“Implication of 2012 drought for US , Ukraine and global markets: the

FAPRI outlookBy

William H. Meyers and Kateryna GoychukHoward Cowden Professor and PhD Candidate

Agricultural and Applied EconomicsFAPRI at MU

Grain Congress 16 OctoberKyiv, Ukraine

AgendaWhat is the FAPRI market outlook?

Implications for Grain markets

What is a baseline and how is it used?

It is not a forecastIt is a projection based on a set of reasonable assumptions aboutMacroeconomic outlookTechnology outlook Policy outlook

Ethanol growth slows, Jan 2012

Source: USDA FAPRI-MU baseline, January 2012

So what happened this year?US and Kaz-Rus-Ukr drought greatly changed market outlook

FAPRI updated the baseline in August

Briefly review that change A taste of August 2012 outlook

Not just maize, but wheat too (USDA WASDE Oct 11, 2012)

Production (mil mt)

2011/12 2012/13 change

Coarse Grains 1148.9 1110.1 -38.8 USA 323.7 284.2 -39.5 Rus + Ukr 66.1 56.9 -9.2Wheat 695.0 653.0 -42 Kaz+Rus + Ukr 101.1 64.0 -37.1 USA 54.4 61.8 7.4

U.S. maize farm price projections, Jan 2012

Sources: FAPRI-MU baseline, Jan. 2012; USDA, May 2012; CME Dec. contracts, June 8, 2012

U.S. maize farm price projections, August 2012

0

50

100

150

200

250

300

350

05/06 07/08 09/10 11/12 13/14 15/16 17/18 19/20 21/22

Dol

lars

per

met

ric to

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FAPRI Jan USDA Oct Dec fut. Sept 8 FAPRI Aug

Sources: FAPRI-MU baseline, Jan. and Aug 2012; USDA, Oct 2012; CME Dec. contracts, Oct 11 2012

Ethanol also adjusts to high price

Source: USDA FAPRI-MU baseline, January 2012 and August 2012 update

World Grain Prices, Aug update

World Oilseed Prices, Aug update

Source: FAPRI-MU August 2012 stochastic baseline, Refiners’ acquisition price

Price volatility to continue

Source: FAPRI-MU August 2012 stochastic baseline. Maize FOB Gulf prices

Maize price uncertainty

Source: FAPRI-MU August 2012 stochastic baseline, US FOB GULF PRICE

Source: FAPRI-MU August 2012 stochastic baseline, HRW WHEAT US FOB GULF

Source: FAPRI-MU August 2012 stochastic baseline

AgendaWhat is the FAPRI market outlook?

Implications for Grain markets

What to expectContinued prices higher than before

the 2007/08 price surgeContinued price volatility from year

to year and from week to weekBeware of many uncertainties that

can impact markets at any time.

Unknowns and uncertaintiesHigh volatility likely to continueMajor uncertainties in the markets

Policy proposals and policy reactions Oil/Energy pricesExchange ratesWorld price surgesFinancial crisesWeather events/climate change

Diakuju!!