Decision Support
Tool & Market
Outlook
USB – QSSB:
Partnership Workshop
May 30, 2013
Agenda

Decision Support Tool (DST)
◊Conceptual Overview of the DST
◊Guided Tour of the DST

Market Data
◊Strategy vs. Tactics
2
Decision Support Tool
3
What is the DST?
The Decision Support Tool (DST) is designed to provide the USB Farmer
Directors and stakeholders with information and to guide them through a
logical thought process to help make better in-season and annual
budgeting decisions, where annual budgeting and planning processes are
aligned with the organization’s long range strategic objectives.
It is not meant as a substitute for the unique insights that every farmer director
will bring to the process. It is not something that is going to make a decision for
you, but it’s something that will assist you in making good strategic decisions
for USB.
4
DST Overview
5
STRATlink Survey Questions

STRATlink Survey – Guided Information Thought Process
◊ Information from other DST elements is summarized in information modules
preceding STRATlink questions, aimed to help directors make informed
decisions regarding the survey budget allocation questions.

Questions: Set 1 - Allocation
across Strategic Objectives /
Action Teams
Meal
1. Impact on Farmer Profitability
2. USB Ability to Impact
3. Resource Need
Customer
Focus
Oil
Freedom to
Operate
Total
Allocation across Action Teams
29%
24%
25%
21%
100%
Allocation within Action Team by Target Area
Thought
Process
4. Budget Allocation by Strategic
Objective / Action Team
Domestic Opportunities
27%
38%
29%
29%
31%
International Opportunities
28%
17%
27%
18%
23%
Supply
29%
27%
20%
17%
24%
Communications
16%
17%
24%
36%
22%
100%
100%
100%
100%
100%
Total
6
STRATlink Results
The two screenshots show how
the allocations across action
teams are displayed in the
results section of the at the end
of the STRATlink Survey.
7
STRATlink Survey Questions

Questions: Set 2-4 - Allocation within Action Team
by Target Area
1. Ability to Influence USB Strategic Objectives.
2. Target Area Resource Need within Action Teams.
3. Action Team Budget Allocation by Target Areas.

Survey is repeated for Oil, Customer Focus, and
Freedom to Operate
Meal
Customer
Focus
Oil
Freedom to
Operate
Total
Allocation across Action Teams
29%
24%
25%
21%
100%
Allocation within Action Team by Target Area
Domestic Opportunities
27%
38%
29%
29%
31%
International Opportunities
28%
17%
27%
18%
23%
Supply
29%
27%
20%
17%
24%
Communications
16%
17%
24%
36%
22%
100%
100%
100%
100%
100%
Total
8
STRATlink Results
The two screenshots show how the
allocations across target areas within
action teams are displayed in the results
section at the end of the STRATlink
Survey. These are the results for the Meal
action team, but the results pages for Oil,
Customer Focus, and Freedom to Operate
are similar.
9
Why is QSSB involvement important?

USB Directors specifically asked for it – need your
input.

QSSBs have unique insights into regional-specific
dynamics.

The DST/STRATlink is a unique way to capture QSSB
opinion.
10
Guided Tour of the DST

http://USB.informaecon.com
11
Market Data
Strategic insights vs. tactical
considerations
12
Market Data: Strategic Insights
Drawn from DST!
13
Strategy Versus Tactics
They are often confused!

Strategy: High level planning that uses the distinct advantages of an
organization to allocate scarce resources to achieve specific goals.

Tactics: A statement of specific actions, within the context of a
strategy, that will lead to the achievement of goals.

Information used in strategic decision making is similar but not the
same as information used in tactical decisions.
◊ Timeframe differences
◊ Trends (e.g. price trends versus price fluctuations, consumption trends
◊
◊
versus consumption fluctuations, etc.)
Global versus local
“What” the data is telling us versus “how” we should react (with tactics)
to the data.
14
Strategic Insights

Over time soybean acres in the US are expected to gain on
corn.

Meat consumption in the US has been flat.

Domestic food use of soybean oil has been in decline.

Biodiesel production has reached new levels.

Given higher soybean acres and flat to lower domestic
meal/oil levels, exports are going to be very important.

Very tight US stocks.

