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高盛 2010年5月亚太互联网行业分析电子商务及门户网站

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May 17, 2010

Asia Pacific: Internet - e-Commerce & Portals

Research Report

China e-commerce: racing for Prime positions in a $300 bn market

We estimate China e-commerce market will reach $300 bn in 2015

We estimate China’s e-commerce activity will grow from $40 bn in 2009 to $80 bn in 2010, and thereafter expand at 30% CAGR from 2010 to 2015, supported by 22% CAGR in online shoppers and 6% CAGR in spending per online shopper. In our view, China’s e-commerce market in 2010 is at a similar stage of development to the US’ in 2005, or Korea’s in 2002, with online shopping at 3%-4% of total retail sales.

WE EXPECT ONLINE SHOPPING AS % OF TOTAL CHINA RETAIL SPENDING TO REACH 9% IN 2020 10.0%9.0%8.0%7.0%6.0%5.0%4.0%3.0%2.0%1.0%2010E2011E2012E2013E2014E2015E2016E2017E2018E2019E2020E20092.2%4.9%3.7%5.7%7.2%7.6%6.6%6.9%6.3%Total e-Commerce volume ($ bn, RHS)e-commerce volume as % of retail sales8.0%8.5%9.1%7006005004003002001000Marketplaces dominate online shopping in China; Taobao leads

We estimate the activity split between online marketplaces and e-tailers is currently at about 80%/20% in China, vs. about 20%/80% in the US, and about 40%/60% in Korea. Taobao (44%-owned by Yahoo!) has already captured over 2% of total retail spending in China in 2009, whereas its US peer eBay has never held more than 1% share of US’ total retail spending.

0.0%MARKETPLACES SUCH AS TAOBAO ACCOUNTED FOR OVER 80% OF ONLINE SHOPPING IN CHINA IN 2009 e-tailers invest in logistics as they grow; follow Amazon model

Many e-tailers doubled their revenue in 2009, and are now investing

aggressively in city-by-city logistics networks, learning from the success of Amazon, and likely rendering e-tailing a more capital-intensive and differentiated model than, for example, online games.

Onlineretailers, 19%Online marketplaces, 81%OthersEachnetPaipaiTaobao88% TAOBAO IS CHINA’S 4TH LARGEST ONLINE ADVERTISING VENUE BY REVENUE (2009) Taobao, Sohu, Tencent, Sina, 7.4%7.2%5.8%4.0%Netease, Google 1.8%China, MSN 10.8%China, 1.5%Baidu, Youku, 21.5%Others, 1.2%38.8%Source: Goldman Sachs Research estimates. Marketplaces and e-tailers converging, racing to Prime-like service

Marketplaces are moving into logistics while e-tailers are enabling other merchants to sell through their sites. We believe many e-tailers and offline-online hybrids will succeed as single-category businesses. But we expect only 2-3 e-tailers or marketplaces to achieve multi-category leadership in selection, price, and fulfillment; to provide Amazon Prime-type shipping subscription services; and to consequently capture the lion’s share of e-commerce profitability.

Listed stock implications: Focus on Baidu and Yahoo! near term

Among stocks under our coverage, we see Baidu’s (BIDU; Buy) e-

commerce advertising growing from 5% to 20% of its revenues over the next 5-10 years, given e-commerce companies favor search engines for marketing. Yahoo!’s (YHOO; Neutral) stake in Taobao (unlisted) contributes about 10% to its SOTP valuation. We estimate China online shoppers will boost Amazon’s (AMZN; Buy) customer growth rate by 5 pp per year.

James Mitchell, CFA

(212) 357-1849 james.mitchell@gs.com Goldman Sachs & Co. Kathy Chen

+852-2978-1291 kathy.chen@gs.com Goldman Sachs (Asia) L.L.C. Michelle Sun

+852-2978-2679 michelle.sun@gs.com Goldman Sachs (Asia) L.L.C.

The Goldman Sachs Group, Inc. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification, see the end of the text. Other important disclosures follow the Reg AC certification, or go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.

The Goldman Sachs Group, Inc.

Global Investment Research

May 17, 2010

Asia Pacific: Internet - e-Commerce & Portals

Table of contents

We estimate China’s e-commerce market will grow from $80 bn in 2010 to $300 bn in 2015 Online marketplaces dominate online shopping in China today e-tailers are growing fast and investing for the future Online marketplaces and e-tailers converging

Many single-category survivors, only 2-3 can make Prime Online payments no longer a hurdle, not yet a profit driver E-tailers are important online advertisers, favor search engines Single stock implications: Focus for now on Baidu, Yahoo!

2 5 10 13 15 16 16 18

The prices in the body of this report are based on the market close of May 14, 2010.

We estimate China’s e-commerce market will grow from $80 bn in 2010 to $300 bn in 2015

Internet set to impact retail spending next, after transforming advertising and entertainment

The internet has already transformed two sizeable industries in China, advertising and entertainment: 

Portals and search engines have become the leading media for advertising real estate, automobiles, and financial products, as consumers find it easy to access them at work. The online advertising sector enjoys a market capitalization of about $40 bn (including the advertising components of companies such as Baidu, Tencent, Sina, Sohu, and Netease).

Online games have become a leading entertainment format, due initially to consumers visiting Internet cafés to play such games. The online game sector enjoys a market capitalization of about $40 bn (including the game components of companies such as Tencent, Shanda, Netease, Changyou, and Perfect World).



We believe a similar transformation is starting to take place in the retail industry. Online shopping has taken longer to gain traction than online media consumption or game

playing. In our view, this is because shopping is more a home-based activity than games (Internet café-based) and advertising (workplace-based), and hence more dependent on Internet penetration into homes. With Internet penetration into homes rising, Chinese consumers increasingly enjoying access to electronic payment methods, and growth of home delivery services, we believe e-commerce activity is poised for a boom. The offline retail industry in developed economies is typically about 30X larger than the advertising or game playing industries, so we see e-commerce evolving into a larger business and investment opportunity than online advertising or games.

We estimate China e-commerce at 2% of retail sales in 2009, 7% in 2015E

We estimate China’s online shopping market was around $40 bn in 2009, versus total retail spending of about $1.8 tn, a 2% online penetration rate (see Exhibit 3). We expect the market to double to about $80 bn in 2010. Given rising Internet penetration and greater comfort purchasing online, we forecast China’s e-commerce will increase its share of retail spending to current developed world norms of about 7% in 2015, and about 9% in 2020.

Goldman Sachs Global Investment Research

May 17, 2010

Asia Pacific: Internet - e-Commerce & Portals

Modeling a 10% nominal CAGR in total retail spending, in line with nominal GDP growth as forecast by our GS Global ECS Research team, we arrive at an e-commerce market size of about $300 bn in 2015E and $640 bn in 2020E.

Exhibit 1: We expect online shopping to climb from 2% of total retail spending in 2009 to 7% in 2015 and 9% in 2020

Online shopping transaction volume and penetration rate, 2009-2020E

10.0%9.0%8.0%7.0%6.0%5.0%4.0%3.0%2.0%1.0%0.0%20092010E2.1%Total e-Commerce volume ($ bn, RHS)e-commerce volume as % of retail sales5.3%4.5%3.6%5.9%6.4%7.5%6.7%7.1%8.0%8.5%9.2%70060050040030020010002011E2012E2013E2014E2015E2016E2017E2018E2019E2020E

Source: Goldman Sachs Research estimates.

More online shoppers to drive growth: 8% of China’s population shops online, vs. 50% in US, 58% in Korea

We estimate that 29% of China’s population used the Internet in 2009, vs. 74% in the US and 77% in Korea. In terms of online shopping, 29% of China’s Internet users shopped

online in 2009, vs. 68% of US Internet users and 77% of Korean Internet users. This implies 8% of China’s population shopped online in 2009, vs. 50% in the US, and 58% in Korea (see Exhibit 2). We see China moving towards developed world levels over the next decade as:  

We expect inexpensive broadband services to boost China’s Internet penetration from 34% in 2010 to 62% by 2015 and 79% by 2020.

We forecast that as people gain comfort making purchases online, online shopping penetration will grow from 34% of China’s Internet users in 2010 to 48% in 2015 and 60% in 2020.

Consequently, we forecast the percentage of the Chinese population shopping online will rise to 30% in 2015 and 47% in 2020, a 16% 2010-2020 CAGR in online shoppers.

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Asia Pacific: Internet - e-Commerce & Portals

Exhibit 2: 8% of the total population shopped online in China in 2009, vs. 50% in US and 58% in Korea

Online shoppers and Internet user penetration in China, the US and Korea in 2009

80%70%60%50%50%58%74%76%Exhibit 3: Online shopping was around 2% of total retail sales in China in 2009, versus around 4.5% in the US

Online shopping volume as % total retail sales for China, the US and Korea in 2009

14.0%12.0%10.0%8.0%ChinaUS Korea40%30%20%10%0%Online shoppers as % of totalpopulationInternet users as % of totalpopulation8%29%6.0%4.0%2.0%0.0%ChinaUSKorea

Source: Goldman Sachs Research estimates, US Census.

Source: CEIC, Goldman Sachs Research estimates.

We estimate annual online spending per online shopper at about $523 in 2010; this figure appears high relative to China’s nationwide GDP per capita of about $4,000, but more

reasonable in comparison with the average GDP per capita of about $9,000 in major cities such as Beijing, Shanghai, and Tianjin, which account for the majority of online shoppers. We forecast spend per shopper in China will rise to about $750 in 2015 and about $1,000 in 2020, a 6% CAGR, reflecting more spending by existing online shoppers, but lower incomes among incremental online shoppers. For comparison, we estimate online spending per online shopper is about $1,200 in the US, and about $700 in Korea.

