KSU Weekly Grain Market Analysis: Focus on Grain Production Risks and Market Possibilities in June-September 2016

Grain market summary notes, charts and comments ahead of the KSU Agriculture Today Grain Outlook to be played on Friday, March 11th will be placed up on the Kansas State University www.AgManager.info website at the following web address: http://www.agmanager.info/news/Articles/KSRN_GrainOutlook_05-27-16.pdf

The recorded radio program will be aired at 10:03 a.m. central time, Friday, May 27th on the K-State Radio Network (here).  Later today the program can also be listened to via a link from the following website in the “Radio Interviews” section: http://www.agmanager.info/news/default.asp

Following are sections of the Working notes for this week’s radio program up on the KSU AgManager.info website…

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U.S. Ethanol and Biodiesel Market-Profitability Graphics as of May 24, 2016 (via KSU AgManager)

Following are some graphics on economic trends in the U.S. ethanol industry, which will soon be available on the KSU AgManager website: http://www.agmanager.info/    The full presentation titled “U.S. Ethanol & Biodiesel Market Situation” made for WILL (Illinois Public Radio) on Tuesday, May 24th will be located at the KSU AgManager.info website – at the following web address:

http://www.agmanager.info/news/Articles/Ethanol-Market_WILL-Radio_05-24-16.pptx

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2016 Kansas Wheat Tour Results and Analysis for Kansas and 5 Key HRW States

Following is a summary of Kansas State University analysis of the findings from the 2016 Kansas Wheat Tour – sponsored by the Wheat Quality Council (http://www.wheatqualitycouncil.org/).

This article examines results for Kansas wheat – looking at wheat yield, acreage, and production estimates.  It also examines the combined production forecasts for Kansas along with the other major U.S. hard red winter wheat production states of Oklahoma, Texas, Colorado and Nebraska.  This report is available on the Kansas State University AgManager.info website at the following web address:

https://www.agmanager.info/marketing/outlook/newletters/archives/2016_KansasWheatTourSummary_05-06-16.pdf

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Summary

The 2016 Kansas Wheat Tour occurred May 2-5, 2016 in Kansas, and parts of the adjoining states of Nebraska, Colorado, and Oklahoma.   Since year 2011 the Kansas Wheat Tour has tended to over-estimate final Kansas wheat yields, to under-estimate Kansas wheat harvested acres, and to slightly under-estimate final Kansas wheat production.

2016 Kansas Wheat Production

Kansas wheat production in 2016 is forecast by the Kansas Wheat Tour to be 382.4 million bushels (mb).  This would be the largest amount of Kansas wheat produced since 382.2 mb in year 2012, 380.0 mb in 2005, and the recent high of 480.0 mb in 2003, and is up from the 2010-2015 average of 310 mb (Table 1 & Figure 1).

Over the 2011-2015 period the Kansas Wheat Tour has tended to under-estimate final Kansas wheat production by 5.410 mb (-1.8%), i.e., to be 5.41 mb too low.   After adjusting for this average forecast error of -5.410 mb and applying a measure of past forecast accuracy of +/- 7.5%, an adjusted Kansas wheat production forecast from the Kansas Wheat Tour would be approximately 387.8 mb with a 67% confidence interval of 359 to 417 mb (+/- 29 mb).

2016 Combined Hard Red Winter Wheat Production for KS, NE, CO, OK & TX

The 2016 Kansas Wheat Tour estimated hard red winter wheat production by state to be as follows: Kansas (382.4 mb), Nebraska (70.4 mb), Colorado (78.0 mb), and Oklahoma (128.5 mb) (Table 2 and Figures 2a & 2b).  It can also be estimated that Texas wheat production in 2016 is down from 2015 by approximately the same proportion as the reduction in planted acres (i.e., from 6.000 ma in 2015 to 5.000 ma in 2016 – down 16.7%).  Texas wheat production in 2016 would be approximately 88.746 mb (i.e., 83.3% times 106.5 mb in 2015).

