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Agriculture Preference: neutral Current (24 Oct) (last month): Soybeans, USD 15.17/bu (16.12); Corn, USD 7.54/bu (7.44); Recommendations Wheat, USD 8.84/bu (8.87) [Tactical UBS View 6-month target: Soybeans: USD 17.0/bu; Corn: USD 9.0/bu; Wheat: USD 9.5/bu *° ~ Despite the recent setback in corn prices, * Major US supply surprises on the grains side are rather unlikely in the near term as harvesting is in full _‘"isk-seeking investors should still hold on swing. However, we think that demand is unlikely to drop as quickly as the USDA expects. According to the to !ong positions in corn. Demand latest USDA grain stocks and WASDE reports, feed demand remained surprisingly resilient in 3Q12. To _—‘“ationing is still required to limit the drag effectively ration demand, especially on the feed side, in an environment of critically low US corn and 2" inventories. The expected return soybean stocks, higher prices are still required. For wheat, global production estimates were further target for a long position in corn stands lowered due to production losses in Australia, EU, Russia for 2012/13, which likely keeps prices supported in at 15%. the near term. We expect corn and soybean prices to appreciate by 15% in the coming months. Strategic * On the other side, the softs are likely to remain well supplied, which should keep prices under pressure. ° OUF expected return outlook for grains Improved export activity of coffee and strong stock selling from Vietnam in 4Q12 should weigh on coffee Stands at around -10% over the next 12 prices in the short-term. For sugar, higher production from Brazil and other producers should continue to months. With eral BNCes net far below burden prices in the near term, but also offer buying opportunities on a 12-month perspective. historical highs, the supply side is highly e Aggregating the above points, the risk/reward for being long across the entire sector is not a given. We likely to expand meaningfully in 2013/14 therefore reiterate our neutral sector stance. and pressurize prices at a later stage. On the soft side, 3Q12 does not offer the A Positive scenario Corn 6-month USD 10/bu; Soybeans 6-month USD 19/bu right timing to build up positions. ¢ With a reduced probability of El Nifio, the yield potential for South American crops is likely to be lower. Any deterioration in South American supply prospects would require additional demand to be rationed. & Negative scenario Corn 6-month USD 6/bu Soybeans 6-month USD 12.5/bu ‘US grains stocks continue to drop, e A change of the US ethanol-gasoline blending mandate would be a game changer. Increases in planted demand remains resilient acreage combined with a steep decline in US demand for exports and feed would weigh on prices. Values in mn tons . Oo 80 What we're watching Why it matters 70 USDA WASDE report Revisions in acreage and yield estimates for the US crops remain a topic. Demand | nemday! estimates are important, too, as they are key drivers behind inventory levels at 40 the end of the year. Key date: 9 Nov 0 i US cyeina sad pagent The latest stocks data is not correctly reflecting the demand for Jun-Aug’‘12 as it ° _ = [ = | | | | contains both old and new crop stock figures. We expect stocks as of 1 Dec to , (quarterly) . Ist Sep'10 1st Sep'11 1st Sep'12 Jun- Jun- Jun- reflect the true demand picture. Key date: Jan 2013 Aug'l0 Aug'1 Aug'12 USDA crop progress Faster US grain harvests than usual have been exerting downward pressure on ees dike: 8 nen orm | ea oypean (weekly, Monday) prices in the short run, which have reversal potential at a later stage. . — . wae . . . . Source: USDA, UBS, as of Oct. 2012 COT (weekly, Friday) Investors’ net long positions in grain futures are still at high levels, but stable Note: Past performance is not an indication of future returns. 2 UBS For further information please contact ClO's asset class specialists Dominic Schnider, dominic.schnider@ubs.com or Giovanni Staunovo, giovanni.staunovo@ubs.com Please see important disclaimer and disclosures at the end of the document. HOUSE_OVERSIGHT_025285