Exhibit 4: We expect growth in number of shoppers to drive China e-commerce expansion

China total e-commerce spend, number of online shoppers and average spend per shopper, 2009-2020E

Total e-commerce volume ($ bn) % growth3-year forward CAGRTotal online shoppers(mn)% growth3-year forward CAGRSpending per online shopper (US$)% growth3-year forward CAGR2009E2010E2011E2012E2013E2014E2015E2016E2017E2018E2019E2020E42.177.3119.7166.5213.5258.5303.3349.2403.1467.5544.8637.7126.1%83.6%54.8%39.1%28.2%21.1%17.4%15.1%15.4%16.0%16.5%17.1%58.1%40.3%29.3%22.1%17.8%16.0%15.5%16.0%16.5% 110.0 148.0 191.4 244.2 294.4 346.7 400.5 454.9 511.6 557.3 604.2 653.444.7%34.6%29.3%27.5%20.6%17.8%15.5%13.6%12.5%8.9%8.4%8.1%30.4%25.8%21.9%17.9%15.6%13.9%11.6%9.9%8.5% 383 523 625 682 725 746 757 768 788 839 902 97656.2%36.5%19.6%9.1%6.4%2.8%1.6%1.3%2.6%6.5%7.5%8.2%21.2%11.5%6.0%3.6%1.9%1.9%3.5%5.5%7.4% Source: Goldman Sachs Research estimates.

We estimate that online shopping in China is at a comparable stage of evolution to the US 5 years ago and Korea 8 years ago

China’s 2% penetration rate for online shopping versus total retail spending in 2009 was comparable to that in the US in 2004, or Korea in 2001. We assume that online shopping penetration in China will increase at a pace similar to those of Korea or the US. 

E-commerce in China, like Korea, benefits from relatively weaker offline retailers in many categories, with a greater dependence on department stores. See our Asia-Pacific consumer and retail analyst Joshua Lu’s April 30, 2010 report “Battle of retail formats: 3 decades of lessons from Japan & Korea”.

E-commerce in China, like the US and unlike Korea, may be restrained by a large landmass with a substantial non-urban population, whereas Korea’s population is concentrated in the greater Seoul area, making it a more conducive environment for rapid home deliveries.



Goldman Sachs Global Investment Research

May 17, 2010

Asia Pacific: Internet - e-Commerce & Portals

Exhibit 5: We expect China’s online shopping volume to track the Korean and US growth trajectory, with a 5-yr lagOnline shopping penetration in China, Korea and the US

14%

China from 2010Exhibit 6: We estimate China’s online shopping spend to match the US’ online shopping spend in 2020

Comparison between China and US online shopping volume

ChinaUSChina online shopping as % of US

Korea, 12.6%Korea from 2001US from 200512%10%8%6%4%2%0%

US$ bn700China, 9.2%600500400300200100-2010E2011E2012E12%27%42%64%54%US, 8.2%83%86%77%80%71%100%90%94%110%90%70%50%30%10%-10%2013E2014E2015E2016E2017E2018E2019EY3Y4Y5Y6Y7Y8Y9Y10Y11

Source: Goldman Sachs research estimates.

Source: US Department of Commerce, Goldman Sachs research estimates.

Online marketplaces dominate online shopping in China today

Online marketplaces and e-tailers

Globally, there are two dominant models for selling products online:

A. Online marketplaces

Online marketplaces act as venues for merchants to sell products. The marketplaces collect commissions or listing fees, and are thus somewhat akin to offline department stores. The total value of products sold through a marketplace is “gross merchandise volume” (or “GMV”), while the commissions and fees represent its revenue. Major marketplaces globally include eBay, Yahoo! Japan Auctions, and MercadoLibre. Contrary to popular

belief, most online marketplaces today focus largely on new rather than used products, and on fixed rather than auction price mechanisms. The advantages of online marketplaces as businesses include the following:   

Absence of inventory risk.

Low capital expenditure requirements.

The ability to provide a broad range of products.

Online marketplaces have incubated hundreds of thousands of small businesses, fostering bottom-up innovation and creating employment.

B. e-tailers

Online retailers (“e-tailers”) sell products themselves and are thus functionally akin to mainstream offline retailers. Major e-tailers globally include Amazon, B2W, and Interpark. The total value of products sold by an online retailer typically represents its revenue, as well as its GMV. The advantages of e-tailers as businesses include the following:  

Full control of the fulfillment processes, including warehousing, shipping, and payment collection.

Consistency of service in areas such as shipping times and product returns policies.

Goldman Sachs Global Investment Research

2020E200820095

May 17, 2010

Asia Pacific: Internet - e-Commerce & Portals



Depth of product reviews, as buyers on marketplaces typically first review the quality of the merchant, whereas buyers on e-tailers review the attributes of the product itself.

E-tailers have raised the standards for online shopping, creating a more orderly

environment for consumers, and reduced much of the friction of the traditional retail business model, in our view.

Exhibit 7: E-tailers usually handle logistics and fulfillment in house Business processes for online marketplaces and e-tailers in China

PaymentPayment ( mainly payment on receipt)E-retailersValue chainInformationBusinesse-commerce websitesInformationBrowsing & placing ordersConsumersLogisticsLogisticsLogisticsLogistics companiese-commerce websitesThird-party payment platformLogisticsMarketplacesValue chainInformationSellersRegistering, products releasing, bargaining& taking ordersInformationBrowsing, bargaining & placing ordersBuyersPaymentPayment Source: iResearch, Goldman Sachs Research.

Online retailers dominate in the US, marketplaces in China

We estimate the GMV split between marketplaces and e-tailers is currently about 80%/20% in China, about 20%/80% in the US, and about 40%/60% in Korea.

In some markets such as the US, marketplaces such as eBay gained traction in the 1990s-2000s due to their low capital requirements and wide range of products at an early stage, while e-tailers such as Amazon caught up over time as service consistency became

increasingly important to consumers. In other markets such as Korea, marketplaces such as Gmarket have innovated aggressively and retained industry leadership. We expect China to follow Korea’s evolution path, given:

1. Leading China marketplace Taobao is already more dominant today than leading US

marketplace eBay ever was in the US – see the next section for details. 2. In Korea and China, unlike many other countries, online marketplaces have taught

buyers and sellers to expect settlements via escrow accounts, which results in slower payments to the seller, but reduced risk of fraud to the buyer. 3. China’s online marketplaces have learnt from eBay’s and Gmarket’s divergent

experiences, and are consciously emulating aspects of Gmarket’s performance – such as its fee structure and fashion-oriented homepage. We therefore forecast that online marketplaces will capture about half of online shopping activity in China in 2020.1

Online marketplaces in China may also benefit to some extent from small merchants paying reduced

Value Added Taxes versus large e-tailers. The Value Added Tax rate for most enterprises is 17%,

Goldman Sachs Global Investment Research

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Asia Pacific: Internet - e-Commerce & Portals

Exhibit 8: We expect marketplaces to capture around half of online shopping activity in China in 2020E

e-tailers and marketplace volume, $ bn, 2009-2020E

700e-retailers volume ($ bn)marketplaces volume ($ bn)600500US$ bn400300200100020092010E2011E2012E2013E2014E2015E2016E2017E2018E2019E2020E

Source: Goldman Sachs Research estimates.

Taobao is the established leader among China marketplaces

Taobao has shaped and determined the evolution of e-commerce in China. It achieved $15 bn GMV in 2008 and $29 bn in 2009, sizeable figures relative to:  

Online marketplaces elsewhere - eBay has achieved about $18 bn in US GMV, ex-automobiles, and Rakuten about $8 bn in Japan GMV in 2009.

Offline retailers in China – Gome, the largest offline retail chain, achieved about $10 bn sales in 2009, so Taobao was about 3X larger.

We believe that Taobao accounts for around 85% share of online marketplace activity, implying total online marketplace activity of about $35 bn in 2009. We estimate that other marketplaces such as PaiPai and Eachnet account for the remaining 15%.

whereas the rate for merchants reporting under Rmb500,000 sales per year is only 3%. In the US, all online sellers, large and small, need not charge sales taxes to their buyers if they do not maintain a physical presence in the buyer’s state.

Goldman Sachs Global Investment Research

May 17, 2010

Asia Pacific: Internet - e-Commerce & Portals

Exhibit 9: Taobao’s GMV has grown at over 100% yoy for five years

Taobao GMV, 2005-2009

250

Exhibit 10: Taobao’s domestic GMV overtook eBay’s and Amazon’s domestic GMV in 2009

GMV comparison between Taobao, Amazon and eBay (US operations) for 2008 and 2009

US$ bn35.030.025.020.0Taobao GMVAmazon (US GMV)eBay (US GMV)2001502005-2009 CAGR = 123.6%10015.010.05.0500200520062007200820090.020082009Gross Merchandise Volume (Rmb bn)

Source: Company data.

We further estimate that marketplaces such as Taobao accounted for 80% of total (marketplace plus e-tailer) online shopping activity in China in 2009.

Exhibit 11: Marketplaces dominate online shopping in China, and Taobao dominates among marketplaces Market shares as of 2009

Onlineretailers, 19%Online marketplaces, 81%OthersEachnetPaipaiTaobao85%

Source: Company data, Goldman Sachs Research estimates.

Taobao is more dominant in China today than eBay was 5 years ago in the US

We estimate Taobao’s share of total China retail spending will be about 3% in 2010, whereas eBay and Amazon each possess well under 1% of US retail spending.