For the combined 5 state Kansas Wheat Tour and KSU projection, hard red winter wheat production is estimated to be 748.7 mb – up 95.9 mb from 652.8 mb in 2015, and up 226.3 mb from 522.4 mb in 2014, and is larger than the 2007-2015 average of 663.9 mb.  However, this projection of 748.7 mb is down marginally from 755.3 mb in 2012.

2016 Kansas Wheat Yields

Kansas wheat yields in 2016 were forecast by the Kansas Wheat Tour to be 48.6 bushels per acre (bu/ac).  This would be the highest yield for Kansas wheat since 48.0 bu/ac in year 2003, up from 37.0 bu/ac in 2015, and higher than the 2010-2015 average of 37.9 bu/ac (Table 3 and Figure 3).

Over the 2011-2015 period the Kansas Wheat Tour has tended to be 3.3 bu/ac or 9.5% too high in its annual estimates of Kansas wheat yields.  After adjusting for this average forecast error of +3.3 bu/ac and applying a measure of past forecast accuracy of +/- 8.7% (+/- 1 standard deviation in forecast error variability), an adjusted Kansas wheat yield forecast from the Kansas Wheat Tour would be approximately 45.3 bu/ac with a 67% confidence interval of 41.3 to 49.2 bu/ac (+/- 3.9 bu/ac) – representing the forecast error and variability that has existed between the Kansas Wheat Tour yield forecasts and final Kansas wheat yields.

2016 Kansas Wheat Harvested Acreage

Kansas wheat harvested acreage in 2016 is implicitly forecast by the Kansas Wheat Tour to be 7.868 million acres (ma) – calculated by dividing forecast production of 382.4 mb by forecast yields of 48.6 bu/ac.  This would be the smallest amount of Kansas wheat harvested acres since 7.950 ma in year 2012, 5.269 ma in 1957, and 6.888 ma in 1935, and is down from the 2000-2015 USDA average for Kansas wheat harvested area of 8.784 ma (Table 4 and Figure 4).

The implied percentage of harvested-to-planted acres in the Kansas Wheat Tour production estimate is 92.6%, which is higher than the 2011-2015 average of 83.3% and associated range of 78.0% to 86.6% (Table 5).  The Kansas Wheat Tour implicit estimate of 92.6% harvested-to-planted acres is also larger than the 2000-2015 average of 88.3%, but within the 2000-2015 range of 78.0%-95.9%.

Over the 2011-2015 period the Kansas Wheat Tour has tended to be 901,141 acres or 10.5% too low in its annual estimates of Kansas wheat harvested acreage.  After adjusting for this average forecast error of -901.141 acres and applying a measure of past forecast accuracy of +/- 1.9%, an KSU-adjusted Kansas wheat harvested acreage forecast from the Kansas Wheat Tour would be approximately 8.489 ma with a 67% confidence interval of 8.327 to 8.652 ma (+/- 162,154 acres).

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https://bruceandjeanbicycle.files.wordpress.com/2013/05/image78.jpg?w=627&h=354

Wheat Fields near Kingman, Kansas in May 2013 (Source of image: https://bruceandjeanbicycle.wordpress.com/2013/05/19/bike-for-rhizokids-kansas/)

 

 

KSU Grain Sorghum Market Outlook in early May 2016 – Planting and Production Prospects to Come Soon

An analysis of U.S. Grain Sorghum and World Coarse Grain supply-demand factors and 2016-2017 price prospects following the USDA’s April 12th Crop Production and World Agricultural Supply Demand Estimates (WASDE) reports will be available shortly on the KSU AgManager website (http://www.agmanager.info/default.asp).

