Commodity Market & Futures Industry Update

By: Rich Feltes V.P. & Director Refco Global Research

2003 Global Futures Volume by Category

4000 3500 3000 2500 2000 1500 1000 500 0
Eq ui ty
42%
Mil contracts

% change vs 02 on top of bar

- Foreign markets growing faster than US - Foreign dominated by electronic trade

27% 15% 31% 4% 26%

En er gy

uc on ts -P re c M et al s

In te re st Ra te

In di ce s

SS F

Co m

m d.

Ag

Pr od

2003 Futures Volume by Exchange

Mil contracts

2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0

50%

% change vs 02 on top of bar 03 Dalian Futures Ex. Vol. up 54.9% vs. 02 to 75 mil con. 27% 0%

15%

32%

ur on ex t

Ex ch

ur ex

to ck

or ea

Why is CRB Booming?

Weakening dollar Low interest rates Range bound equity market Surging PRC economic growth Energy demand outpacing supply Online access/Electronic execution Simultaneous crop shortfalls globally 90s Dot com boom discouraged investment in commodity capacity

BO

CRB Monthly Chart Weekly CRB

CRB Monthly CRB Monthly

Dalian

ChinaDemographics
1.3 bil populationgrowing by 10.4 mil/yr 8 mil people enter work force yearly Average factory wage 61 cents/hr vs. $16.14 US Average farm size 1.6 acres vs. 140 acres in US 61% rural vs. 79% in 82 (must build city size of Houston/mo. to house flow from rural to urban) Chinas demographics are their destinythe 21st century belongs to the Chinese

ChinaEconomy
Worlds fastest 5th largest & fastest growing economy Autoskey economic driver next 30 years (GM 1stQ 04 car sales up 70%) Building 1900 miles of expressways/year Worlds largest soybean importer & steel producer 2nd largest crude oil consumerconsumes 5 mbd vs. 20 mbd in US (US pop only of PRC) Will buy 1900-2300 airplanes next 20 years If Wal-Mart were a nation it would be Chinas 8th largest trading partner

Chinese Soybean Meal Consumption

24 22 20 18 16 14 12 10 8 6 4 2 0
1964

2220% increase 1990 to 2004 13% Population growth same period

Protein consumption outgrew population by 170X past 14 years

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

Source: USDA -Jul 2004

Chinese Soybean Oil Consumption

9 8 7 6 5 4 3 2 1 0
1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

Soybean Oil Consumption

31-fold expansion in 20 years...

Source: USDA -Jul 2004

2004

CHINA ENDING STOCKS: WHEAT, CORN & SOYBEANS COMBINED MMT 250 Ending Stocks

200

150

100 We do not know the correct figures for China stocks, but we do know that the five-year change has been enormous. Is the stage set for reduced corn exports, maybe even imports?

With reduced area and reduced yield. production has declinedand with consumption climbing (including corn EXPORTS), China has reduced its carryout stocks by nearly 150 million tons!

50

0 1980

1985

1990

1995

2000

2005

PRC: Ag Commodity Wrap Up:

Info on PRC ag output & trade more transparent World markets nervous about over re-entry of PRC as a grain buyer; risk--grain stocks are state secret! Decline in PRC grain yields, stocks & acreage portends renewed emphasis on production PRC 04/05 soybean import growth may slow as world production poised to surge Bottom line: watch trends in domestic PRC prices & agribusiness margins

Soybean Harvest - Mato Grosso, Brazil

Soybean harvest followed by planting of double crop corn (31 combines & 12 planters)

Expansion in Brazil is the most important shift in global agriculture since the Midwest was settled in the 1800s. - USDA Economist

BRAZIL SOYBEANS YIELD HISTORY AND TREND

Bushels/acre 60 55 50 45 40 35 30 25 20 15 10 50-51 55-56 60-61 65-66 70-71 75-76 80-81 85-86 90-91 95-96 00-01 05-06 10-11
PRXfile:PSD_YieldAnal _PrezCN. PRXrev. 28Nov-03. USDA: Nov-03. For GTB-03-11.

Brz = 28 % of world all wheat production, latest year Brz Actual Brz Trend 1960 to 2000 Trend + Stdev Trend - Stdev Trend 1990 to 2003

Trendline fits with r-square = 0.79

Exceeding 40-year trend since 1990, with new, rainfed land in cerrado.

South American Ag: Big Potential & Low Cost of Production

05 S. America soybean prod. up 20 mmt (vs. 4.5 mmt decline in 04); Brazil is 2nd largest beef exporter Brazil broiler cost of production 22% below US Undeveloped Brazil land = total US crop area Deforestation in Brazil since 1995 averaged 5 mil acres/yr (equal to 7 football fields/minute)-PRC lost 3.7 mil acres/year since 1998

US Share of Global Trade

*17.8% prior to 12/23/03 US BSE discovery %/Mkt Share

l s ea an ym be y So So

80 70 60 50 40 30 20 10 0

'92/93 '03/04

*
il at yo he So W rn Co ef Be rk Po ult Po ry

Usshretrade

World Soybean Production (MMT)

Production up 90% from 90 to 04
World population up 19% Soy product use driven by income growth
210 180 150 120 90 60 30 0
90 /9 1 91 /9 2 92 /9 3 93 /9 4 94 /9 5 95 /9 6 96 /9 7 97 /9 8 98 /9 9 99 /0 0 00 /0 '0 1 1/ '0 2 '0 2/ 03 '0 3 '0 /04 4/ 05 es t
Source: USDA July 2004

Other So. Am. U.S.