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Asia Pacific: Internet - e-Commerce & Portals

Exhibit 12: Taobao has a large share of China’s total

online shopping GMV compared with eBay’s share of US online shopping GMV

Taobao and eBay GMV versus China and US online shopping volume

90%80%70%

65%60%50%40%

50%Exhibit 13: We estimate Taobao will capture 2.8% of China’s retail sales in 2010E, whereas Amazon and eBay had less than 1% of US retail sales in 2005

TaobaoeBay3.00%77%78%70%2.50%2.00%1.50%1.00%30%20%10%0%

2002

2003

2004

2005

2006

2007

2008

2009

19%21%21%20%19%18%0.50%17%16%0.00%Taobao in 2010Amazon in 2005eBay in 2005

Source: Company data, Goldman Sachs Research estimates.

Source: CEIC, Company data, Goldman Sachs Research estimates.

Going forward, we see Taobao continuing to dominate within online marketplaces through:  

Network effect – more buyers attract more sellers, who attract more buyers.

Minimal fees charged to sellers – Taobao does not charge either insertion or final value fees, whereas online marketplaces elsewhere typically capture 5%-15% of GMV from their merchants through fees.

Business innovation – Taobao has innovated in areas such as its revenue model and payment platform, charging lower fees but capturing more volume than marketplaces elsewhere.



We forecast Taobao will become materially profitable in 2011

Taobao has already created substantial economic value for: 

Its buyers, by providing them with low pricing and wide selection, which we view as especially important in China given the under-development of many retail categories offline.

Its merchants, many of whom only exist because Taobao created a market for them, and others of whom can only sell nationwide because of Taobao’s nationwide brand and traffic.

A range of external beneficiaries, such as logistics companies (more shipments), the government (Taobao has created tens of thousands of jobs through its ecosystem), and the environment (a delivery van delivering products to a dozen homes is more energy efficient than a dozen individuals each driving to retail stores).



Due to its low fee structure, Taobao has not been profitable itself, but we believe it is about to become so. We infer Taobao’s financial statements from Yahoo!’s associate income disclosures (Yahoo!’s associate income consists largely of its share of earnings at Yahoo! Japan and Alibaba.com, which are listed and report results, and Taobao, which is unlisted and does not). We forecast Taobao will break even in 2010, and become materially profitable in 2011.

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Asia Pacific: Internet - e-Commerce & Portals

Exhibit 14: We expect Taobao to register a healthy profit in 2011 $ mn, unless noted

Implied Taobao operating dataCalendar year$ millionsGMV (RMB)GMV ($)% yoyRevenue% change yoyTake rateGross profit% change yoyGross marginOperating income% change yoyOperating margin2007200820092010E2011E2012E40,0005,85899,60014,587149%200,00029,290101%249325%0.85%89NM43%(186)NMNM400,00058,581100%586135%1.00%250181%43%0NM0%600,00087,87150%1,05480%1.20%45180%43%158NM15%800,000117,16133%1,75767%1.50%75167%43%351122%20% 1594161%0.02%(43)NM(175)NM0.40%(46)NMNM(410)NMNMNote: 2007 – 2009 revenue, gross profit, and operating income are derived from Yahoo!’s 10-K filings and Alibaba.com disclosures, and include losses from Alipay.

Source: Company data, Goldman Sachs Research estimates.

e-tailers are growing fast and investing for the future

Several China e-tailers are growing revenue over 100% yoy

China hosts a range of e-tailers in various product categories. Amazon (via its subsidiary Joyo) and Dangdang are most active in media products such as books, while Newegg and 360buy are most active in electronics products. The past year has yielded (see Exhibit 15) some positive data points about e-tailer activity in China:   

Several e-tailers are growing at very fast rates, often matching Taobao's 100% growth in 2009.

Several e-tailers are becoming modestly profitable.

Several e-tailers are tapping external funding and investing in logistics.

Exhibit 15: China e-tailers are growing fast and making sizeable capital investments Primary productsRevenue, Rmb bnRevenue, Rmb bnRevenue growthAchieved Profitability?Capital investment$ mnInvestorsDangdangJoyoBooksBooks2008 - -2009 4.0 -2009 - -1% in Mar-Sep 2009 -40NANAAmazon360buy.comredbabywang.cnIT/electronicsmaternity/baby apparel - 1.0 - 2.4 -140%No181Tiger Global ManagementVanclapparel 0.3 0.6 100%Target profit by -201180170NLVC, NEAIDGVC, Ceyuan Ventures, SAIF

Source: Company data.

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Globally, dedicated e-tailers are more successful than offline retailers moving online

We believe online retailers have generally outperformed offline retailers moving online in major e-commerce markets such as the US, Japan, and Korea in the past decade. For example, we estimate that Amazon's US sales are about 10X larger than those of offline retailer WalMart’s online subsidiary Walmart.com. We attribute the success of pure-play e-tailers versus offline retailers to a range of factors, including the following:

1. Structurally low-cost business model – E-tailers save on store rental and store

personnel expenses, enabling them to pass lower prices through to consumers. We estimate that store rental and store personnel expenses can take up around 25% of revenue for many offline retailers, whereas free shipping typically accounts for under 10% of revenue for e-tailers. According to our US retail analyst Adrienne Shapira’s price surveys, Amazon generally matches WalMart on prices for leading toys and electronics, despite having a smaller scale. 2. Structurally working-capital efficient business model – E-tailers can demand sales

payable days similar to offline retailers, while centralizing their inventory in fewer locations, enabling them to achieve 5X-10X faster inventory turnover versus offline retailers. Amazon generates about $1 bn per year free cash flow from working capital movement alone. 3. Single-pick versus palette distribution centers – Offline retailers typically configure

their distribution centers to ship large quantities of each SKU on a palette to a store outlet. E-tailers build their distribution centers to pick a single product at a time, pack the single product into an envelope or small box, and ship it to a consumer’s home. In the US, offline retailers are finding that they must build separate and additional single-pick distribution centers for their online channels, which most are naturally reluctant to do. 4. Absence of channel conflict – Offline retailers may be unwilling to price online sales

at a discount to offline for fear of cannibalization, whereas online retailers can price as aggressively as they choose. This is particularly problematic for offline retailers that price differently in different cities. 5. Heavy R&D spending - Amazon spends about 10X as much on tech and content as a

proportion of gross profit than the major offline retailers. In the US, computer hardware, media products, and consumer electronics have moved online rapidly, generally to the advantage of pure play e-tailers such as Amazon and Newegg.

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Asia Pacific: Internet - e-Commerce & Portals

Exhibit 16: Computer hardware, media products, and consumer electronics have moved online rapidly in the US

Online penetration of various retail categories in the US, other than food and gas; figures in billions of dollars

2009 Online Online Market PenetrationSizeSector51.7%$27.3Computer hardware, software and peripheralsBooks- recreational only19.9%$5.8Music/video15.5%$5.8Consumer electronics13.6%$13.0Toys and video games13.4%$7.3Sporting Goods10.5%$2.8Jewelry9.2%$3.0Apparel, accessories and footwear9.0%$27.3Flowers8.0%$2.4Pets6.4%$1.8Appliances and home improvement5.0%$17.7Furniture2.4%$1.7 Source: Forrester Research, Goldman Sachs Research.

We see China e-tailers as initially most successful in categories such as computers, media, and apparel

In China, we expect e-tailers to be most successful in categories that are:    

Non-perishable – excluding food, for example. Easy to ship.

Lacking in strong offline competitors – such as books.

Reliant on relatively homogenous SKUs – thus excluding high-end clothing, but including mass-market clothing and footwear.

Whereas online retailers have performed very well in consumer electronics elsewhere in the world, consumer electronics is one of the few categories in China where offline retailers are well-established, though it is too early to say whether this will retard the penetration of online retailers.

China e-tailers investing in logistics

We believe that e-tailers are investing heavily in logistics because they have learnt the

importance of fulfillment capacity from Amazon's success in the rest of the world. Amazon typically opens 3-6 fulfillment centers globally each year, with floor space per fulfillment center of up to 1 mn square feet. Fulfillment centers in China are typically smaller, likely because the retailers operate in fewer categories than Amazon does in countries other than China. However, 360Buy has announced plans to build a center in Shanghai, which the

Netease Tech website reported will be 8X the size of Beijing’s National Stadium, equivalent to several million square feet.

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Exhibit 17: E-tailers are building logistics centers across China

Ha'erbinINNERMONGOLIAAnshanShenyangBEIJINGGANSULangfangTIANJINDalianJILINFushunXINJIANGNINGXIAQINGHAIXi'anTIBETTaiyuanJinanQingdaoSuqianNanjingSuzhouWuxiHangzHangzhouZhengzhouWuhanCHONGQINGChengduGUIZHOUChangshaTotal logisticscentersJoyo4360Buy33VANCL4NewEgg8Dangdang5Redbaby16ANHUIShaoxingJiaxingJinhuaNingboWenzhouJIANGXIFuzhouXiamenGuangzhouSHANGHAITAIWANYUNNANGUANGXIDongguanShenzhenZhuhaiFoshanHAINAN Source: Company data, Goldman Sachs Research.

Online marketplaces and e-tailers converging

Convergence globally – Amazon versus eBay

In countries such as Japan and the US, online marketplaces and e-tailers have started to

converge, as marketplaces such as Rakuten invest in fulfillment and inventory, while e-tailers such as Amazon enable merchants to sell on their websites via third-party sales platforms. Convergence offers some of the advantages of both models but also poses challenges:

1. A converged model forces merchants to compete with the site owner, who can track

what products are popular and then sell those products too. This factor has hurt Amazon less than one might expect, likely because Amazon prioritizes third-party sellers above its own product if the third party offers lower prices. 2. A converged model may undermine consumer expectations, since shoppers buying

from a converged model may assume they are purchasing from the site operator (e.g., Amazon) rather than the merchant, and hold the site operator responsible if the merchant takes longer to ship than the site operator does. 3. A converged model requires online marketplaces to become more capital intensive,

reducing free cash flow to investors. We believe this is one reason why marketplaces have moved more slowly than e-tailers toward convergence.

