash income likely to be third largest but further
declines may be coming in 2014!
75
Net Farm Cash Income
50
25
Direct government payments*
0
78
80
82
84
86
88
90
92
94
96
98
00
* emergency payments are striped area of government payments)
46
02
04
06
08
10
12
14

47. The Strong Balance Sheet For Much of
Agriculture Will Cushion Any Transition
B illion dollars
B illion dollars
Change 1970-1980
Change 1980-1990
Change 1990-2000
Change 2000-2010
Assets ... +259%
Debt ....... +235%
3000
Assets ... -16%
Debt ....... -19%
Assets ... +43%
Debt ....... +25%
Assets ... +96%
Debt ....... +70%
600
Change 2010-2013
Assets …. +28%
Debt ……....+11%
2500
2000
500
400
Farm assets
(left scale)
1500
1000
300
200
Farm debt
(right scale)
500
100
14
12
10
08
06
04
02
00
98
96
94
92
90
88
86
84
82
80
78
76
74
72
0
70
0

48. Market Transitions Will Provide More Opportunities and
Risk and Place A Greater Premium on Management

49. Market Transitions Will Provide More Opportunities and
Risk and Place A Greater Premium on Management
Market volatility will continue and the growing export reliance for all ag
sectors will increase exposure to global policy shifts and add new risk.
Risk management strategies will need reevaluation with particular focus
on integrating margin and marketing strategies, cost controls, crop and
revenue insurance, regulatory compliance and counter party risk.
Precision agriculture technologies and data mining to control costs and
boost production will be integral ingredients in the transition strategies.
New opportunities will emerge as grain flows shift to feed and export
channels and new niche markets and storage options emerge.
Understanding these evolving domestic and global supply chains is key.
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

50. Market Transitions Will Provide More Opportunities and
Risk and Place A Greater Premium on Management
Competitive pressures in the global market will intensify as foreign
productive capacity has expanded. Multinational companies will
aggressively seek positions in both U.S. and global supply chains.
Infrastructure issues such as locks & dams, widening of Panama Canal &
emerging market infrastructure investment will impact competitiveness.
The meat and dairy sectors will need to realign alliances and capital
deployment strategies to develop products and global supply chains to
serve preferences of foreign markets and avoid residual supplier status .
The market demands for more regulatory scrutiny of the food chains will
impact domestic and global supply chains. Food safety, animal welfare,
traceability, sustainability and environmental regulations will be global.

51. Market Transitions Will Provide More Opportunities and
Risk and Place A Greater Premium on Management
The pace of consolidation, both horizontally and vertically, will accelerate
at all stages of the global supply chains as margins tighten, scale of
economies dominate and liquidity capital is deployed.
Major tax code changes are coming. New rules on depreciation, 1031
like-exchanges, accounting options, estate taxes, etc. could alter
previously optimal business structures and strategies.
Investments in equipment, land ownership and rental commitments will
need to be reassessed in new marketplace
A strong balance sheet with significant working capital and strong risk
management policies will be critical in accessing the increasingly
expensive debt capital required to implement transition strategies.

52. The Global Economy and
Agriculture in Transition