Following is a summary of the article on U.S. Grain Sorghum & World Coarse Grain Market Outlook – with the full article and accompanying analysis available on the KSU AgManager website at the following web address:

https://www.agmanager.info/marketing/outlook/newletters/archives/GRAIN-OUTLOOK_05-03-16_Sorghum.pdf

and

http://www.agmanager.info/marketing/outlook/newletters/Sorghum.asp

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Summary

Recent Grain Sorghum Price Trends in Central Kansas

Since the USDA released its World Agricultural Supply and Demand Estimates (WASDE) report on April 12th, grain sorghum cash bids at export terminals and country elevators near Hutchinson, Kansas have been “volatile”.  After first trending $0.20-$0.22 per bu. higher through April 20th, cash prices then dropped $0.32-$0.34 lower in two days on April 22nd.   However, sorghum prices then trended higher again – up $0.19-$0.20 by April 29th – before trending lower through Tuesday a.m., May 3rd, with area cash bids ranging from $3.07 to $3.27 /bu – depending on the individual elevator.  At the same time a cash bid of $3.41 per bu. for grain sorghum was offered by an ethanol plant in the central Kansas area.  New crop forward contract bids for October-November 2016 delivery were in the range of $3.17-$3.45 /bu depending on location.

Market Overview

Overall, grain sorghum market prospects for spring-summer 2016 and for the “next crop” 2016/17 marketing year depend largely on the planting and growing conditions for the U.S. 2016 feedgrain crops along with the ongoing strength of U.S. grain sorghum usage.  To date in its preseason projections the USDA has assumed that there will be no serious crop production problems in the summer of 2016, and has projected larger ending stocks-to-use and a continuation of low prices for U.S. grain sorghum in “next crop” MY 2016/17.  However, prospects for U.S. feedgrain prices have improved since early April – with CME MAY 2016 corn futures contracts rising from a low of $3.47 ¼ on April 1st, to highs of $4.02 on April 21st and $3.92 on April 29th, to a close of $3.90 ¼ on May 2nd.  “New Crop” CME DEC 2016 corn futures also rose from a low of $3.64 on April 1 up to a high of $4.09 on April 21st before settling after some volatile market swings at $3.96 ½ on May 2nd.

Production & Market Uncertainties: Feedgrain production concerns in parts of South America, concerns about wet soil conditions and delayed plantings in parts of the U.S. western Corn Belt, and an increase in U.S. feedgrain exports have recently provided support for U.S. grain sorghum and corn prices.   That said, there are several key crop production and market factors that will impact U.S. feedgrain market price direction and volatility during the remainder of year 2016.  First, increasing prospects for a transition from the recently prevalent El Nino weather system to a La Nina weather pattern with an increased likelihood of hot, dry crop production conditions in the U.S. Corn Belt in the summer of 2016 could bring about swift, dramatic change in U.S. grain market supply-demand and price prospects, and improve prospects for grain sorghum prices and profitability (in areas of the U.S. not impacted by drought!).  Second, total use of U.S. grain sorghum has been relatively high in “current crop” MY 2015/16 as low sorghum prices have helped domestic U.S. feedgrain-using industries to lower their input costs and to improve their profitability (if not limit their financial losses).

Over time the combination of both a) lower production in response to low profits and/or crop production problems, and b) increased grain sorghum use supported by low grain prices for livestock feed, exports and grain processing use, are likely to work together to bring about a change in the current prevailing “large crop – low price” market scenario in U.S./World coarse grain markets.

Given current market information, it seems fair to judge that absent any change in this projected “large supply / low price” scenario, U.S. grain sorghum cash prices are unlikely to rise very far from current levels (which are in the $3.00-$3.40 per bushel in much of Kansas).  Major concerns about U.S. and/or foreign feedgrain crop production prospects will be required for U.S. grain sorghum prices to move up to $4.00-$4.50+ during late spring-summer 2016.

USDA Estimate for “Current Crop” MY 2015/16

The USDA made several changes in its projected U.S. grain sorghum supply-demand balance sheet for “current crop” MY 2015/16.  While 2015 U.S. sorghum production of 597 mb, total supplies of 620 mb, and total use of 555 mb are unchanged, adjustments were made in several usage categories.  Food, alcohol and industrial use is projected at 124 mb – up 25 mb from March, and offsetting decreases in exports (315 mb – down 10 mb), and feed and residual use (115 mb – down 15 mb).  Ending stocks are forecast at 65 mb (11.71% S/U) – up from 18 mb (4.0% S/U) in “old crop” MY 2014/15, and 34 mb (9.1% S/U) in MY 2013/14.  The forecast of U.S. grain sorghum average cash prices is lowered to the range of $3.10-$3.30 /bu. ($3.20 midpoint – down $0.10) in “current crop” MY 2015/16, versus $4.03 in “old crop” MY 2014/15, $4.28 in MY 2013/14, and $6.33 (record high) in MY 2012/13.