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Convergence in China: both e-tailers and marketplaces launching online shopping malls

Several China e-tailers are starting third-party seller platforms, or “shopping malls”, which mimic the business model of marketplaces while being more brand-driven. Dangdang’s shopping mall currently supports over 1,000 retailers on its platform, including Li Ning, Lenovo and Belle. Management expects its shopping mall GMV to grow by over 500% in 2010, largely driven by electronics, apparel and shoes.

Meanwhile, online marketplaces Taobao and PaiPai also operate “shopping malls”, Taobao Mall and QQ Mall, which allow offline retailers to set up “flagship stores” within their domains. Taobao management noted that Taobao Mall GMV reached Rmb10 bn / $1.5 bn in 2009, around 5% of its total GMV. Taobao has set up partnerships with more than 20 logistics companies.

Exhibit 18: Screenshot of Belle store on Taobao mall

Exhibit 19: Screenshot of Li Ning store on QQ mall

Source: mall.taobao.com.

Source: paipai.com

Exhibit 20: Screenshot of Li Ning shop on Dangdang

Source: dangdang.com

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Many single-category survivors, only 2-3 can make Prime

Trend toward multiple categories

Amazon’s success at diversifying from books to media to electronics to apparel in the US is prompting e-tailers in China to seek similar diversification. For example, 360Buy, which focuses on electronic goods, has expanded to daily necessities, and plans to launch food and beverages later this year.

We believe that selling in multiple categories carries the following benefits:  

Ability to leverage customer base – many Amazon customers start as book buyers and later shop across categories.

Ability to leverage fulfillment network – Amazon has demonstrated that an e-tailer can use the same fulfillment network for a range of product categories, though not for perishables (due to air conditioning requirements).

Reduced dependence on any single set of suppliers – Amazon has from time to time engaged in disputes with suppliers in a single category, for example with book

publishers over who sets the price of e-books. We believe its category diversification strengthens its bargaining position.



Prime programs represent the ultimate test, and destination

Amazon has differentiated itself through its Amazon Prime services, under which

consumers pay $40-$80 per year for unlimited 1-2 day free shipping services. We believe several online shopping sites in China are racing to provide Prime-like services. In our view, the 2 or 3 websites that first provide Prime-like services successfully will likely pull away from the pack and establish themselves as multi-category leaders, while the rest will remain limited to a single category. We believe that providing a Prime-like service is a critical success factor because:  

The ability to support such a service is itself a test of one’s efficiency and scale. Amazon’s experience suggests that shoppers who sign up for such services self-select to the biggest online spenders, and that signing up further prompts shoppers to buy more than before, to derive most benefit from their subscription. We estimate that Prime members represent about 5% of Amazon’s total user base but about 30% of its total sales.

Consumers will likely only pay for a single such subscription, and whichever websites establish themselves first should benefit from the traditional retail productivity loop - more sales enable lower cost structure, driving prices lower, and hence facilitating more sales.



We expect consumers to choose which service to subscribe to on the basis of:

1. Selection - knowing they can buy a broad range of products from a single website,

across and within categories. 2. Price - trusting that the website’s prices will be comparable with those of its online and

offline competitors. 3. Convenience – believing that the website will consistently deliver products within a

short time frame, and will facilitate easy and inexpensive returns.

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The challenge in providing a Prime-like service for e-tailers (who already provide

fulfillment) is the need for critical mass in multiple categories, while the challenge for online marketplaces (who already operate in multiple categories) is controlling the fulfillment process.

Online payments no longer a hurdle, not yet a profit driver

We believe that a sufficient breadth of online payment mechanisms exists to facilitate e-commerce activity in China to a far greater extent than was the case five years ago. Online payments in China typically take an escrow format, for both regulatory and safety reasons, with consumers making their deposits via direct bank account debits, debit cards, or credit cards. Leading online payment providers include Alipay (a unit of Alibaba group), Tenpay (a unit of Tencent), and UnionPay (backed by several commercial banks). According to management commentary and news flow, each of these businesses appears to be loss-making on a gross as well as operating margin basis, likely because their owners are

treating them as tools to support ancillary activities. For example, the Alibaba group does not charge fees for payment via Alipay on Taobao in order to encourage merchants to sell products on Taobao rather than on the World Wide Web, so Alipay is to some extent subsidizing Taobao’s success.

E-tailers are important online advertisers, favor search engines

Search engines benefit the most from e-tailer advertising

Globally, e-tailers have emerged among the largest advertisers on search engines. E-tailers favor search engines because they deliver highly targeted traffic that can drive immediate transactions.

Our analysis of major online retailers suggests a similar pattern is underway in China – they all advertise on search engines such as Baidu and google.cn; some advertise on portals such as Sina; they generally do not advertise on marketplaces such as Taobao (Exhibit 21).

Exhibit 21: e-tailers advertise heavily on search engines, less so on portals Analysis of whether key e-retailers advertise on portals / search engines

Whether advertising on the sites:360buyJoyo/amazonDangdangNeweggOkayBuyVANCLM18PaipaiEachnet.comYoua.baiduBaiduYesYesYesYesYesYesGoogle.cnYesYesYesYesYesYesSinaSohuYahooNeteaseyoudao.comYesYesYesYesYesYesYesYesYesYes

Note: Above portals and their sub sites (63 for Sina, 60 for Sohu, 6 for Yahoo, 58 for Netease, and 8 for Youdao.com) were visited every two hours. For search websites, key words were searched to check sponsor links Source: Goldman Sachs Research estimates.

Baidu reported in its 2009 annual report that e-commerce is its sixth largest category, behind medical, machinery, education, franchising, and electronics. We see Baidu as the chief beneficiary of the rapid growth of e-tailer advertising activity.

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Taobao may be China’s fourth largest online advertising venue

While stand-alone e-commerce sites may not advertise on Taobao for competitive reasons, small merchants certainly do so. Taobao reported advertising revenue of Rmb1.5 bn / $220 mn for 2009, which saw it displace Sohu as the fourth largest advertising platform in China, according to iResearch (see Exhibit 22).

Around 400,000, or 20%, of Taobao’s merchants currently pay for advertising on the site, through a combination of banner advertisements, affiliate programs, and in-site search results. Around 100,000 merchants purchase its in-site search keywords, equating to about half as many search customers as Baidu, which reported 207,000 advertisers in 2009 (see Exhibit 24).

Taobao is the fourth largest online advertising platform by revenue in China, according to iResearch Market share of online advertising revenue in 2009

Baidu, 21.5%Others, 38.0%Google China, 10.8%Youku, 1.2%MSN China, Sina, 7.4%Netease, 1.8%1.5%Tencent, 4.0%Sohu, 5.8%Taobao, 7.2%Source: iResearch.

Goldman Sachs Global Investment Research Taobao’s advertising revenue was 34% of Baidu’s, spending per customer 70% of Baidu’s, in 2009

Taobao and Baidu search advertising revenues and spending per customer in 2009 25,000TaobaoBaidu20,00015,00010,0005,000-Rmb mnRmbAdvertising revenueSpending per customerSource: Company data, Goldman Sachs Research estimates.

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Exhibit 22: Taobao shows up to 13 sponsored results on each search result page and 10 on each directory page

Screenshot of Taobao with a search for female apparel

\"Express\" (Zhitongche) service: Up to 8 slots for search result pages; up to 5 slots for directory pagesBanner ads\"Express\" (Zhitongche) service: Up to 5 slots for both search result and directory pages

Source: Company data.

Single stock implications: Focus for now on Baidu, Yahoo!

Baidu (Buy, BIDU, $75.7) – e-tailers could eventually account for 20% of revenue

We believe Baidu is well-positioned to capture increasing advertising by e-tailers. We estimate e-tailers account for as much as 20% of Google’s revenue, versus under 5% of Baidu’s revenue. With their transaction volumes growing around 100% yoy in 2010, we

expect e-tailers to increase their advertising spending at a similar rate. Baidu’s joint venture with Rakuten to launch an online shopping mall adds a separate opportunity to capitalize on e-commerce. For now, we assume the JV is too far behind Taobao to catch up, but note that it should benefit from ample traffic re-direction from Baidu, since Taobao does not advertise on Baidu.

Yahoo! (Neutral, YHOO, $16.1) - stake in Taobao contributes about 10% to our sum-of-the-parts value

Yahoo! owns a 44% stake in Alibaba group and thus in Taobao. Assuming a 1.5% take rate (defined as revenue as a percentage of GMV) at Taobao near-term, we value Taobao at

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about $7 bn in 2010, and thus Yahoo!’s stake at about $3 bn pre-tax, or $2 post-tax, or $1-$2 per Yahoo! share. Given our profitability analysis above, we think Taobao may not consider an IPO until 2011 or later, but news-flow on Taobao’s GMV and on Taobao achieving profitability may be supportive for Yahoo! stock. Exhibit 23: Sum-of-the-parts value for Yahoo! stock Figures in millions of dollars

Yahoo! summary SOP$ millionsCurrent market valuesMarket Yahoo!'s Yahoo!'s Yahoo!'s taxed Taxed per-valueownershipuntaxed stakestakeshare value$14,163NMNM$14,163$10.00$4,518NMNM$4,518$3.60$39,184NM$13,843$8,866$6.39$22,11234%$7,430$4,458$3.26$6,64444%$2,923$1,954$1.39$10,42733%$3,490$2,454$1.75$27,547$20.00 Yahoo! USCashUnconsolidated holdingsYahoo! JapanAlibaba Group (Taobao)Alibaba.com (indirect)Total SOP valueSource: Company data, Goldman Sachs Research estimates.

Over time we see scope for Taobao to potentially improve its take rate to about 3%, given:   

Marketplaces elsewhere (such as eBay) achieve take rates of 5%-9%.