Controlling the supply chain as a way to achieve food security.
15
Over time soybean acres in the US are expected to gain on corn.
• Impact of leveling
off of the RFS.
• Cotton and wheat
have difficulty
competing with
corn/soy
economics.
• Can the US
compete with
Brazil for soy
acres?
16
The US is increasingly a corn-soy farm
economy.
17
Flat domestic meat consumption has kept
meal consumption flat.
• Meat exports have
been a bright spot in
the industry.
• DDG impact has
reached a peak?
• Canola meal has
made inroads-will
this continue?
• Why has canola use
grown?
18
Flat domestic meat consumption has kept
animal numbers slow growth to flat.
19
Poultry had been the main driver of
increased meal demand.
Cattle hit especially
hard by the drought.
Poultry profitability
has been sustained.
Many hog producers
were able to forward
contract in 2012 and
lock in margins.
How hard hit were
non-US livestock
operators by high
prices in 2012/13?
20
Per capita domestic food use of edible oils
has been in decline.
Slow growth
economy and
efficiencies have
hurt per capita
consumption of
edible oils.
Soy oil has lost
ground to other
oils. Trans fat and
price issues?
Can high oleic soy
oil recapture market
share? How best to
deploy quality
enhancements?
21
Canola and palm oil have displaced soybean oil
in food uses.
Canola and palm oil
have gained ground
relative to soy oil.
Should we compete
on price or quality
dimensions or
both?
22
The bright spot: Biodiesel production has
reached new levels.
Soy oil has the lions
share of biodiesel
production.
There is a limited
volume of animal
based material
available.
How will future energy
policy shape biodiesel
production in the
future?
How best to develop
additional new uses
for soy oil?
23
Biodiesel margins have rebounded but have
been volatile.
A direct
relationship
between biodiesel
usage and
margins.
Are there ways to
boost biodiesel
margins outside
of the policy
area?
Will we need
additional
biodiesel
capacity?
24
Given higher soybean acreage and production,
soybean exports are going to be very important.
Soybean exports could
go to 2.025 bil. bu. by
16/17 (see next slide).
Which markets? China?
Do we have the right
infrastructure?
25
Long-term supplies look ample, but we have had very
tight stocks and high prices the past two years.
Have tight
stocks/high prices
done long-term
damage to demand?
Are we still viewed as
a reliable supplier by
both domestic and
export customers?
Given higher supplies
in the future, how can
we attract demand?
Exporting
beans/meal/oil versus
exporting meat:
which is better? 26
Controlling the supply chain as a way to
achieve food security.
MAY 29, 2013, 7:51 AM
Smithfield to Be Sold to Chinese Meat
Processor
BY MICHAEL J. DE LA MERCED AND DAVID BARBOZA
1:07 p.m. | Updated
Smithfield Foods, one of the country’s biggest pork producers, agreed on
Wednesday to sell itself to one of China’s biggest meat processors for about $4.7
billion, a deal that would be the largest takeover to date of an American company
by a Chinese one.
The transaction will almost certainly face heightened scrutiny from American
government regulators, including over issues of national security. Smithfield and
Shuanghui plan to refer their transaction to a government panel that oversees
foreign investments in the country.
Still, Smithfield has argued that the deal will be good for itself and the American
farm industry by opening a broad path to selling more pork into a country with a
growing appetite for meat.
The deal also fulfills one of the ambitions of the Chinese government: to
encourage companies to go abroad by acquiring assets and resources and
technical expertise.
In North America, Africa and Australia, Chinese companies, flush with cash, are
buying up land and resources to help a country that is plagued by water shortages
and short of arable land, a situation exacerbated by a long running property and
infrastructure boom.
27
Market Data
Tactical Considerations
28
Overview

US supplies tight in 2012/13 due to poor crop, strong
demand before South American harvest.

US soybean exports have fallen; meal exports
competitive with Argentina until recently.

US soybean oil stocks likely to drop sharply.

2013 South American harvest record large.

US soybean stocks to rebuild in 13/14 on better
yields, larger export competition.

Soybean and meal futures have moderated from
record levels in Sep. 2012; US basis strong.

