Global Update

October 2, 2008

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USGC Program Committed to Providing Safe Milk for Chinese Consumers - Page 1 USGC Ethanol Co-product Promotions Provide Value Worldwide - Page 1 USGC Works Toward Being Competitive in Price-Sensitive Korean Market - Page 2 USGC China Corn Tour Sees Feed Demand Growing in China, Acreage Maxed - Page 2 Iowa Farmer Sees Overseas Market Development Firsthand, First Time - Page 3 USGC Creates U.S. Export Opportunities in Russia - Page 3 USGC Promotes Many Tastes, Health Benefits of U.S. Food Barley to Japan - 4 USGC Wednesday Lunch Series Focuses on Biotechnology - Page 4 Register for the International Distillers Grains Conference and Trade Show - Page 5 International Biotechnology Conference - Page 5 Congratulations! - Page 5 China Corn Tour Photos in The GRAIN Center - Page 5 Barley Update - Page 5 50th Year Anniversary Story Series - Page 5 Council Activity Calendar - Page 6

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USGC Program Committed to Providing Safe Milk for Chinese Consumers. His skin is thick like leather, etched by windburn and sun from years of working on his dairy farm just outside of Beijing, China. This farmer, like many others in China, is ready to modernize his business to ensure a safe and nutritious product for Chinese consumers. The U.S. Grains Council is working vigorously with China’s dairy industry to provide the technical training necessary to make this happen. USGC President and CEO Ken Hobbie recently returned from China where he met with dairy farmers eager to gain the skills necessary to implement modern handling and sanitation techniques to prevent causing harm to consumers and damaging the profitability of their business. He also witnessed consumers fearful of drinking milk. “We saw Chinese consumers dumping out milk and turning to soy milk,” said Hobbie. “The recent contamination of milk in China re-emphasizes the absolute and immediate need for modernization of the dairy industry. Mark my words: The U.S. Grains Council is committed to enabling trade and improving lives by continuing to conduct educational programs to help Chinese dairy farmers produce safe milk and increase productivity. This will substantially move their incomes upward, improving their lives and the overall Chinese economy.” Since 2006, the U.S. Grains Council has been cooperating with Huaxia Dairy Farm, a partner operation in Sanhe city, Heibei province, 37 miles east of Beijing, China. Through the Sino-U.S. Dairy Training Center on the farm’s premises, the Council and Huaxia Dairy Farm have worked together on educating dairy farm managers from throughout China in an effort to accelerate the development of the country’s commercial dairy industry. Hobbie said part of that education includes training farm technicians to bring about change in management practices. The dairy farm has approximately 1,800 cows of which 802 are lactating, creating an average production of 8.5 gallons per cow per day. Hobbie said the long-term goal is 10,000 head. Chinese consumers drink approximately 8 gallons of milk per year per capita compared to nearly 80 gallons a year in the United States. However, with a population of more than 1.3 billion people, Hobbie foresees a significant “up-tick” in consumption pending the modernization of China’s dairy industry. “The growth in China’s dairy industry will not only benefit dairy operators and consumers but also U.S. farmers. We are creating demand for high quality feed ingredients,” he said. “More and more of China’s corn harvest is going into the dairy industry, and with limited arable land China’s poultry and swine sectors will be more likely to buy more U.S. feed grains in the future. Our presence in China puts U.S. farmers in the driver’s seat when China decides to import.”