Taobao, unlike most marketplaces, does not charge insertion or final value fees, and we do not expect it to do so.

Gmarket achieved a take rate of about 3% from advertising fees, which Taobao does charge.

We estimate Taobao’s GMV at Rmb1.0 tn in 2015, which a 3% take rate would convert into Rmb30 bn in revenue. We believe Taobao might achieve long-term normalized net after-tax margins of about 33%, based on profitability at other China internet companies, and a 33% net margin on Rmb30 bn in revenue would produce Rmb10 bn / $1.5 bn in earnings. Once Taobao is operating at mature, normalized levels, we believe it should trade at a multiple at least as high as where Gmarket historically traded, or at least 20X earnings, given Gmarket resembled Taobao in its market dominance. A 20X multiple on $1.5 bn earnings means Taobao could be worth $30 bn in 2015, and Yahoo!’s 44% stake could be worth $13 bn, or almost $10 per Yahoo! share in 2015.

Sina (Buy, SINA, $35.4) and Sohu (Neutral, SOHU, $47.0) - e-tailers deterred by how portals price advertising

We believe portals will benefit more from e-commerce if they shift to pricing advertising inventory on a cost per click rather than a cost per time basis, which they currently appear reluctant to do given they are concerned that advertisers may compare their prices

unfavorably with those of lower-profile but (in aggregate) high-traffic competitors, such as social networks and video sharing sites.

Amazon (Buy, AMZN, $131.5) – China could add about 5 pp to its yoy customer growth rate, taking it from about 10% to about 15%

We see China as a very different market for Amazon than its other major expansion markets of Germany, the UK, and Japan because: 

Amazon’s offline competitors, especially in books, are in a relatively less advanced position than its offline competitors in other markets.

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 

Amazon faces numerous local online competitors which are also willing to invest in fulfillment capacity.

China is more geographically dispersed, requiring more fulfillment centers to cover the full country.

Amazon started including China customers in its customer count in its 1Q2010 results, which implied that Amazon has about 5 mn customers in China, or 4% of its global total. We

currently forecast that Amazon will grow its customer count at about 10% per year, adding around 12 mn customers per year. Using our forecasts above (Exhibit 4) for online shopper growth in China and assuming that Amazon’s current penetration of China’s online shoppers increases from 5% in 2009 to 15% in 2020, then including China customers could boost the yoy growth in Amazon’s global customer count by about 5 pp, or by about 50%.

Amazon has included revenue and earnings from China in its consolidated results since acquiring Joyo, the second largest book e-tailer in China, in 2004. We estimate that Amazon currently derives about 2% of its global revenue from China, less than its

proportion of customers due to a smaller range of products and lower average prices in China resulting in lower spend per customer. But China’s GDP is comparable with those of Japan and Germany, from each of which Amazon derives about 15% of its global revenue.

Alibaba.com (Sell, 1688.HK, $15.3) – derivative beneficiary of online shopping activity

Alibaba.com facilitates both in-China and global business-to-business e-commerce. The company has recently sought to help its suppliers benefit from the boom in domestic China consumer e-commerce, via closer cooperation with sister-site Taobao. We do not yet fully understand how Alibaba.com will generate revenue from this cooperation, since suppliers do not pay listing fees on Taobao, and since Chinese suppliers appear increasingly capable of listing products on marketplaces directly. For example, eBay has cited Chinese suppliers selling directly on eBay’s non-China websites as a key driver of eBay’s growth in recent quarters, and if Chinese suppliers are capable of listing products directly on eBay.com, we assume they could list products directly on Taobao. But given the shareholder relationship between Alibaba.com, Taobao, and payment platform Alipay, we acknowledge that consumer e-commerce represents an area of upside risk to our Alibaba.com forecasts.

Tencent (Neutral, 700.HK, $160.4) – PaiPai, Tencent’s online marketplace, could contribute low single digit % to revenue

We do not expect e-commerce to add to Tencent’s revenue in the near term due to the network effects that incumbent Taobao enjoys. Even if Tencent’s e-commerce revenue in 2011 were 30% as large as Taobao’s in 2010, it would only add 1% to our Tencent 2011E revenue forecast. Longer term, assuming that PaiPai retains 20% of marketplace activity (a distant second behind Taobao), we estimate it could achieve Rmb30 bn GMV in 2015. At a 3% take rate, PaiPai could achieve Rmb1.3 bn revenue in 2015, which adds about 2% to our forecast of about Rmb60 bn total revenue in 2015. See a detailed discussion in our April 8, 2010 note on Tencent, “Growth beyond games”.

The largest unknown factor in China e-commerce, in our view, is whether Taobao ultimately charges fees for services other than advertising to its sellers.  

Taobao charging fees could sharply improve the profitability of Taobao and Tencent’s PaiPa, since PaiPai would then be well-positioned to charge such fees too.

However without careful implementation, Taobao charging fees could also provoke merchants to move their sales from marketplaces and onto their own websites.

Such a migration was the pattern in many e-commerce markets in the US and Europe when marketplaces increased fees, but the size and pace of innovation of the e-commerce market in China means that different and surprising outcomes are certainly possible.

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Related research

Asia: Retail: Battle of retail formats: 3 decades of lessons from Japan & Korea, Joshua Lu et al., 30 April 2010.

Americas: Retail: Dotcommerce: The Great Disruption, Adrianne Shapira, James Mitchell, et al., 23 March 201

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Goldman Sachs Global Investment Research 24

May 17, 2010

Asia Pacific: Internet - e-Commerce & Portals

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Goldman Sachs Global Investment Research 25

May 18, 2010

Commodities

Agriculture Update

We reiterate our constructive outlook for corn, our neutral view on wheat where we are modestly lowering our forecasts and our expectation of lower soybean prices, in line with our lower new crop forecasts.

Research Report

Ample grain supplies ahead but we continue to prefer corn

“Defensive” agricultural commodities have fared relatively well

Grain prices have weathered the current sell-off in risky assets relatively well, although grains did join the correlated commodity sell-off late last week as the dollar strengthened. While the backdrop of strong macro data dominated by high policy uncertainty will likely contribute to near-term volatility, we expect the more defensive agriculture prices to continue to better reflect supply and demand fundamentals than other commodities. The May WASDE, in which the USDA first introduced its 2010/11 balances, was mostly in line with our expectations.

Damien Courvalin

+44(20)7051-4092 damien.courvalin@gs.com Goldman Sachs International

Allison Nathan

(212) 357-7504 allison.nathan@gs.com Goldman Sachs & Co.

We remain constructive on corn…

For corn, our constructive view hinges on both our forecast for strong

demand growth from ethanol, with the USDA now in line with our 2010/11 ethanol corn grind estimates, as well as our expectations that US yields will come in below recent trend levels under average weather conditions, in sharp contrast to the USDA’s initial large yield estimate.

…neutral on wheat, where we modestly lower our forecast…

For wheat, we expect already large inventories to grow further in 2010/11 as higher beginning stocks offset lower production. We expect demand growth to remain lackluster although our constructive corn view suggests higher feed demand than the USDA forecasts. We expect this to limit downside and revise our forecast moderately lower to 475, 500 and 540 cents/bu over the next 3, 6 and 12 months respectively.

…and bearish on soybeans, where we lower our new crop forecasts

For soybeans, we forecast that another large 2010/11 crop will more than offset expected growth in consumption and help build stocks, especially in the US. While prices may be supported near term by strong US exports to China, we expect lower prices as the global market turns to the record-large South American crop. We are lowering our 6- and 12-month forecaststo 900 cents/bu as a result.

The Goldman Sachs Group, Inc. does and seeks to do business with companies covered in its research reports. As a result, investors should be

aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For important disclosures, see the text preceding the disclosures or go to www.gs.com/research/hedge.html.

The Goldman Sachs Group, Inc. Goldman Sachs Global Economics, Commodities and Strategy Research

May 18, 2010

Commodities

Current trading recommendations

Current tradesLong PlatinumBuy July 2010 NYMEX PlatinumFirst recommendedInitial valueCurrent ValueCurrent profit/(loss)1July 15, 2009 - Commodity WatchRolled on April 12, 2010 from a Buy April 2010 NYMEX Platinum for $578.5/toz gain$1,739.4/toz$1,715.4/toz$554.5/tozLong WTIBuy December 2010 NYMEX WTILong Copper timespreadBuy December 2010 CopperSell December 2011 CopperWTI call tradeBuy June 2010 NYMEX WTI call struck at $85/bblFebruary 5, 2010 - Commodity Watch$77.75/bbl$81.03/bbl$3.28/bblSeptember 8, 2009 - Metals$112/mt$20/mt($92/mt)June 3, 2009 - Energy WatchInitiated as a long Jun-10 call spread position. Short WTI $100/bbl call closed at $0.49/bbl on February 5$2.93/bbl$0.01/bbl($3.41/bbl)¹As of close on May 14, 2010. Inclusive of all previous rolling profits/losses.

Source: Goldman Sachs Global ECS Research.

