Commodities Outlook: The Battle Between Deflation & Reflation May 2009 Michael Lewis, Managing Director, Global Head of Commodities Research [email protected]@db.com;

Commodities Outlook:

The Battle Between Deflation & ReflationMay 2009

Michael Lewis, Managing Director, Global Head of Commodities [email protected]; London (44) 20 7545 2166

Sector 3M View Comment

Precious Metals

Energy

Industrial Metals

Agriculture

Energy

We believe OPEC production cuts and a less hostile economic environment have established

a strong floor to crude oil prices. However, we remain concerned towards the ability of the

global economy and specifically the US and China to find a self-sustaining recovery. As a

result, we expect OPEC will need to take further action to defend oil prices into the second

half of the year. Indeed history would suggest it can take up to 12 months from the start of an

OPEC production cutting cycle to stabilise oil prices. If this is repeated in this cycle then it

would imply oil prices stabilising in the fourth quarter of this year.

Industrial Metals

We expect the negative implications on economic output from the deepening financial crisis

will drive metal prices lower. After a rebound in Chinese economic activity in the first half of

this year, we believe the sector is still vulnerable in the short term to measures to curb

Chinese loan growth and a slowdown in fixed asset investment growth. However, we believe

fundamentals will start to improve as global equity markets recover, US growth turns positive

and as the market prepares for the start of a new Fed tightening cycle. Moreover, production

cuts, most notably in zinc and nickel, provide upside price spike risk in these markets when

demand eventually recovers, in our view. For time being, we believe copper has overplayed

the reflation theme. Not until US GDP hits rock bottom and US industrial production growth

starts to turn high will we expect the industrial metals complex to start to out-perform the

precious metals complex. We expect this to occur from the fourth quarter of 2009.

Precious Metals

We believe the rapid decline in real interest rates is providing a more supportive backdrop to

gold prices into 2009. We believe further advances in the gold price will require additional US

dollar weakness. One scenario could be another relapse in global equity markets, which

prompts the US Federal Reserve to adopt additional quantitative easing steps. However, as

risk aversion moderates and in the absence of further US dollar weakness we believe gold

prices are still trading rich relative to EURUSD.

Agriculture

Like many commodity sectors, agricultural returns have suffered one of their deepest

corrections in over 30 years during 2008. As a result, agricultural prices are trading at a

significant discount to their long run historical averages in real terms. Even so fundamentals in

some markets still remain tight and we would therefore view some upside potential in this

sector during 2009 if fundamentals do not slacken from here. However, we expect weak oil

prices will constrain price advances in this sector during this year, with any rallies likely driven

by adverse supply shocks.

Agriculture

2

The Re-Pricing Of Commodities: Index, Price, Spread & Vol

#1 Commodity Indices

Source for all charts: DB Global Markets Research, Bloomberg

#2 Baltic Dry Index #3 Nickel-To-Gold Ratio

#4 Platinum-To-Gold Ratio #5 Crude Oil Contango #6 Commodity Volatility

1M vs. 12M WTI time spread

-30

-25

-20

-15

-10

-5

0

5

10

15

1999 2001 2003 2005 2007 2009

Supercontango

0

10

20

30

40

50

60

70

80

2003 2004 2005 2006 2007 2008 2009

Gold

WTI

Nickel

Copper

6M implied vol

0

20

40

60

80

1973 1977 1981 1985 1989 1993 1997 2001 2005 2009

1980-1982recession

1990-1992recession

2000-2001recession

Ratio at 26 year low

0

2000

4000

6000

8000

10000

12000

1985 1988 1991 1994 1997 2000 2003 2006 2009

Down 85% from the peak

0.7

1.0

1.3

1.6

1.9

2.2

1976 1980 1984 1988 1992 1996 2000 2004 2008

Ratio hits 15 year low

20

40

60

80

100

0 4 8 12 16 20 24 28 32 36 40

Nov-74

Oct-80

Oct-90

Oct-97

Nov-00

Jul-08

Number of weeks after S&PGSCI peaked

S&PGSCI peak = 100

Down 70% from the peak

5

Implied roll return hits -70%

The New World Order For Commodities

The emergence of China and India as new super-commodity consumers.

– Urbanisation

– Rising living standards

Underinvestment in productive capacity.

– Tightening credit conditions

The depreciation of the US dollar.

– Current account & budget deficits

Elevated levels of geopolitical risk.

– Low oil prices & political instability

The increasing frequency of extreme weather events.

– Global warming

The migration of new risk capital into the commodity complex.

– The search for yield, diversification and inflation protection.

6

Equity Markets Recover Several Months Before The Recession Ends

Reflation Watch: S&P500

Source: DB Global Markets Research, NBER, Bloomberg

Since 1948, the S&P500 has tended to turn higher six months before the US recession ends. If sustained, the rally in the S&P500 today would, in our view, suggest that equity markets are calling for the US to

leave recession from September 2009. We believe this is too optimistic and consequently view equity market rallies

during the second quarter as based on shaky foundations.

