De Putter Marketing Seminar Advanced Farm Management Program

De. Putter Marketing Seminar Advanced Farm Management Program London, ON | January 2015 © Copyright 2015 1

1. Step back. The Mega-Cycles Agriculture is cyclical • The ability to ride out cycle lows is vital to long-term success, if not survival A super-cycle crest in corn prices & profits is past 2

Macro-economic up-shifts Represented by corn, world’s largest coarse grain 3

Land is part of the Mega-Cycle Canadian Farmland Values up • Who needs gold? • Who needs oil? • What you really want… is soil! Across Canada, average farmland values have soared, pushing the net worth of farmers to levels not dreamed of 10 years ago.

More on the Mega-Cycles… It’s been easy. Tougher times are ahead. Cash-crop gross, net income poised to turn down? We think so! See De. Putter Special Report – Ag Overview.

Turning down… Crop Values are leading indicators • Total crop value on the way down after record highs • Good leading indicator for land prices, rents, which follow with delayed reactions

What about land? Delayed reaction to cash-crop profits Key factors in land values: 1. Gross Farm Revenue. It’s coming down. 2. Interest rates. Still easing, but will it have much impact? 3. CPI , Economic Growth modest. Set to decline in oil-based provinces. No immediate crash ahead, but there is another side to the farmland price mountain. 7

The Mega-Cycles High prices cure high prices • The boom has brought out typical, classic topping signals for crops, land. • Farmers always answer the market’s call for more grains & oilseeds • Mother Nature plays a role in the timing. • The free markets always fix shortages. Eventually.

After the spikes launching the macroupswing, expect a levelling off process. . . • Highs for new trading range are in place. Corn, 1975 - 2015 • Possible low ebb for new trading range, $3 - $4? • Markets tend to form mountain peaks and valley lows (long, slow valleys). 9

Levelling-off era will include wide swings within the new, higher trading range. . . • Long-term peak is also in place for soybeans. Soybeans, 1975 - 2015 • Beans are farther above their low ebb than corn • Expect < US$9/bu soybeans, as advised past 2 -3 years. 10

Wheat relaxed long ago, into its new range. • 2008 spike will stand for many years Chicago SRW Wheat, 1975 - 2015 • Low ebb for Chicago wheat may be around US$5. 11

Conclusions • We’ve seen the 30 -year explosion and the highs • Levelling off process involving new (higher) trading range could last 2030 years • Next round of bull markets will not likely bring new highs to most markets. 12

Cyclic swings for livestock The tables will turn in favour of meats! us o i v Pre ges: sa s e m • Agriculture is a history of swings from good times in crops and tough times in livestock, to the reverse. • Historic drive toward efficiency, productivity will shift the timing, amplitude of the cycles, but will not destroy them. 13

The actions of the past cannot be undone. The cow factory has been dramatically downsized. • Beef cow herd at 29. 7 million head, down 2. 5% compared to July, 2012. • Latest data: US heifers held back for beef cow replacement were 4. 1 million - down 2. 1% compared to July 2012. Source: USDA Note: No July report in 2013 due to US budget cuts Next inventory report due Jan 30, 2015 14

US Calf Crop still falling Fewer calves = less beef ahead Source: USDA Smallest calf crop since the late 1940 s! The peak in calf numbers was in 1974. 15

Others tripled, quadrupled during boom Can cattle do that? ($60 X 3 = $180) H Live Cattle, 1974 - 2015; 10 -12 year cycle Live Cattle, 1974 - 2014 H* H H L or L L L *Canada missed the 2003 -04 cycle high, due to BSE 16

Cattle: Corn Ratio Reflects improved margins 17

Feeder Cattle: Corn Ratio Price of feeders vs corn hit new all-time high Peak in November From one extreme to the opposite extreme 18

Hogs: macro-upswing less bullish 3. 5 year cycle topped last spring Lean Hogs, 1975 -2015 ? Next low due late 2015, early 2016 19

Key point: There will always be a place for meat production • Past several extreme low years won’t be repeated for many years, decades, or maybe never. • That said, the current profit extreme will come and go too… 20

The Mega-Cycles Summary: The long-term perspective • • Look for generally tighter cropping margins. . . for 10 years or more Expect a levelling off in farmland value trend. . . possibly setbacks Be ready for some equity bleed. . . Far fewer lottery wins Prediction: More interest in value adding crops, premiumpaying crops, diversification & risk management Good news: Down to earth.

The Mega-Cycles During your career. . . • Take time to review a big-picture perspective • Understand markets swing from expensive to cheap. . . And back • Think independently. Don’t believe myths, old refrains, the beliefs of the crowd. . . Until you’ve considered/researched them yourself • The crowd is often right during primary, long-term trends but drastically wrong at major turns

Crashing crude also part of cyclic swing! From $108 to $46 in about 8 months Crude Oil (nearby future, monthly), 1990 -2015 ges: a s s e ycles M c d l o age e h t f o -Pro well d n a e ary n are aliv o i t a l f fies de i l p m e -Ex orld w y t i d commo S, not U r o f lus -Stimu a Canad sts to o c t u p er in w o l l l i -W ee a degr Initial Boom peak Recovery Rally Crash Low 23

Cdn $: Backing off with crude and other commodities Canadian Dollar (nearby future, weekly), 1992 -2015 Messages: -Weaker Cdn $ continues to be a net benefit to farmers Boom peak Recovery Rally -Short-term bounce may happen with crude, metals. -But no long-term upside worries today Crash low 24

Cheapest money in at least 300 years How much longer? Source: AHIP/Bloomberg 25

Geopolitical Shifts can surprise us The world is inter-connected 26

Key point #4 The latest Investment & Planning Strategies • Looking for Value • Low Risk with upside potential • Not too many bargainbasement buying opportunities out there • Age of easy asset appreciation is over. (Buy today – it’s worth more tomorrow… ) 27

What to do? Invest in efficiency, productivity & value adding… - Instead of adding more “assets!” • Precision agronomy, yield-enhancing methods… • People power… • Relationship building… • Add value with premiums. IP premiums, seed premiums, quality premiums, specialty markets that pay more than traditional markets… • And storage premiums (which can be acquired when cash-flow is not a problem…) involving selling into the “carry. ” 28

Celebrate the Cycles They are a healthy aspect of agriculture.

jdeputter@agalert. ca 1 -800 -434 -0834 © Copyright 2015 30