Goldman Sachs Global Economics, Commodities and Strategy Research 2

May 18, 2010

Commodities

Price actions, volatilities and forecasts

Prices and monthly changes1unitsEnergy WTI Crude Oil Brent Crude Oil RBOB Gasoline USGC Heating Oil NYMEX Nat. Gas UK NBP Nat. GasIndustrial Metals4 LME Aluminum LME Copper LME Nickel LME ZincPrecious Metals London Gold London SilverAgriculture CBOT Wheat CBOT Soybean CBOT Corn NYBOT Cotton NYBOT Coffee NYBOT Cocoa NYBOT Sugar CME Live Cattle CME Lean Hog1234Volatilities (%) and monthly changes2ChangeRealized2Change3Q 084Q 08Historical Prices1Q 092Q 093Q 094Q 09Price Forecasts33m6m12m14 MayChangeImplied2$/bbl$/bbl$/gal$/gal$/mmBtup/th71.61 30.9-14.2377.18 2.13 2.04 4.31 38.38 0.780.370.660.723.807.8333.731.132.632.344.678.311.18.012.89.6-3.833.3118.22117.152.963.318.9866.4559.0857.491.341.846.4065.5943.3145.721.251.344.4745.3059.7959.901.711.513.8127.5768.2468.871.861.733.4423.4876.1375.541.941.944.9331.8396.0094.502.502.505.5034.2093.0091.502.272.475.7034.20102.00100.502.642.636.0036.00-0.20-8.97-0.160.115.8330.332.131.545.649.0691.3$/mt$/mt$/mt$/mt21016926215552055-361-1024-4840-40528.933.641.840.14.421.341.130.0039.931.058.741.622.112.433.112.7283975711913317981885394811118121914013494106251208153047081314715091836585617576178020376677175932241232581251755525902305775517140256521807850171402720$/troy oz$/troy oz122819.6 18.928.81.420.6416.341.92.619.887215.179510.290812.692313.896214.7109917.6118019.7124020.7133522.3cent/bucent/bucent/bucent/lbcent/lb$/mtcent/lbcent/lbcent/lb46494835781134290014.193.383.6-11-12-3.9-3.46.1100-2129.722.330.5n/an/an/a33.8n/an/a-2.01-0.25-1.76n/an/an/a-4.61n/an/a34.215.628.522.621.234.151.220.041.16.6-3.33.01.5-1.59.6-9.34.920.7792132057867138278413.1101.374.755291538447112225211.688.759.155194937746113255312.783.860.1564112840654124249914.783.063.2485104932760125286720.685.453.7522100238671139325923.683.657.847592537570140310015.0100.095.050090040070140270015.0100.085.054090045070140270012.0110.080.0 Monthly change is difference of close on last business day and close a month ago. Monthly volatility change is difference of average volatility over the past month and that of the prior month (3-mo ATM implied volatility, 1-mo realized volatility). Price forecasts refer to prompt contract price forecasts in 3-, 6-, and 12-months time. Based on LME three month prices.

Source: Goldman Sachs Global ECS Research.

Goldman Sachs Global Economics, Commodities and Strategy Research 3

May 18, 2010

Commodities

Ample grain supplies ahead but we continue to prefer corn

Grain prices have weathered the current weakness in risky assets relatively well, although grains did join the correlated sell-off of other commodity markets late last week as the dollar strengthened. Although the backdrop of strong macroeconomic data dominated by increasing policy uncertainty will likely contribute to near-term price volatility, we expect the more defensive agriculture prices to continue to better reflect supply and demand fundamentals than other commodities. The May WASDE, in which the US Department of Agriculture (USDA) first introduced its 2010/11 balance tables, was mostly in line with our expectations, and we reiterate our constructive outlook for corn, our neutral view on wheat and our expectation of lower soybean prices. Broadly, we forecast strong demand growth except for wheat, against large supplies on strong production in 2010/11 and high beginning stocks following the ample 2009/10 crop.

For corn, our constructive view hinges on both our forecast for strong demand growth from ethanol, with the USDA now in line with our 2010/11 ethanol corn grind estimates, as well as our expectations that US yields will come in below recent trend levels under average weather conditions, in sharp contrast to the USDA’s initial large yield estimate. For wheat, we expect the already large inventories to grow further in 2010/11 as higher beginning stocks offset lower production. We expect demand growth to remain lackluster although our constructive corn view suggests higher demand for feed than the USDA forecasts. We don’t expect this to generate upside to prices but rather limit downside and we therefore maintain our neutral outlook.

For soybeans, we forecast that another large 2010/11 crop will more than offset the growth in consumption and help build inventories, especially in the US. Although prices may be supported near term by strong US exports to China, we expect lower prices as the global market increasingly turns to the record-high South American production for incremental supplies.

Overall we expect three issues to be key for the agricultural markets in the near term: 1) the magnitude of Chinese agricultural imports, which have been exceptionally strong; 2) the pace of the US planting season, which has been remarkably fast, and conditions for the kick-off of the US growing season; and 3) perhaps less of an immediate concern but

certainly important to monitor, potential implications from the US Gulf of Mexico oil spill. We believe that the spill could be a catalyst for lower US crop prices as more than half of the grains inspected for shipment in 2009 were exported through terminals located at the mouth of the Mississippi. Although export inspections are at their lowest from May

through July, signs of contaminated waters near the ports would likely lead US exporters to delay grain shipments and in turn weigh on US grain prices.

Corn: Still constructive

In line with our expectations, the May WASDE was supportive for the old 2009/10 US corn crop as corn grind for ethanol and exports were both revised higher while supply was revised slightly lower. These adjustments have brought US and global stock to use ratios back to declining in 2009/10 despite record-high US yields. For 2010/11, we have held a constructive view on corn prices as we expect a tight supply and demand balance,

especially in the US. The USDA’s first take on the 2010/11 corn balances suggests a similar view and came in tighter than market expectations.

In particular, the USDA shares our view of further strong increases in corn demand for ethanol production. Its estimate for corn use for ethanol in 2010/11 is now in line with our estimate of 4.6 billion bushels, supported by rising federal biofuel mandates. Comparing this projected ethanol production to the US gasoline demand that we forecast during the

Goldman Sachs Global Economics, Commodities and Strategy Research

May 18, 2010

Commodities

2010/11 marketing year suggests that at a national level, the effective blend rate will likely remain close to 9%. Given current uncertainty about a possible increase to the mandated blend rate, this forecast suggests that even at the current 10% cap, corn demand for

ethanol could still have some room to grow above our forecast should the current strong blending incentive of low ethanol prices and positive margins persist.

However, despite our similar views on demand, the USDA expects an increase in 2010/11 ending stocks and stocks to use ratios – in contrast to our expectations of a decline – driven by differing views on US yield in the 2010/11 crop year. Although the recent record-fast planting pace suggests that US corn yields are off to a good start, we continue to expect that the summer growing months will be key to our corn yield forecast, which we maintain at 156 bu/ac, in line with our assumption of average weather. This estimate is sharply lower than the USDA’s initial US yield estimate of 163.5 bu/acre (Exhibit 3). But should our yield estimate prove too low, the initial 2010/11 USDA balance suggests that any yield below 162.4 bu/ac would bring the US corn market into deficit.

Exhibit 1: US corn balance table

Million metric tons

U.S. Corn Supply/Demand BalancePlanting AnalysisArea Harvested (mm ha)Harvested Yield (MT/ha)Total Supply (mm MT)ProductionImportsTotal Domestic Use (mm MT)Food, Seed, IndustrialTotal Feed Corn Feed DDGFuel (mm MT) Fuel (kb/d) Ethanol (bg/y)ExportsTotal Disposition (mm MT)Inventory Change (mm MT)Beginning StocksEnding StocksDays of Forward CoverageStocks/Use RatioUSDA2008/09E31.89.7 349USDA2009/10E32.210.3 376USDA2010/11E33.110.3 384GS 2010/11E33.19.8 369

Exhibit 2: World corn balance table

Million metric tons

USDAGlobal Corn 2008/09ESupply/Demand BalancePlanting AnalysisArea Harvested (mm ha)Harvested Yield (MT/ha)Total Supply (mm MT)ProductionImportsTotal Domestic Use (mm MT)Food, Seed, IndustrialTotal Feed Corn Feed DDGFuel (mm MT) Fuel (kb/d) Ethanol (bg/y)ExportsTotal Disposition (mm MT)Inventory Change (mm MT)Beginning StocksEnding StocksDays of Forward CoverageStocks/Use Ratio158.25.0 1,011.9 798.0 82.5 779.6 200.3USDA2009/10E156.35.2 1,037.5 808.6 81.6 804.4 203.9USDA2010/11E159.35.2 1,068.2 835.0 86.1 825.5 209.0GS2010/11E159.35.2 1,052.0 820.9 84.0 828.6 212.2 307.2 333.1 339.7 324.20.30.30.30.5 259.1 33.4 282.1 33.8 287.0 34.3 286.0 34.3 160.6 170.5 171.4 170.4 132.2 136.5 135.9 134.928.433.935.535.593.4647.69.9 47.2 306.31.3 41.3 42.6111.8775.011.9 49.5 331.61.7 42.6 44.4116.9810.212.4 50.8 337.92.1 44.4 46.5116.9810.112.4 47.0 333.1(8.3) 44.4 36.0 509.8 517.9 530.3 530.3 479.5 481.9 492.7 492.730.336.037.637.6 99.7 118.6 123.7 123.7858858691822 11 13 13 13 85.0 864.5 86.0 890.4 88.5 914.0 86.0 914.616 (0)7(10) 131.3 147.4 147.0 147.0 147.4 147.0 154.2 137.4 69 66.7 68.2 60.518.9%18.3%18.7%16.6% 51 49 50 3913.9%13.4%13.8%10.8%340000Source: USDA, Goldman Sachs Global ECS Research.

Source: USDA, Goldman Sachs Global ECS Research.

Despite our moderately more constructive views for 2010/11 driven by expectations of lower yields, we don’t expect significant near-term upside as the market will likely continue to focus on the current record-fast US corn planting pace and possible increase in acreage from the March estimate. Thus, we maintain our 3-month 375 cents/bu forecast, generally in line with the current forward curve. However, we remain constructive relative to the forward curve further out given our 6-month and 12-month corn price forecasts of 400 cents/bu and 450 cents/bu.