USGC Ethanol Co-product Promotions Provide Value Worldwide. Promotional efforts of the U.S. Grains Council have been successful in Japan and Egypt resulting in booming exports of U.S. distiller’s dried grains with solubles (DDGS), an ethanol co-product used for animal feed. Egyptian producers and industry leaders have begun to see positive results in feeding trials in the livestock, poultry and aquaculture sectors. “So far the use of DDGS, up to 10 percent in poultry rations, has had no negative effect in performance,” said Dr. Hussein Soliman, USGC director for Egypt. “The use of DDGS in dairy buffalo has really been effective in reducing the impact of heat stress on milk production.” Although DDGS has been present in the Egyptian marketplace for the last 18 months, “the acceptance of DDGS in the Egyptian feed industry has not been easy,” said Chris Corry, USGC senior director of international operations for the Rest of the World. “In fact, the Egyptian government prohibited the importation of DDGS as a feed ingredient until just two years ago.” The Council approached the Ministry of Agriculture and showed how DDGS can help lower Egyptian producers feed costs. In response, the Minister put together a committee to distinguish specifications for DDGS. In less than three months, the Ministry approved these specifications and Egypt began to import U.S. DDGS. “Results like this usually take much longer to transpire,” continued Corry. “It just goes to show how effective the Council’s DDGS feeding trials are.” Egypt has so far imported 46,200 metric tons of U.S. DDGS in 2008. With a few months still remaining in the calendar year, U.S. DDGS exports to Japan have surpassed last year’s level by 33,654 metric tons. “The increase in the use of DDGS is mainly due to its cost advantage over other feed ingredients,” said Tetsuo Hamamoto, USGC director in Japan. “The Japanese feed industry takes DDGS seriously as a new feed ingredient and tries to adopt it proactively since the industry expects a larger supply of DDGS in the future.” DDGS workshops hosted by the Council in Miyazaki and Tokyo earlier this year produced results in Japan’s agricultural industry. The Council was also able to assist in registering DDGS with the Ministry of Agriculture, Forestry and Fisheries (MAFF) as a feed ingredient. In 2004, U.S. DDGS imports to Japan were, minimal importing only 3,074 tons. Since then imports have skyrocketed, increasing by more than 136,000 tons.

USGC Works Toward Being Competitive in Price-Sensitive Korean Market. U.S. Grains Council leaders recently traveled to Korea to discuss supply and demand. Chairman Jim Broten; President and CEO Ken Hobbie; and Corn Sector Director Tim Burrack; reported that Korea will be a “very” price competitive market this marketing year evident by the recent substantial purchases of feed wheat from world markets in lieu of corn. Korean end-users and government officials expressed the need and value that additional credit would make to increase corn purchases from the United States. Specifically, the Korean agricultural leaders were referring to the USDA’s Export Credit Guarantee Program (GSM-102), which provides competitive credit terms and underwrites credit extended by the private banking sector or by the U.S. exporter to approved foreign banks using dollar-denominated, irrevocable letters of credit to pay for U.S. food and agricultural products sold to foreign buyers. As a result of the Mission, Hobbie and Mike Callahan, USGC senior director of international operations for Asia, met with key officials from USDA’s Foreign Agricultural Service (FAS) about the strong need for credit guarantees for Korean buyers. “This is an important tool that will enable more trade of U.S. feed grains with Korea. Without it, we lose a necessary advantage that allows U.S. farmers’ access to the Korean feed grains market in a highly competitive world market environment,” said Hobbie. “I foresee action on this issue in the short term. We have a longstanding and successful relationship with FAS as a result of our long-term presence in Washington, D.C. They are always as receptive to the issues we bring to the table as we are when they come to us for assistance.”

USGC China Corn Tour Sees Feed Demand Growing in China, Acreage Maxed. Higher corn yields are expected in China for 2008 compared to 2007 resulting in 153.54 million metric tons (6 billion bushels), said Cary Sifferath, U.S. Grains Council senior director in China. Sifferath and Charles Ring of the Texas Corn Producers Board toured corn fields in the Northeastern provinces of Heilonjiang and Jilin, China to assess the corn crop and formulate an estimate of this year’s harvest. The tour consisted of four groups of agriculturists evaluating nearly 300 cornfields. “Our number this year shows a 1.13 percent increase over the government’s number last year which was 151.86 million tons (6 billion bushels),” Sifferath said. “It seems there will be better yield numbers this year although there were spots of drought, wind and hail damage in some areas.” Sifferath said the national average yield for all provinces is 5.28 tons per hectare (84 bushels per acre) with Jilin province showing the highest yield the tour saw in terms of production at 111 bushels per acre. “Production acreage has been capped as the government is trying to set up regulations to contain the loss of farm land. Any increases in corn acreage are done so at the expense of another crop,” he said. Despite the improved yield numbers in 2008, there seems to be little sign that China will begin exporting corn anytime soon as the government has been trying to control food inflation. “The government has virtually shut down exports of corn, wheat and rice. Other than a few sales trying to go through, there are no real exports going on at all, Sifferath said.” He also said feed demand in China is increasing with more corn going into the country’s swine industry, among others. In terms of annual stock numbers in China, there are no official numbers but according to JCI, an economic analysis company which joined the tour, the estimated number for 2008 is 32 million tons (1.26 billion bushels) compared to last year’s number of 43 million tons (1.7 billion bushels), said Sam Niu, USGC assistant director in China. “The farmers in China are very efficient with what they have,” observed Ring. “They don’t waste anything and family is the central point of their work.” The U.S. Grains Council’s China Corn Tour is conducted every year in the absence of reliable corn crop estimates from the Chinese government authorities.

