Top Producer Conference Chicago, Illinois January 21, 2009

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1 Top Producer Conference Chicago, Illinois January 21, 2009 A Primer on Risk Management 2009 Jeff Beal JERRY GULKE S STRATEGIC MARKETING SERVICES, INC. PO BOX 6222, ROCKFORD, IL, Phone: Web Site: jeffabeal@aol.com

2 Fundamentals What took us to the dance?? Back to back wheat crop failures Food vs Fuel China and India eating better/olympic buildup Fund trade The USD

3 What happened? US Gov went after inflation by attacking the speculator Expensive energy, very expensive freight, high priced commodities = DEMAND DESTRUCTION Over leveraged Financial Firms experienced a credit contraction brought on by falling US housing values Consumers started to pull funds from risk investments --- it continues today Tight Credit all over the world has contributed to a developing GLOBAL RECESSION --- eroding demand weakened equities High world wheat prices led to expanded acres Mother Nature cooperated, yields responded

4 THE BIG PICTURE

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6 Dec 23, 2008 The shortest-dated Treasurys the U.S. government sells caught fire Tuesday, as investors lunging for a place to protect their cash bought up $32 billion in four-week bills at an unprecedented yield of 0% and pushed the yield on the three-month bill briefly below that mark. The three-month yield fell to between negative 0.1% and 0.2%, according to two traders at separate Wall Street banks. The traders, however, couldn't confirm if trades were executed at these levels. By afternoon trade, the yield moved back into positive territory to 0.04%.

7 United Airlines Jan 21, 2009 The recent quarter included $370 million in cash losses on fuel hedges that settled in the quarter, the company said. Further, UAL recorded a $566 million non-cash charge for net mark-to-market losses on its fuel hedges.

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9 Jan 12 USDA Report Increased exports 50M and still RAISED soybean ending stocks by 20M bushels Increased corn stocks another +300M bushels We will NOT run out of corn before harvest 2009 and most likely won t run out of Soybeans! The threat of losing corn acres to beans is no longer a price threat. Last weeks high ($10.38 for Nov Beans $10.59 for July contract) must now be taken out if beans are going to mount a sustained rally.

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12 Something for the bulls

13 Argentina Jan 9, 2009 My crops are hurting...corn is getting fried and 1st crop soy is loosing yield.. (pampas region) Argentina Jan 21, 2009 We are suffering from hot weather, a bad drought, bad world prices, and bad government. An awful cocktail!!!! Corn production will be down drastically, soybean still has some time to recuperate. Corn acres and estimated yield are down. (buenos aires and pampas)

14 Strong bean exports to China continue

15 TABLE-Goldman expects agriculturals to outperform energy Agriculture Price Proj. 3mo 6mo 9mo CBOT Wheat cent/bu CBOT Soybean cent/bu CBOT Corn cent/bu Reuters Jan 13, 2009

16 Things to watch in 2009 Planted acres estimates Fertilizer and input costs Chinese bean purchases---especially after Feb How quickly fund money comes back if it does at all Monthly S/D reports, quarterly Stocks reports Demand destruction is still a major threat we re not out of the woods by a long shot USDA confirmed that yesterday Production destruction could become a harsh reality, especially outside of the US

17 Ways to manage risk Know your supplier and your buyer Spend time learning and using fundamental and technical analysis for decision making Marketing can make a HUGE difference Make a plan, but be flexible, just as you are in your operations If you can t do the marketing, you better hire someone good to do it for you Volatility did NOT end with the economic crisis get used to it!

18 Jerry Gulke Trading Quotes: - We don t sell late day rallies, and we don t buy late collapses - Up is up and Down is down - The ship has sailed - A free market is NOT necessarily a fair market - The job of the market is to take prices high enough so that we don t run out - You can miss it on the way up, but as producers, you better not miss it on the way down! - Upon hearing the airline lost my luggage with my suit in it start with the bar---watch for someone your size to come in and then snatch their coat---it is a start---maybe trade the coat for a suit later?

19 Jerry Gulke Trading Quotes: - How the market reacts to a report is MORE IMPORTANT than the report itself. Marketing is not about being right--- it s about doing right!!

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31 Jerry Gulke Managed Bushels Program

32 Jerry Gulke Managed Bushels Program

33 Jerry Gulke Managed Bushels Program

34 Soy Fundamentals

35 China Import Dependence Growing - WAOB

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56 Wheat Fundamentals

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70 USDA World Outlook Board Projections World Production

71 What will the mix be for 2009?

72 Report day is coming Jan 12: Minor acreage adjustments Slight reduction in corn yield All three demand components are in trouble Corn S/D will probably reflect demand destruction and increase c/o back to 1.6B Bean crush lowest in 5 years Exports second largest in history So, tight stocks, but S/D s will factor in losses in demand to lead to increase in 08/09 carryout by 40-50M bushels

73 Jerry Gulke Trading Quotes: - We don t sell late day rallies, and we don t buy late collapses - Up is up and Down is down - The ship has sailed - A free market is NOT necessarily a fair market - The job of the market is to take prices high enough so that we don t run out - You can miss it on the way up, but as producers, you better not miss it on the way down! - Upon hearing the airline lost my luggage with my suit in it start with the bar---watch for someone your size to come in and then snatch their coat---it is a start---maybe trade the coat for a suit later?

74 Jerry Gulke Trading Quotes: - How the market reacts to a report is MORE IMPORTANT than the report itself. Marketing is not about being right--- it s about doing right!!

75 Technicals

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78 $ per acre Net Returns Outlook Corn and Soybeans Spring 2006, 2007 & 2008 vs. Fall 2008 (2009 crop) Corn Soybeans Note: Net returns are above variable costs crop outlook reflects current estimated costs and Nov. and Dec futures adjusted for current Central IL basis (11/12/08).

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80 Real GDP Growth and Trend