Outlook

7

100

120

140

160

180

200

220

-300 -250 -200 -150 -100 -50 0 50 100 150 200 250 300

100

120

140

160

180

200

220

Recession

Current episode (assumes 9-Mar-09 as S&P500 trough)

Average of S&P 500 around US recessions since 1948

Number of days before/after S&P500 troughs

Index Index

Turning Points In US Economic & Financial Indicators Around US Recessions

Positioning For Reflation

Outlook

The last row of the table above examines at what point during 2009 the various economic indicators will turn assuming

the US recession ends in December 2009. In April, the US recession entered its 17th month. As a result, it surpasses in length the 1973-75 and 1981-82

downturns and represents the most durable downturn since the Great Depression. Since we expect US GDP growth to resume only in January 2010, the length of this recession will be on a par with the

15 economic downturns that occurred between 1857 and 1919. We find that the index of US leading indicators and the S&P500 have been the most forward looking indicators in

predicting an end to a US recession turning between five to six months before the economy moves out of recession.

8

Global Oil Demand Under Attack

83.0

83.5

84.0

84.5

85.0

85.5

86.0

86.5

87.0

87.5

88.0

88.5

Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09

Month IEA forecast w as made

Fore

cast g

lobal

oil

dem

and

by y

ear

2006

2007

mmb/d

2008 2009

IEA Estimates For Global Oil Demand

Since 2005, official forecasts for global oil demand have been too optimistic. We estimate that global oil demand growth is equivalent to world GDP growth less 2%. Since we expect global GDP to contract

by 1.9% this year it implies global oil demand could fall by almost 3%. Hence downside risks to global oil demand persist in our

view.

Outlook

Source: IEA, EIA/DOE, OPEC, DB Global Markets Research

Estimates For Global Oil Demand By Agency

-2.5

-1.5

-0.5

0.5

1.5

2.5

3.5

2001 2002 2003 2004 2005 2006 2007 2008 2009e

IEA

OPEC

EIA

Actual

mmb/d

Current forecasts for 2009

DB

Forecasts at start of years 2001-08 vs actual outcome

12

Source: IEA

60

70

80

90

100

110

120

130

140

150

-14 -7 0 7 14 21 28 35 42 49 56 63 70

WT

I oil

price=100 in

the d

ay b

efo

re q

uota

reductio

n Mar-93 Apr-98 Jul-98

Apr-99 Feb-01 Apr-01

Sep-01 Jan-02 Nov-03

Apr-04 Nov-06 Feb-07

Number of trading days before and after OPEC quota reduction

1998

2001

Oil Prices & OPEC ActionOPEC Quota Reductions & The Oil Price

Source: DB Global Markets Research, OPEC, Bloomberg

OPEC has a good track record in defending oil prices. However, their success evaporates when global growth is under

attack as occurred in 1998 and 2001. This year is proving to be no different as OPEC struggle to cut production as fast as

world growth is slowing.

Outlook

13

Oil Prices & OPEC Production Cuts

OPEC production cuts in 1998 and 2001 totaled 4.5 and 5.0mmb/d respectively. The quota reduction cycle lasted for 12

months and oil prices did not stabilise until just after the last cut in quotas. If this is repeated today it would imply production cuts continue until September 2009 and that oil prices will stabilise in the

fourth quarter of this year. However, oil prices can recover rapidly in the early stages of an economic upturn. For example, in 1999 and 2002, oil

prices rallied between 35-80% within six months of the last production cut.

OPEC Quota Cuts & Crude Oil Prices

Source: OPEC, DB Global Markets Research, Bloomberg

Outlook

14

Oil Production Declines Naturally Over Time

Global Oil Production Forecasts

60

65

70

75

80

85

90

95

2008 2009 2010 2011 2012 2013 2014 2015

mb/d Onstream Reserves growth Under development

Probable Other discoveries Yet-to-find

Wood Mackenzie’s estimates that in the absence of new investment, the global oil production base will decline from 86mmb/d

to 75mb/d by 2015 as a result of accelerating depletion rates particularly outside OPEC. Indeed, given that in recent year’s industry production in mature OECD markets has increasingly been dominated by smaller

E&P companies, many of whom are now suffering from a lack of liquidity given the credit crisis, it would seem reasonable to

assume that decline rates in mature oil producing regions are almost certain to accelerate.

Source: Wood Mackenzie, DB Global Markets Research

Outlook

0% 5% 10% 15% 20% 25%

FSU

China

Latin America

US Onshore

Canada

Other Asia

Africa

Middle East

Non-OPEC average

Norway

Australia

US Offshore

UK

Non-OPEC Decline Rates 2000-2008

16

Source: Wood Mackenzie, DB Global Markets Research

Distortions In The Gold Market

Gold Decouples From USD…

Source for all charts: DB Global Markets Research

…A Flatter Forward Curve…

Price: The first chart measures how far the gold price has moved away from its estimated fair value in US dollars. We measure the

divergence of the gold price from fair value by tracking the residual error derived from the EURUSD to gold price regression model.