Iowa Farmer Sees Overseas Market Development Firsthand, First Time. “I have been involved with the U.S. Grains Council for several years and have always been a firm believer in expanding demand for U.S. feed grains beyond U.S. borders. I have seen the profitability to U.S. farmers as a result, but I have never seen Council programs up close and personal until just recently during the President’s Mission to China, Japan, Korea and Taiwan,” said Tim Burrack, USGC corn sector director and Iowa farmer. “The experience was beyond eye-opening.” Burrack, who represents the Iowa Corn Promotion Board as a USGC delegate, said he has always been aware of the Council’s programs but actually seeing what goes on thousands of miles from his Iowa farm to spur demand reassured him that Iowa corn growers were fortunate to have their checkoff dollars invested in the Council. “Would you believe that 35 years ago Taiwan was importing a grand total of zero feed grains? The market was literally non-existent. The Council then opened an office, hired the best-of-the-best for a director and today Taiwan imports more than 4 million metric tons (157 million bushels) of U.S. corn, with nearly 100 percent market share for U.S. growers.” Burrack was referring to C.M. Lynn, who has served as the Council’s director in Taiwan for 35 years. Lynn retired this month as country director but is still serving the Council as a consultant. According to USDA’s Foreign Agricultural Service statistics, in the 2006/2007 marketing year Taiwan imported 4.3 million tons (169 million bushels) of U.S. corn with 4.2 million tons (165 million bushels) being sourced from the United States. In the first eight months of 2008, the country imported about 180,000 metric tons of distiller’s dried grains with solubles, a co-product of ethanol. Taiwan also imports food and feed barley from the United States. “Many say Taiwan is a mature market with no room for growth but they haven’t seen with their own eyes the tremendous potential for U.S. food barley in the country,” said Burrack. The food barley market in Taiwan is still very small, according to Jim Broten, USGC chairman and North Dakota barley grower. However, given the health characteristics of beta-glucan barley coupled with health conscious consumers in Taiwan, barley for health food applications has market potential of approximately 200,000 metric tons (9 million bushels) per year. The demand for barley in healthy food products is based on the Food and Drug Administration’s claim in 2006 that beta-glucan soluble fiber from barley will assist in reducing the risk of coronary heart disease. The Council is actively engaged in working alongside the U.S. Wheat Associates to introduce wheat and barley blended health food products in Taiwan. The Taiwan Barley Industry Association is expected to import about 80,000 metric tons (3.7 million bushels) to 100,000 tons (4.6 million bushels) of barley of which about 50 percent will be from the United States. Ten percent of the total barley imports will be for food use. “As the general public in Taiwan becomes more health conscious, we believe barley-based health food products hold promising market potential,” said Broten. The participants of the President’s Mission also assured Taiwanese end-users that U.S. farmers will harvest a reliable supply of U.S. feed grains. “We assured them that we are here to supply their needs anytime and at any quantity,” said Burrack. “The most important part of this mission was the face time between buyer and seller.”

USGC Creates U.S. Export Opportunities in Russia. As Russia continues to make the transition into a free market economy, the U.S. Grains Council has worked for the past 12 months with Russian grain traders, teaching them how to utilize the international grain trade market. Such efforts, according to Chris Corry, USGC senior director of international operations for Rest of the World, not only give Russian traders a price advantage as they learn how to look beyond the limited domestic market, but they also set the groundwork for sales opportunities for U.S. producers when the market conditions are conducive. The U.S. Grains Council is capitalizing on Russia’s transitional period as Jay O’Neil, USGC consultant and senior agricultural economist with Kansas State University’s International Grains Program, is in St. Petersburg this week conducting risk management workshops for Russian grain traders and poultry industry representatives. Northwest Russia, where St. Petersburg is located, is a grain deficient region which two years ago ran out of grain supplies. “With the switch to a free market society, Russian traders did not know how to forecast prices or supply and demand,” Corry said. “They responded by importing grain at $200 a ton from the southern region of Russia when they could have imported U.S. corn at $160 a ton had they known how to look at the international market.” Jere White, executive director of the Kansas Corn Commission, a Council member, was in Russia in October 2006 when the St. Petersburg region ran out of corn supplies. “At the time, they tended to deal with their needs on a hand-to-mouth type basis and didn’t know they were out of corn until they were out of corn,” he said. “The poultry feeders wanted corn in their poultry diets and did not want to switch feed ingredients, yet the millers couldn’t satisfy their needs.” The Council’s risk management workshops aim to prevent a repeat of such a situation. Due in part to Council work, Russian importers began futures trading for the first time in April this year. This week’s training is part of the Council’s continuing efforts to assist Russian traders in increasing their understanding on how to manage risk by following prices in the international market. “It’s not enough to just have the demand,” White said in regards to Russia’s grain shortage in 2006. “You need to be able to facilitate the mechanisms to supply the demand, and that is what the Council is trying to do by helping Russian traders know where to look in a time of need.”