USDA Forecast for “Next Crop” MY 2016/17

On December 14, 2015 the USDA released preliminary estimates of its USDA Agricultural Outlook Forum projections on February 25-26, 2016.  The March 31st Prospective Plantings report provided an updated forecast of 2016 U.S. sorghum planted acreage. These KSU-adjusted USDA forecasts for “next crop” MY 2016/17 account for updated grain sorghum planted acreage estimates and associated production and stocks adjustments.

The USDA projected 2016 U.S. grain sorghum plantings of 7.216 million acres (ma) – down 1.243 ma or 14.7% from 2015.  Forecast 2016 harvested acres of 6.046 ma would be down 1.805 ma or 23.0% vs 2015.  With projected yields of 65.1 bu/ac, 2016 U.S. grain sorghum production is forecast to be 394 mb – down sharply from 597 mb in 2015, but comparable to 433 mb in 2013, and 392 mb in 2012.   With forecast “next crop” MY 2016/17 total use of 415 mb (down from 555 mb in “current crop” MY 2015/16), and projected ending stocks of 44 mb (10.6% S/U), U.S. sorghum prices are projected by the USDA to be $3.40 /bu – down $0.05 from the USDA corn price projection of $3.45 /bu for “next crop” MY 2016/17, but up from the $3.20 /bu midpoint estimate for U.S. grain sorghum “current” MY 2015/16.  By KSU estimates, this scenario has a 50% likelihood of occurring in “next crop” MY 2016/17.

KSU Forecast for “Next Crop” MY 2016/17

Two alternative KSU-Scenarios for U.S. grain sorghum supply-demand and prices are presented for “next crop” MY 2016/17, with both assuming a 216,000 acre downward adjustment in 2016 U.S. grain sorghum planted area from the USDA’s March 31st Prospective Plantings report:

A) “Normal Crop” KSU-Scenario A (Lower Acres & Trend Yield) (40% probability) assumes for “next crop” MY 2016/17: 7.000 ma planted, 5.865 ma harvested, 67.3 bu/ac yield, 395 mb production, 460 mb total supplies, 385 mb total use, 75 mb ending stocks, 19.5% S/U, & $3.15 /bu U.S. grain sorghum average price;  and

B) “Short Crop” KSU-Scenario B (Lower Acres & Low Yield) (10% probability) assumes for “next crop” MY 2016/17: 7.000 ma planted, 5.865 ma harvested, 55.0 bu/ac yield, 323 mb production, 388 mb total supplies, 341 mb total use, 47 mb ending stocks, 13.8% S/U, & $4.70 /bu U.S. grain sorghum average price.

Potential KSU 2016 U.S. Sorghum and Corn “Short Crop” Scenario – 12.600 Billion Bu U.S. Corn Crop

If significant corn production problems were to occur in the U.S. in the summer of 2016 resulting in approximately a 12.607 bb corn (150.0 bu/ac yield on 84.044 ma harvested), then all else being equal, ending stocks of U.S. corn for “next crop” MY 2016/17 could decline to 1.137 bb (8.5% S/U), with U.S. corn prices likely to increase to $4.50-$5.50 per bushel.  Grain sorghum prices in the U.S. would likely in the $4.25 to $5.25 per bushel range for “next crop” MY 2016/17.  At this time by KSU estimates there is a 10% likelihood of this occurring – similar to “short crop” KSU Scenario B above.