Lower prices expected after 2013 US harvest.
29
2012 US Soybean Crop Smallest in 4 Years

2012 crop of 3,015
million bushels
smallest since 2008

Area up, but yield of
39.6 bu./acre was
smallest in 9 years

2013 crop forecast at
a record 3,388 million
bushels on record
acreage, yield of 43.9
bu./acre

Only 24% planted as
of May 19; 5-year
average is 42%
30
Stocks Very Tight in 12/13, Rebuilding in 13/14





US supplies very tight due
to small crop, strong
exports before S.
American harvest
Stocks/use ratio has been
no lower than 4.5% since
1970; USDA’s forecast of
4.0% seems unrealistic
Imports forecast larger
than normal
Late planting may prolong
the wait for this year’s
crop
Larger crop to allow
stocks to rebuild in
2013/14
31
Soybean Exports Small After Strong Start

2012/13 US soybean
exports started
strong due to
reduced competition
from South American
supplies

Mar/Aug exports
small due to high US
prices, strong Brazil
exports

Similar pattern seen
in 2003/04

China has cancelled
some purchases of
US soybeans
32
Soybean Crush Very Front Loaded

US soybean crush
strong first half of
2012/13 on large
meal exports

Similar to 2009/10,
which also followed
S. America drought

Tight supplies to
restrain crush until
this year’s harvest,
similar to 2003/04

Crush margins
currently low due to
high soybean prices
33
Soybean Basis Extremely Strong

US cash soybean
prices well above
nearby futures with
supplies very tight

Central Illinois basis
has been above recent
years since November

Soared this month
because May futures
(the nearby contract
during Mar. & Apr.)
were well above July
futures, which became
the nearby this month
34
2012/13 Meal Supplies Tight on Strong
Exports

Tight soybean supplies
to limit 2012/13 crush

Domestic meal use
down on lower feeding
rate (2011 crop had low
protein content)

Exports strong on
reduced South America
supplies

Imports forecast at
double normal

Smaller exports, larger
domestic use seen in
13/14
35
US Meal Competitive with Argentina Until
Recently

Argentina meal basis
strong amid slow
farmer selling of 2013
soybean crop

Brazil basis weak, but
soybean exports taking
precedence there

US basis strong, but
competitive with
Argentina until recently

US export sales strong
longer than expected
36
Biodiesel Growth to Reduce Soybean Oil
Stocks





Small crush this summer
to restrain 2012/13
soybean oil production
Exports well above last
year
Ending stocks forecast to
drop to 1.7 billion pounds
Moderation in oil yield
from record level to limit
13/14 production
Larger biodiesel
production to offset
smaller food use &
exports, keeping stocks
fairly tight
37
Biodiesel Production to Increase Further





Biomass-based diesel
usage mandate grows to
1.28 bil. gal. in 2013 from
1.0 bil. in 2012
Biodiesel also to help meet
advanced biofuel mandate
Return of blender credit has
boosted production
margins
Soybean oil usage seen at
4.95 billion pounds in
12/13, 5.50 billion in 13/14
Industrial-grade corn oil
usage rising, canola oil is
price sensitive
38
Soybean Oil Stocks Expected to Plummet

US soybean oil stocks
currently large due to
strong Sep/Feb crush,
high oil yield of 2012
crop

Stocks forecast to
plummet this summer
as tight supplies
restrain crush &
biodiesel production
grows

Strong biodiesel
production to limit
extent that stocks
rebuild in 2013/14
39
US Soybean Oil Prices Well Above South
American

US soybean oil basis
strong with stocks
likely to fall

Brazil basis weakest
since early 2009

Argentina basis also
weak due to drop in
biodiesel exports to
Europe

US soybean oil
exports likely small for
the remainder of
2012/13 and during
2013/14
40
South American Soybean Crop Record Large

South American soybean
production increased
from 115.8 million tonnes
in 2011/12 to 148.6
million in 2012/13

Increased area, rebound
in yields

Brazil production of 82.0
million tonnes essentially
matches US (82.1 million)

2013/14 South American
crop forecast at 154.7
million tonnes
41
Brazils Soybean Exports Surge on Large Crop

Record production on larger
area, rebound in yields

Soybean exports going
strong (mainly to China)

Crush expected to increase
modestly on rebound in
domestic soybean meal
usage

Meal exports slightly lower
as soybean exports take
precedence

Growth in biodiesel
production limiting soybean
oil exports
42
Brazil Showing Huge Export Capability
43
Slow Farmer Selling of Argentina’s Large Crop