USGC Promotes Many Tastes, Health Benefits of U.S. Food Barley to Japan. Japanese food barley industry representatives and food journalists were able to have their barley treats and eat them too during the U.S. Grains Council’s U.S. barley promotional program. The Council invited Dr. Christine Fastnaught, technical manager of Phoenix AGRI Research, to Japan to present on new health foods using barley. She explained the FDA’s health claim regarding barley’s role in preventing cardiovascular disease, lowering blood pressure, preventing diabetes and the reducing the risk of cancer. Fastnaught visited Hakubaku Company, Ltd., the country’s top food barley processor, where she introduced to company officials the line of barley food products marketed in the United States. “The president of Hakubaku, Shigetoshi Nagasawa, said he was very impressed with the increasing number of barley cereal and snack products being marketed in the United States with the U.S. health claim,” said Tetsuo Hamamoto, USGC director in Japan. “He indicated interest in seeking the possibility of marketing similar products in Japan.” The Council also teamed up with an Italian restaurant in Tokyo, which developed a course menu featuring U.S. barley. About 40 food media journalists attended the event as did Deanna Ayala, agricultural attaché at the U.S. Embassy in Tokyo. As Dr. Fastnaught spoke about the health benefits of barley in food, the owner and chef of Ristaurante Acqua Pazza served an Italian style course meal, which included original creations made specifically for the Council’s event. Dishes included barley and bonito salad, clam and zucchini risotto with barley and duck meat and barley soup. “Many of the journalists said they enjoyed the barley dishes and told us they plan to publish articles in their magazines to introduce them. This kind of menu presentation, combined with health benefit information, was a great success in increasing food journalists’ awareness about U.S. barley as a new, healthy food source,” Hamamoto said. Dr. Fastnaught concluded her presentations in Japan by promoting U.S. barley to the country’s food barley industry promotion board, which consists of all the major food barley companies and nutrition scientists in Japan. According to Hamamoto, Fastnaught’s presentation was well received. “In Japan, metabolic syndromes such as high blood pressure, high cholesterol, high blood sugar and an increasingly overweight population are nationwide problems, and the health benefits of barley are not yet well known. Such promotional events are a great way to increase familiarity with U.S. food barley.”

COUNCIL NEWS

USGC Wednesday Lunch Series Focuses on Biotechnology. The U.S. Grains Council hosted its monthly Wednesday Lunch Series on Oct. 1. Foreign Agricultural Service (FAS) and USGC staff attended. This month’s topic focused on biotechnology and current projects the Council and FAS are working on. Rebecca Fecitt, USGC director of biotechnology programs, talked about the International Biotechnology Conference to be held Oct. 12-15 in Des Moines, Iowa. FAS staff discussed the outreach programs and policy-related work they are involved in at the international level. Mark Smith, (left) marketing specialist at the Office of Trade Programs and Farah Naim (right), international trade specialist with the new technologies and production methods division, were among six FAS staff who participated. Each month the Council invites FAS representatives to attend a luncheon aimed at providing a forum of discussion and fellowship with Council staff.

