“Implication of 2012 drought for US, Ukraine and global markets: the FAPRI outlook By William H. Meyers and Kateryna Goychuk Howard Cowden Professor and PhD Candidate Agricultural and Applied Economics FAPRI at MU Grain Congress 16 October Kyiv, Ukraine

Is this the new normal? World Bank Price Indices 2005=100

Agenda What is the FAPRI market outlook? Implications for Grain markets

From different times and sources

What is a baseline and how is it used? It is not a forecast It is a projection based on a set of reasonable assumptions about Macroeconomic outlook Technology outlook Policy outlook

Oil price assumed to moderate

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

Drop in US corn yield, bu/ac --three in a row!

Not just maize, but wheat too (USDA WASDE Oct 11, 2012) Production (mil mt)2011/122012/13change Coarse Grains USA Rus + Ukr Wheat Kaz+Rus + Ukr USA

Big drop in world grain supply

As in 2010, prices react to drop

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

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 Stochastic results show uncertainty

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

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

Soybean Price Uncertainty Source: FAPRI-MU August 2012 stochastic baseline

Agenda What is the FAPRI market outlook? Implications for Grain markets

What to expect Continued prices higher than before the 2007/08 price surge Continued price volatility from year to year and from week to week Beware of many uncertainties that can impact markets at any time.

Unknowns and uncertainties High volatility likely to continue Major uncertainties in the markets Policy proposals and policy reactions Oil/Energy prices Exchange rates World price surges Financial crises Weather events/climate change

Diakuju! !