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Commodities

Exhibit 3: We expect below trend corn yields under average weather conditions

US corn yield in bushels per acre

17016015014013012011010090

Exhibit 4: The USDA expects only small builds in stock to use ratios – we forecast declines

Stocks to use ratio (%)

70%USDA: 163.5 bu/acGS: 156 bu/ac

60%50%40%30%World 2010/11EUSDA 18.7% vs. GS 16.6%20%10%8070US 2010/11EUSDA 13.8% vs. GS 10.8%0%Historical US corn yieldsTrendAverage weatherWorldUnited StatesSource: USDA, Goldman Sachs Global ECS Research.

Source: USDA, Goldman Sachs Global ECS Research.

The main downside risk to our view is likely stronger supply on better yields resulting from the recent speedy pace of US planting and the potential for exceptionally favorable

weather conditions during the growing season, although the oil spill also presents some broad downside risk as mentioned above. The main upside risks is likely stronger-than-expected Chinese imports, although the potential for even stronger ethanol-related

demand also presents an upside risk. Below, we provide more detail on the main risks.

A favorable start to the US planting/growing season

The pace of corn planting in the US, the world’s largest producer and exporter, has been remarkable this year: about 81% of the US corn crop was planted as of May 10, up from a five-year average of 62% and close to the previous record for this time of year of 84% in 2004. This pace owes primarily to very favorable weather in the Midwest and suggests both upside to US acreage as well as a good start to US yields.



While the USDA already expects US farmers to increase corn planting 2.7% year-over-year, enticed by the prospect of improved returns and the availability of acreage

normally sown with winter wheat, history suggests that this record planting pace may lead to an increase in corn planted acres from the March 2010 planting estimate. Over the past decade, there have been five years when corn planting was more than 70% complete by the second week in May. During those years, the average increase in corn plantings from the March estimate to the June estimate by USDA was 1.5 million acres.

This early planting may also have a positive impact on yields. As we introduced in our work on US corn yields last October (It’s still all about weather, October, 29, 2009), a simple yield model based on corn planting progress by late May and end of August crop quality offers good predictive power for yields at the national level. In particular, a one point increase in planting progress tends to increase yields 0.3 bu/ac, all else constant, suggesting that US yields are likely off to a good start.



However, and as we also showed in our work last year, the weather between the months of June to August is the key determinant of US corn yields and we maintain our below consensus estimate that yields will realize 156 bu/ac under average weather conditions during the growing season. We will update this estimate as weather begins to be realized for these key growing months.

China corn imports have been exceptionally strong

Working in the opposite direction of the favorable start to the US growing season has been

Goldman Sachs Global Economics, Commodities and Strategy Research

May 18, 2010

Commodities

surprisingly strong Chinese demand for US corn imports in the recent period, which may owe to a tighter-than-expected corn balance in the country. China’s corn production declined in 2009/10 as drought in parts of Northeast China, the most important corn growing region, reduced production. Although the country’s inventories remain large,

giving a stocks to use ratio above 30% according to both the USDA and the China National Grain Reserves Corp., the country’s grain reserve manager, local corn prices in China

continue to rally, up year-to-date and far outperforming CBOT corn prices. This price action and recent trade activity suggest possible signs of tightness in the Chinese corn market, the largest after the US.



China sold most of the grain on offer in the latest series of state reserve auctions.

While in recent years China has bought corn in producing areas and sold the stockpiles during the year to control prices, the significant interest in recent sales raises the possibility that production may actually be lower than officially reported so far, although transport bottlenecks may also be contributing to this tightness.

China, historically a corn exporter, has also increased its purchases of US corn recently. China has made at least two purchases of US grain over the past couple weeks according to the USDA, 115,000 tons late April and an additional 369,000 tons last week. These represent not only the largest reported transactions since 2001, but also exceed the 100,000 total Chinese imports forecasted by the USDA for the 2009/10 marketing year. These purchases also follow China’s increased purchases of US dried distiller’s grain, a byproduct of ethanol production from corn that is used in animal feed, earlier this year.



Although these factors suggests that China may continue to demand more imports from the US, it is worth highlighting that the corresponding volumes remain small, uncertainty remains as to whether the US genetically modified (GM) corn will be accepted on arriving at ports and that the Chinese corn government stocks likely remain large. In fact, the USDA forecasts declining corn imports into China in its initial 2010/11 balance as it projects that Chinese corn production will increase with yields back up to trend levels after last year’s drought and a larger planted area this year. We currently also expect Chinese corn

production to rebound although initial planting estimates for the 2010/11 crop have come in much less favorably than in the US as low temperatures and rain have delayed planting in Northern China according to the Ministry of Agriculture. Thus, we will continue to monitor China’s crop progress and revise our forecast accordingly. Although Chinese

imports of US supply will likely remain small on an absolute basis, any upward revisions to Chinese corn imports will likely lend support to US corn prices as most imports of corn to China come from the US (Exhibits 5 and 6).

Goldman Sachs Global Economics, Commodities and Strategy Research 7

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Commodities

Exhibit 5: Most Chinese corn imports come from the US…

Thousand metric tons

5,0004,500

Exhibit 6: … but exports to China represent only a very small share of US exports

Thousand metric tons

70,000

60,0004,0003,5003,0002,5002,0001,5001,00010,0005000030,00050,00040,00020,000China corn importsChina imports from the USTotal US corn exportsUS exports to ChinaSource: USDA, Goldman Sachs Global ECS Research.

Source: USDA, Goldman Sachs Global ECS Research.

Wheat: We remain neutral

We continue to maintain our view that the wheat market will remain amply supplied in the coming year, which initial USDA estimates for the 2010/11 crop year reinforce. In fact, initial USDA estimates are modestly more bearish than our current estimates driven by weaker estimated demand for wheat feed use, which suggests rising US and global stock to use ratios in 2010/11 as opposed to our estimate of a marginal decline, but still to very comfortable levels (see Exhibits 7 and 8).

Exhibit 7: US wheat balance table

Million metric tons

U.S. Wheat Supply/Demand BalancePlanting AnalysisArea Harvested (mm ha)Harvested Yield (MT/ha)Total Supply (mm MT)ProductionImportsTotal Domestic Use (mm MT)Food and SeedFeed and ResidualExportsTotal Disposition (mm MT)Inventory Change (mm MT)Beginning StocksEnding StocksDays of Forward CoverageStocks/Use RatioUSDA2008/09E22.53.02 79.868.03.5 34.3 27.3 7.0 27.6 61.99.5 8.3 17.9USDA2009/10E20.22.99 81.360.33.1 31.9 27.0 4.9 23.5 55.58.0 17.9 25.8USDA2010/11E19.12.92 84.455.63.0 32.8 27.7 5.2 24.5 57.31.3 25.8 27.1GS2010/11E19.12.92 84.455.63.0 33.6 27.3 6.3 25.9 59.4(0.8) 25.8 25.0

Exhibit 8: World wheat balance table

Million metric tons

USDAGlobal Wheat 2008/09ESupply/Demand BalancePlanting AnalysisArea Harvested (mm ha)Harvested Yield (MT/ha)Total Supply (mm MT)ProductionImportsTotal Domestic Use (mm MT)Food, Seed, IndustrialFeed and ResidualExportsTotal Disposition (mm MT)Inventory Change (mm MT)Beginning StocksEnding StocksDays of Forward CoverageStocks/Use Ratio225.63.03944.4683.1136.9635.9517.4118.5143.4779.440.6124.4165.1USDA2009/10E225.63.01971.4680.0126.3651.0532.1118.9127.0778.028.3165.1193.4USDA2010/11E224.52.99991.2672.2125.6663.9541.1122.8129.2793.14.7193.4198.1GS2010/11E224.52.99991.2672.2125.6665.1541.1124.0130.0795.12.7193.4196.1 105 170 173 15328.9%46.6%47.3%42.0% 95 108 109 10826.0%29.7%29.8%29.5%Source: USDA, Goldman Sachs Global ECS Research.

Source: USDA, Goldman Sachs Global ECS Research.

Driving our more positive view on feed demand is the observation that substitution

between wheat and corn for animal feed has historically kept the wheat/corn ratio within a relatively limited range (see Exhibit 9). Accordingly, our constructive outlook for corn suggests that wheat feed demand in 2010/11 should be higher than the current USDA estimates. Nevertheless, despite our higher estimated feed use, we continue to expect demand growth for wheat to remain lackluster given no biofuel exposure, little growth in global wheat food demand and little leverage to emerging economies.

Goldman Sachs Global Economics, Commodities and Strategy Research

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Commodities

On net, even with a slightly tighter expected wheat balance than the USDA, we don’t

expect much upside risk to current prices given still-ample expected supply. Thus, we are lowering our 3-month, 6-month and 12-month wheat price forecasts slightly to 475 cents/bu, 500 cents/bu and 540 cents/bu, relatively close to the current forward curve.

However, it is important to note that the soft expected wheat fundamentals have generally led to a large accumulation of net short wheat positions, as reported by the CFTC

commitment of trade reports. Thus, the market has been vulnerable to short-covering rallies over little fundamental news, as was the case in April. While positioning on both corn and soybean is more neutral, this still-large net short wheat positioning suggests that wheat prices could be supported further in coming weeks and that any fundamentally-driven rally in prices could be large and volatile.

Exhibit 9: Corn to wheat feed substitution likely to support wheat feed demand

US feed demand in million metric tons

200190180170160150140130120110100024681012Wheetfeed consumption

Exhibit 10: We expect wheat stock to use ratios to remain elevated

Stock to use ratio (%)

100%90%80%70%60%50%40%30%20%10%0%World 2010/11EUSDA 29.8% GS 29.5%

CornfeedconsumptionUS 2010/11EUSDA 47.3% GS 42.0%WorldUnited StatesSource: USDA, Goldman Sachs Global ECS Research.

Source: USDA, Goldman Sachs Global ECS Research.