World Coarse Grains Supply-Demand

World total supplies of 1,505.0 million metric tons (mmt) are projected for “current” MY 2015/16, down marginally from 1,514.8 mmt in “old crop” MY 2014/15, but up from 1,443.9 mmt in MY 2013/14.  Projected World coarse grain ending stocks of 245.1 mmt (19.5% S/U) in “current crop” MY 2015/16 are up marginally from 243.7 mmt (19.2% S/U) in “old crop” MY 2014/15, and from 211.4 mmt (17.1% S/U) in MY 2013/14.

https://i2.wp.com/ksgrain.server263.com/wp-content/uploads/2011/09/landscape.jpg

Grain sorghum field with an ethanol plant near Oakley-Campus, Kansas (Source of image: http://ksgrainsorghum.org/ethanol/)

https://i2.wp.com/bloximages.chicago2.vip.townnews.com/kansasagland.com/content/tncms/assets/v3/editorial/2/5a/25a9919b-4aa9-5fff-a56f-9d37b1ffec34/5484da0264301.image.jpg

Harvesting Grain Sorghum in Western Kansas in 2014 (Gove County) (Source of image: http://www.kansasagland.com/news/stateagnews/)

Wheat Market Outlook in April 2016 (via KSU AgManager.info)

An analysis of U.S. and World wheat supply-demand factors and 2016-2017 price prospects following the USDA’s April 12th World Agricultural Supply Demand Estimates (WASDE) report and the market actions that have followed are available on the KSU AgManager website (http://www.agmanager.info/default.asp).

Following is a summary – with the full analysis-article for Wheat to be found at this web location:  http://www.agmanager.info/marketing/outlook/newletters/Wheat.asp

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Summary

Overview & World Wheat Market Analysis

Since the USDA’s April 12th World Agricultural Supply and Demand Estimates (WASDE) report, U.S. and World wheat market prices have been volatile because of worries about U.S. and foreign crops and a weakening of the U.S. dollar – first trending higher through April 21st, and then dropped sharply through April 25th before trending higher again through April 29th.

For the “new crop” 2015/16 marketing year the USDA projected:

1) World wheat total supplies of 947.9 mmt and total use of 708.7 mmt – both at record high levels,

2) that at least marginally weaker trade continues in World wheat exports with 163.1 mmt in the current marketing year – down from 164.1 mmt last year, and from 165.9 mmt two years ago,

3) World wheat ending stocks at a record high 239.3 mmt compared to 214.8 mmt last year, and 193.9 mmt two years ago, and

4), World wheat percent ending stocks-to-use of 33.8% – up from 30.5% last year and from 27.8% two years ago – up to their highest level in 14 years (since MY 2001/02).  For perspective, the 34-year low in World wheat ending stocks of 128.7 mmt and at least a 57-year low in percent ending stocks-to-use of 20.9% S/U both occurred in MY 2007/08, the last major World wheat “short crop” marketing year.

The World wheat market continues to monitor a) potential wheat production problems in major world wheat production areas such northwestern Africa, the Middle East, south Asia/India, China, South America, and Australia, and the central and southern plains of the United States (possible wheat disease problems from seasonal rains), b) ongoing geopolitical conflicts and tensions in the Middle East and the Black Sea region that could impact commodity markets, and c) spillover impacts into grain markets and other commodities from volatile World economies, and financial and currency markets.  Even so, the “large crop-over supply” situation that exists in World and U.S. wheat markets continues to have a strong prevailing negative influence on World wheat prices.

It is likely that significant World wheat production problems and/or trade disruptions would need to occur in coming weeks and months in order to have wheat prices recover significantly before summer-2016.  Ongoing strength in the U.S. dollar exchange rate – although it has been weakening recently – alos is a serious negative factor that is limiting U.S. wheat exports, raising U.S. wheat ending stocks and % ending stocks-to-use, and causing sharply lower U.S. wheat prices.

USDA U.S. Wheat Forecast for “Current Crop” MY 2015/16

The USDA made minor changes in its supply-demand and price projections for U.S. wheat in the “current crop” 2015/16 marketing year – with 2.052 billion bushels (bb) production, 2.924 bb total supplies, 775 million bushels (mb) of exports, 140 mb wheat feed use (down 10 mb), 1.948 bb of total use (down 10 mb), 976 mb ending stocks (up 10 mb), and 50.09% ending-stocks-to-use (up from 49.34% in March to the highest level since 48.6% in MY 2009/10).  A price range of $4.90-$5.00 /bu was forecast by the USDA with a midpoint of $4.95 /bu – the lowest U.S. wheat marketing year average price since $4.87 /bu in MY 2009/10.