Register for the International Distillers Grains Conference and Trade Show. The Council has teamed with BBI International for the second year to organize the International Distillers Grains Conference and Trade Show which will be held in Indianapolis, Ind. Oct. 19-21. The Council will bring more than 140 international DDGS buyers to the conference and domestic U.S. attendance is expected to be more than 300. Currently 147 registered international participants are attending. Sessions will include speakers on the outlook for DDGS production and export availability, issues in DDGS nutrition, logistics and marketing and reports on overseas customers’ experience in using DDGS in their rations. Receptions and the trade show will provide ample opportunities for networking for DDGS buyers and sellers. Participants may register online on the conference Web site, www.distillersgrainsconference.com. Council members receive a $200 discount off the advance registration fee at a special rate of $295. To obtain a discount code for online registration, contact Shannon Schaffer, director of membership, at 202-326-0607 or sschaffer@grains.org.

International Biotechnology Conference. The U.S. Grains Council will host the International Biotechnology Conference Oct. 12-15 in Des Moines, Iowa. Approximately 25 international biotechnology experts from 10 countries are expected to attend. The conference will also coincide with the 2008 World Food Prize. Council members Iowa Corn Promotion Board and Wisconsin Corn Promotion Board, Inc. are event sponsors. For more information, contact Rebecca Fecitt, director of biotechnology programs, at rfecitt@grains.org.

Congratulations! Please join us in congratulating Ms. Chong Meng Choo, accountant at the Council’s Southeast Asia office in Kuala Lumpur, Malaysia on the birth of her daughter, Hew Pei Xin, on September 24.

NEW ON THE WEB

China Corn Tour Photos in The GRAIN Center. Photos from the 2008 USGC China Corn Tour are now posted in The GRAIN Center, the members-only section of the Council’s Web site, www.grains.org. They may be accessed by clicking the “Communications” heading followed by “Photo Library” and then “Photos by Country/Office” and finally “China Photos.” The pictures can also be accessed by clicking the “What’s New” section on the left sidebar in The GRAIN Center.

Barley Update. The quarterly barley update can be found in The GRAIN Center under the “Reports” section or under the “What’s New” section. This issue covers topics such as the 2008 USGC Barley Mission, Japan SBS barley tenders and an update on the low-phytate barley feeding trial in Vietnam, among other topics.

50th Year Anniversary Story Series. To celebrate the U.S. Grains Council’s upcoming 50th anniversary in 2010, we are compiling a series of stories highlighting the Council’s history throughout the years. The series can be accessed on the Council’s Web site, www.grains.org, in the “News and Information” section under the “50th Anniversary Story Series” tab. You can also access the series by clicking here.

COUNCIL ACTIVITY CALENDAR

October 4-12: A Southeast Asia grain marketing team will travel to the United States to attend a short course on the U.S. grain marketing system and learn more on U.S. feed grain marketing, feed grain products and trade issues. They will also visit ports, export elevators, DDGS trans-loading facilities, ethanol plants and the farm of Jim Robbins of the Illinois Corn Marketing Board. The team will also visit the Grain Inspection, Packers and Stockyards Administration office in Seattle. Contact Kim Karst, manager of international operations — Asia, for more information at kkarst@grains.org.

October 5-12: A biotech regulators team from Japan will travel to the United States to meet with U.S. government regulators, biotech seed companies and biotech industry organizations, as well as U.S. corn farmers and companies involved in the production, distribution and exportation of U.S. corn to Japan. These meetings will educate Japanese regulators on biotech corn events in the pipeline for entry into the Japan regulatory system and discuss what its regulatory approvals and regulations should look like in order to comply with U.S. regulations and keep U.S. corn trade to Japan open and functioning. For more information, contact Kim Karst, manager of international operations — Asia, at kkarst@grains.org.

October 20-21: Coinciding with the Idaho Governor’s Asian Trade Mission to Taiwan, the U.S. Grains Council’s senior advisor and former country director in Taiwan, C.M. Lynn, arranged for Sam White, chief financial officer for PNW Farmers Cooperative representing the Idaho Barley Commission, and several other barley industry leaders to meet with the largest grain and swine industries in China and Taiwan including China Grain Products Research & Development Institute (CGPRDI). CGPRDI, USGC and U.S. Wheat Associates recently started joint promotional programs for wheat and barley blended health food products. For more information, contact Kim Karst, manager of international operations — Asia, at kkarst@grains.org.

The U.S. Grains Council does not discriminate on the basis of race, color, national origin, sex, religion, age, disability, political beliefs, sexual orientation or marital/family status. Persons with disabilities, who require alternative means for communication of program information should contact the U.S. Grains Council.