Soybeans: Risks are skewed to the downside

The May WASDE release supported our bearish outlook for US soybeans as expectations of higher 2010/11 acreage points to another large US crop while a record competing

2009/10 South American crop suggests lower demand for US exports for soybean oilseeds, meal and oil. These developments are a sharp reversal to 2009/10 when US soybean exports surged to compensate for the low 2008/09 South American crop. As a result, the USDA, in line with our view, expects US ending stocks and stocks to usage ratios to

rebound strongly in 2010/11. At a global level, soybean production is expected to decline slightly on expectations that a repeat of last year’s huge South American crop will not be repeated. But higher beginning stocks should more than offset the increase in demand and point to higher 2010/11 ending stocks, although a marginally lower stocks to use ratio. On net, we maintain our relatively bearish view on soybeans from current levels and while we maintain our 3-month forecast at 925 cents/bu, we are revising our new crop price forecast lower at 900 cents/bu on a 6- and 12-month horizon.

Goldman Sachs Global Economics, Commodities and Strategy Research 9

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Commodities

Exhibit 11: US soybean balance table

Million metric tons

USDAU.S. Soybean 2008/09ESupply/Demand BalancePlanting AnalysisArea Harvested (mm ha)Harvested Yield (mt/ha)Total Supply (mm MT)ProductionImportsTotal Domestic Use (mm MT)CrushingsSeedFood/ResidualExportsTotal Disposition (mm MT)Inventory Change (mm MT)Beginning StocksEnding StocksDays of Forward CoverageStocks/Use Ratio30.22.6786.780.70.448.045.22.20.634.982.9(1.8)5.63.8174.5%USDA2009/10E30.92.9695.691.40.450.847.22.51.139.690.41.43.85.2215.7%USDA2010/11E31.22.8995.590.10.348.844.62.41.836.785.64.85.29.94211.6%GS2010/11E31.22.8995.590.10.348.944.62.41.836.785.64.85.29.94211.6%

Exhibit 12: World soybean balance table

Million metric tons

Global Soybean USDA2008/09ESupply/Demand BalancePlanting AnalysisArea Harvested (mm ha)Harvested Yield (mt/ha)Total Supply (mm MT)ProductionMY ImportsTotal Domestic Use (mm MT)CrushFood/Seed/ResidualExportsTotal Disposition (mm MT)Inventory Change (mm MT)Beginning StocksEnding StocksDays of Forward CoverageStocks/Use Ratio96.42.20342.0212.077.2221.8193.828.077.2299.0(9.8)52.943.07119.4%USDA2009/10E101.92.53384.3258.083.2235.1205.329.885.4320.520.743.063.899.027.1%USDA2010/11E101.52.46400.4250.186.5246.3215.331.087.9334.32.363.866.197.926.8%GS2010/11E101.52.46400.4250.186.5246.3215.331.087.9334.32.363.866.197.926.8%Source: USDA, Goldman Sachs Global ECS Research.

Source: USDA, Goldman Sachs Global ECS Research.

We believe that there are two main upside risks to our relatively bearish view, one on the supply side and one on the demand side: 1) the fast pace of US corn planting progress, which could lower soybean acreage and 2) potentially strong demand from China for US soybean oil as it enforces an embargo on imports from Argentina.

US soybean planted acreage may disappoint

Presenting upside risk to our price forecasts on the supply side is the potential for a

downward revision to US soybean planted acreage in the USDA Acreage report on June 30. The current strong start to the corn planting season has historically led to increases in corn acreage, which historically has come at the expense of soybean acreage (Exhibit 14).

However, potential losses in soybean acres could be minimal on an increase in combined corn and soybean acreage this spring with the favorable weather conditions likely allowing more acres to be planted. Alternatively, as we showed in our Prospective Planting report, deteriorating weather during the rest of the planting season would likely contribute to higher soybean acreage. In either case, we would expect only a muted impact on the US soybean balance, which we expect to soften substantially in 2010/11.

China’s import of soybean oil has surprised to the upside

On the demand side, the potential for strong demand from China for soybean oil presents upside risk to our price forecasts. China, the biggest user of cooking oils, halted shipments from Argentina in April, the world’s biggest supplier, in response to anti-dumping

investigations on Chinese goods ranging from steel pipes to textiles. Nearly all of China’s soybean oil comes from South America, with Argentina representing close to 80% of imports and Brazil the remainder. The USDA forecasts China’s soybean oil imports will reach 1,900,000 metric tons in 2009/10, however the US was currently only expected to contribute 50,000 metric tons. Any increase to US exports would likely support the tightness of the US old crop further and support prices near term. While a procedural

dispute has prevented US exports of crude soybean oil to China to surge, recent news flow suggests that this barrier on imports could be relaxed soon.

Goldman Sachs Global Economics, Commodities and Strategy Research 10

May 18, 2010

Commodities

Exhibit 13: We expect a sharp increase in US soybean stocks to use ratio

Stock to use ratio (%)

30%

World 2010/11E

Exhibit 14: Increases in corn acreage often come at the expense of soybean acreage

Change between planting intentions published (March 31) and reported acreage (June 30)

5,000

USDA & GS 26.8%

25%

20%

15%

10%

US 2010/11EUSDA & GS 11.6%

WorldUnited StatesSource: USDA, Goldman Sachs Global ECS Research.

Goldman Sachs Global Economics, Commodities and Strategy Research 4,0003,0002,000e1,000agerca 0aneyb-1,000so ni e-2,000angCh-3,000-4,000-5,000-4,000-3,000-2,000-1,00001,0002,0003,000Change in corn acreageSource: USDA, Goldman Sachs Global ECS Research.

May 18, 2010

Commodities

Exhibit 15: Corn forward price curve

cents/bushel

450

Exhibit 16: Historical front month price

cents/bushel

800425400375350325May-10Aug-10Nov-10Feb-11May-11Aug-11Nov-11Feb-1214May1007May1014Apr10Source: Chicago Board of Trade (CBT), Goldman Sachs Global ECS Research.

Exhibit 17: Corn volatility

3-mo realized volatility and ATM implied volatility

70%

60%50%40%30%20%10%2006200720082009Realized volatilityImplied volatilitySource: CBT, Goldman Sachs Global ECS Research.

Goldman Sachs Global Economics, Commodities and Strategy Research 700600500400300200100020032004200520062007200820092010Source: CBT, Goldman Sachs Global ECS Research.

Exhibit 18: Corn net future positioning

Non-commercial and non-reportable positions combined. Futures and Options (delta adjusted). In thousand lots.

4003002001000-100-200-30020032004200520062007200820092010Source: CFTC, Goldman Sachs Global ECS Research.

May 18, 2010

Commodities

Exhibit 19: Wheat forward price curve

cents/bushel

700

Exhibit 20: Historical front month price

cents/bushel

1400650600550500450400May-10Aug-10Nov-10Feb-11May-11Aug-11Nov-11Feb-1214May1007May1014Apr10Source: Chicago Board of Trade (CBT), Goldman Sachs Global ECS Research.

Exhibit 21: Wheat volatility

3-mo realized volatility and ATM implied volatility

70%

60%50%40%30%20%10%2006200720082009Realized volatilityImplied volatilitySource: CBT, Goldman Sachs Global ECS Research.

Goldman Sachs Global Economics, Commodities and Strategy Research 12001000800600400200020032004200520062007200820092010Source: CBT, Goldman Sachs Global ECS Research.

Exhibit 22: Wheat net future positioning

Non-commercial and non-reportable positions combined. Futures and Options (delta adjusted). In thousand lots.

6040200-20-40-60-8020032004200520062007200820092010Source: CFTC, Goldman Sachs Global ECS Research.

May 18, 2010

Commodities

Exhibit 23: Soybean forward price curve

cents/bushel

1000

Exhibit 24: Historical front month price

cents/bushel

1800975950925900Jun-10Sep-10Dec-10Mar-11Jun-11Sep-11Dec-11Mar-1214May1007May1014Apr10Source: Chicago Board of Trade (CBT), Goldman Sachs Global ECS Research.

Exhibit 25: Soybean volatility

3-mo realized volatility and ATM implied volatility

90%

80%70%60%50%40%30%20%10%2006200720082009Realized volatilityImplied volatilitySource: CBT, Goldman Sachs Global ECS Research.

Goldman Sachs Global Economics, Commodities and Strategy Research 1600140012001000800600400200020032004200520062007200820092010Source: CBT, Goldman Sachs Global ECS Research.

Exhibit 26: Soybean net future positioning

Non-commercial and non-reportable positions combined. Futures and Options (delta adjusted). In thousand lots.

150100500-50-100-15020032004200520062007200820092010Source: CFTC, Goldman Sachs Global ECS Research.

May 18, 2010

Commodities

Reg AC

We, Damien Courvalin and Allison Nathan, hereby certify that all of the views expressed in this report accurately reflect our personal views, which have not been influenced by considerations of the firm's business or client relationships.

Goldman Sachs Disclosures

Global product; distributing entities

European Union: Goldman Sachs International, authorized and regulated by the Financial Services Authority, has approved this research in connection with its distribution in the European Union and United Kingdom; Goldman Sachs & Co. oHG, regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht, may also distribute research in Germany.

General disclosures

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No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of The Goldman Sachs Group, Inc.

Gao Hua Securities Disclosures

General disclosures

This research is disseminated in China by Gao Hua Securities. Goldman Sachs Global Economics, Commodities and Strategy Research

May 18, 2010

Commodities

This research is for our clients only. This research is based on current public information that we consider reliable, but we do not represent it is

Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients and our proprietary trading desks that reflect opinions that are contrary to the opinions expressed in this research. Our proprietary trading desks and investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research.

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Goldman Sachs Global Economics, Commodities and Strategy Research 16

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