107 117 118 104

225 158 160 160 124 132 175 184 197 189

138

Soy prod. exceeds pop. growth by 4.7X!

Global Soybean Meal Production (Million Metric Tons)

160 140 Production 120 100 80 55 60 40 20 0
83 /84 86 88 85 / 87 /

144

up 2.6x in 22 years...

89 /9 0

91 /92

94

96

98 97 /

Source: USDA -Nov 2003

99 /0 0 '0 1/' 02 '0 3/' 04

95 /

93 /

Global Soybean Oil Production (Million Metric Tons)

40 36 32 152% 28 24 20 16 13 12 8 4 0
83 /8 4 85 /8 6

growth over 20 years...

32

87 /8 8

89 /9 0

91 /9 2

93 /9 4

95 /9 6

97 /9 8

99 /0 0

Source: USDA -Nov 2003

Stunning Global Food-demand Growth

In Spite Of:
Global equity market collapse in 2000 September 11, 2001 terrorist attack Three-year global economic slump Afghanistan and Iraq wars S.A.R.S. & Bird Flu outbreaks Food-safety challenges On-going international trade disputes

'0 1/ '

'0 3/ '

02

04

World Night Picture

Veg oil Use Per Capita (kilos) US 34 PRC 14 FSU 12.5 India 10.3 Free-market Cuba 9.3 N. Korea 8.7 policies, and

principles, progressive the indomitable human spirit combine to advance human condition

Threats to Global Economic Expansion

Rise of isolationism/nationalism Broadening protectionism Extreme terrorism (closing ship lanes/ports) Food-supply contamination issues (B.S.E., Avian flu, Hoof & Mouth) Reversion to failed policies of the past (e.g. protectionism, socialism, communism)

04/05 Grain MarketsA look ahead

Positives
Global grain stocks tightest since early 70s US/Global GDP trending up $ easing/low interest rates Low tolerance for CN/BN yield adversity in 04 PRC grain stocks down 100 mmt since 9/01 Easing Ocean Freight Market Low Carb craze 54 new US ethanol plants in planning stage

Negatives
Neutral E.N.S.O. suggests trend or higher 04 US yields. S. America poised to increase soy production 20 mmt in 05 US soybean export market share shrinking Economic recovery could pull money away from commodities 40-45 mmt rebound in 04 global wheat prod likely Fragile state of PRC crushers could slow pace of BN imports

WORLD CORN ENDING STOCKS

Million metric tons 250 225 200 175 150 125 100 75 50 25 0 70-71
PRXfile:PSD_Anal_CornOV. PRXrev. 12-Jan-04. USDA: Jan-04. For GTB-04-01.

China stocks history not revised before 1980.

China stocks from 80-81 forward revised by USDA May-10-02.

US China Major importers

World total stocks (per USDA) in 03-04 will be down 24 mmt, led by China (whose goal remains to reduce its huge stocks), but with increase in US.

75-76

80-81

85-86

90-91

95-96

00-01

05-06

10-11

WORLD WHEAT YIELD HISTORY AND TREND

Bushels/acre 60 55 50 45 40 35 30 25 20 15 10 5 Trendline fits with r-square = 0.98
PRXfile:PSD_YieldAnal _PrezCN. PRXrev. 31Jan-04. USDA: Jan-04. For GTB-04-01.

World = 100 % of world all wheat production, latest year World Actual

WORLD WHEAT

World Trend 1960 to 2000 Trend + Stdev Trend - Stdev

Last three years have been noticeably below 40-year trend.

0 50-51 55-56 60-61 65-66 70-71 75-76 80-81 85-86 90-91 95-96 00-01 05-06 10-11

Low Carb Update

1 in 14 Americans on low carb diet US wheat flour production down 7 lbs per person to 139 lbs from 2000-2003 1863 low carb products introduced FH 04 Livestock prices higher than suggested by S/D reflects low carb & improving income Short term fad or long term trend? (Still climbing but losing steam)

US Ag Commodity Outlook

Even with trend 04 corn yields, difficult to build stocks due ethanol growth & expanding livestock Grain prices retreat from 04 highs but stay above average for 05greater downside in soy prices Cattle prices firm to higher next 1-2 yrs, then flatten/top out; hog prices work lower next 2 years. Bottom line05 US farm income robust

Favorite Trading Rules

The reaction of the market to news is more important than the news itself. People who buy headlines end up selling newspapers Facts are pricelessopinions are worthless