2013 production near 2010’s
record on large area, rebound in
yield
Argentina more export oriented
than Brazil, especially for
products
Farmer selling slow due to high
inflation
Slow start to export season for
soybeans and meal
Ending stocks to stay relatively
large
Soybean oil exports to rise on
larger supplies, reduced
biodiesel exports to EU (biodiesel
import tax expected)
44
Argentina Soybean Meal Exports Slow



Argentina soybean
meal exports below
average for most of
2012/13 marketing
year after drought
reduced 2012 soybean
crop
Despite large 2013
crop, slow farmer
selling has kept meal
exports below normal
so far in 2013/14
Soybean exports also
sluggish, but corn
exports are large
45
China Drives Soybean Import Demand
Growth





Soybean exports from
major exporters seen
increasing 2.9 million
tonnes in 2012/13
Forecast to increase 2.3
million tonnes for China,
0.8 million for Europe
Total projected to
increase 9.0 million
tonnes in 2013/14
China seen increasing
9.6 million tonnes
(rebuilding stocks)
Europe down 2.0 million
on larger meal imports
46
Meal Import Demand Down on Smaller
Supplies

World soybean meal
import demand seen
down 4.4 million tonnes
in 2012/13

Tight supplies, slow start
for Argentina

Down 2.9 million tonnes
for Europe (importing
more soybeans due to
Argentina’s smaller meal
exports)

Larger supplies to allow
improvement in 2013/14,
especially for Europe
47
World Biodiesel Production Growth Slowing





World biodiesel
production increased
only slightly in 2012
Most of increase was
in Indonesia
EU-27, US, Brazil
and Argentina flat
 Larger increase
expected in 2013
US to account for
most of growth (larger
mandate)
Argentina to drop on
smaller exports
48
Palm Oil Dominates Vegetable Oil Trade




Soybean oil exports
have declined due to
increased usage in
biodiesel production
Palm oil trade forecast
at 39 million tonnes in
2013/14 vs. 20 million
just ten years earlier
Sunflower oil trade
moderating from record
in 2011/12
Rapeseed/canola oil
trade boosted by growth
in Canada’s crushing
capacity
49
China Lowering Stocks in 12/13, to Rebuild in
13/14






China soybean imports grew 6.9
million tonnes to 59.2 million in
11/12
Smaller growth to 61.5 million
tonnes expected in 2012/13
Reduction in stocks, slower meal
demand growth amid high prices
Larger meal exports
Soybean imports forecast at
71.0 million tonnes in 2013/14
on lower prices, better meal
demand growth and rebuilding of
stocks
Soybean oil imports rebounding,
but still below late 2000s
50
China’s Stocks Reduced Amid High World
Prices

China’s soybean stocks
at ports below 4 million
tonnes for first time since
Dec. 09

Well below peaks near 7
million tonnes in 2011/12

Large stocks allowing
China to import less at
high prices

Stocks likely to rise in
next few months as huge
shipments arrive from S.
America (mainly Brazil)
51
Soybean Futures to Decline into US Harvest

Tight old-crop US
supplies expected to
limit downside for
soybean futures until
this year’s harvest

Stronger basis, wider
old-/new-crop
inverses will be
needed to achieve
necessary rationing if
futures drop earlier

Lower prices
expected in late 2013
& into 2014 if US yields
rebound
52
Similar Outlook for Soybean Meal

Tight supplies also likely
to underpin soybean meal
futures until new-crop
soybeans are available to
crush

Strong exports could put
rationing task on domestic
livestock industry

Soybean meal looks to
have more downside
potential than soybean oil
53
Decline in Stocks to Bolster Soybean Oil
Prices

Soybean oil futures
expected to rise this
summer as US soybean oil
stocks plummet

Basis has firmed, and
likely will continue to

Futures projected to
decline as soybean prices
drop this fall

Less downside risk than
soybeans and meal as
biodiesel growth keeps
soybean oil stocks fairly
tight
54
Oilseeds Summary

Old-crop US soybean supplies very tight

Brazil’s soybean exports going strong; Argentina’s
limited by slow farmer selling

China’s soybean stocks declining in 2012/13,
forecast to increase in 2013/14

Tight US supplies to underpin soybean and product
futures & basis levels until harvest

Late planting to prolong the wait for 2013 crop

Soybean and meal futures to drop into harvest

Large biodiesel production to limit rebound in
soybean oil stocks and the downside for prices
55