USDA U.S. Wheat Forecast for “Next Crop” MY 2016/17

Based on March 31st USDA Prospective Plantings Report forecasts and information from the USDA Agricultural Outlook Forum in Arlington, VA on February 25-26, 2016, a KSU-adjusted USDA forecast of U.S. wheat supply-demand is available for “next crop” 2016/17 marketing year beginning June 1, 2016.   The USDA projected 2016 U.S. wheat plantings of 49.559 million acres (ma) – down 5.085 ma from 2015.  Forecast 2016 harvested acres of 42.174 ma would be down 4.920 ma vs 2015.  Based on projected 2016 U.S. wheat yields of 45.9 bu/ac (up from 43.6 bu/ac in 2015), 2016 U.S. wheat production is projected to be 1.935 bb (vs 2.052 bb in 2015), with “next crop” MY 2016/17 total supplies of 3.036 bb (up from 2.924 bb in “current crop” MY 2015/16).  With projected “next crop” MY 2016/17 ending stocks of 943 mb and percent ending stocks-to-use of 45.05% S/U, U.S. wheat average prices are projected to be $4.20 /bu – down from $4.95 /bu in “current crop” MY 2015/16.   It is assumed by KSU that these adjusted USDA projections for “next crop” MY 2016/17 is assumed to have a 40% probability of occurring.

KSU Forecast for “Next Crop” MY 2016/17

Three alternative KSU-Scenarios for U.S. wheat supply-demand and prices are presented for “next crop” MY 2016/17, with each assuming the same 2016 planted acreage as USDA, but 437,000 less acres harvested than the adjusted USDA estimates based on historical percent harvested-to-planted acres relationships.

A) KSU-Scenario A (Trend Yield) (30% probability) assumes for “next crop” MY 2016/17: 49.559 ma planted, 41.737 ma harvested, 46.0 bu/ac yield, 1.920 bb production, 3.021 bb total supplies, 850 mb exports, 2.043 bb total use, 978 mb ending stocks, 47.87% S/U, & $4.05 /bu U.S. wheat average price;

B) KSU-Scenario B (Foreign Crop Problems – Higher U.S. Exports) (15% prob.) assumes for “next crop” MY 2016/17: 49.559 ma planted, 41.737 ma harvested, 46.0 bu/ac yield, 1.920 bb production, 3.021 bb total supplies, 1.050 bb exports, 2.243 bb total use, 778 mb ending stocks, 34.7% S/U, & $5.10 /bu U.S. wheat average price;  and

C) KSU-Scenario C (Widespread U.S. Crop Problems) (15% prob.) assumes for “next crop” MY 2016/17: 49.559 ma planted, 41.737 ma harvested, 40.0 bu/ac yield, 1.669 bb production, 2.770 bb total supplies, 850 mb exports, 2.043 bb total use, 727 mb ending stocks, 35.6% S/U, & $5.00 /bu U.S. wheat average price.

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KSU Weekly Grain Market Analysis: Emerging Grain Market Volatility

Grain market summary notes, charts and comments ahead of the KSU Agriculture Today Grain Outlook to played on Friday, August 7th are up on the Kansas State University www.AgManager.info website at the following web address: http://www.agmanager.info/news/Articles/KSRN_GrainOutlook_04-29-16.pdf

The recorded radio program will be aired at 10:03 a.m. central time, Friday, April 29th on the K-State Radio Network (KSU Agriculture Today Radio) – web player available.  After the program has aired, the recording can also be listened to via a link from the following website in the http://www.AgManager.info “Radio Interviews” ection: http://www.agmanager.info/news/default.asp

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U.S. Ethanol and Biodiesel Market-Profitability Graphics through April 26, 2016

Following are some graphics on price and profitability trends in the U.S. ethanol and biodiesel industries, which will soon be available on the KSU AgManager website: http://www.agmanager.info/

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