At the beginning of this year the gold price had rallied to excessively rich levels of valuation on an FX basis. Curve: The gold forward curve is normally in contango. However, over the last few months the forward curve has flattened

significantly such that the implied roll return has been virtually eliminated. Volatility: Gold implied volatility has risen significantly over the past year such that it is trading close to levels prevailing in the

industrial metals’ market.

Outlook

…And Higher Volatility

11-Jun-2008

17-Apr-2009

18

Line of best f it

Gold trades richrelative to the USD

Gold, EURUSD & The Role Of Exchange Traded Funds

Gold Price & SPDR ETF Flows

We believe physically backed ETFs have been the principle culprit in introducing distortions to the gold market. Inflows into gold

ETFs have allowed the gold price to remain at lofty levels that appear unjustified considering the strength in the US dollar. The flattening in the gold forward curve not only reflects a collapse in global interest rates, but, also the shortage of physical

inventory brought about by the surge in ETF inflows. We believe this is also having an impact on boosting gold implied vol. Relative to the US dollar, gold prices are still trading at rich levels of valuation.

Outlook

Source: Reuters, DB Global Markets Research

EURUSD & The Gold Price

300

400

500

600

700

800

900

1000

1100

1200

Jul-06 Dec-06 May-07 Oct-07 Mar-08 Aug-08 Jan-09

500

600

700

800

900

1000

1100Total gold held in SPDR ETF (tonnes, lhs)

Gold price (USD/oz, rhs)

19

Source: DB Global Markets Research

Gold trades rich relative to the USD

US Dollar Bubbles Compared

Outlook

The upswing and subsequent downswing in the US dollar between 1995 and today bears a striking

resemblance to the 1978-1995 US dollar cycle. If history repeats itself then it implies the US dollar could face

another down-leg and hitting a new all time low in September 2011.

1985 & 2000 US Dollar Bubbles

Source: Bloomberg, DB Global Markets Research

US dollar weakness could

reappear over the next two years.

60

80

100

120

140

160

180

200

0 24 48 72 96 120 144 168 192 216

Oct 1978-1997

J un 1995-Current

Months after trough

USDDEM: October 1978& J une 1995 rebased to 100

USD hits rock bottom in September 2011

1985 & 2000 USdollar bubbles burst

21

China’s Investment Economy

The FAI Cycle In China

Investment represents more than 40% of total GDP in China. This is almost double the ratio in other parts of the region. As a

result, a slowdown in FAI will have a disproportionate effect on the Chinese economy, in our view. Historically a 1 percentage point deceleration in US-EU GDP growth leads to a 6-8 percentage point deceleration in Chinese

export growth. Since we expect G7 GDP growth to slow by approximately 4% in 2009 and Chinese export growth was just over

9% last year, it would theoretically imply Chinese export growth could drop by as much as 20%. Since the fixed asset investment cycle lags the export cycle by around nine months and the FAI sector is three times larger than

the Chinese export sector, we believe this exposes the Chinese economy to another growth recession at the end of this year.

Outlook

Investment as a percent of GDP (2008)

0

5

10

15

20

25

30

35

40

45

Chin

aIn

dia

Korea

Indones

ia

Mala

ysia

Taiwan

Philippin

es

Source: CEIC, DB Global Markets Research

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Jun-96 Nov-96 Apr-97 Sep-97 Feb-98 Jul-98 Dec-98 May-99 Oct-99

Export (4mma, yoy%)

FAI (4mma, yoy%)

Exportslowdown

FAI slowdownoccurs 12M later

China’s Export & FAI Cycles During The 1990s

23

Source: CEIC, DB Global Markets Research

China & The Threat Of Softer Metals Demand Ahead

Chinese Copper Imports By Month

At the end of last year, the Chinese government implemented a RMB4tn fiscal stimulus plan. The stimulus package is focused

on the railways, roads, waterways, power grids, agriculture and public housing sectors and accounts for 16% of total FAI. While we see FAI growth rising from 16% to 33% in those sectors targeted to receive government support, we believe this will not

be sufficient to offset the marked slowdown occurring in FAI in the manufacturing and mining sectors, which constitute more than

one third of total FAI. So far this year, the copper price has ignored the deterioration in global economic growth and moved solely on strategic buying in

China, in our view. For example, Chinese copper imports have surged since the end of last year. However, we expect Chinese

copper imports to collapse into the summer in response to a seasonal slowdown in demand.

Outlook

0

50

100

150

200

250

300

J an Feb Mar Apr May J un J ul Aug Sep Oct Nov Dec

80

90

100

110

120

1302009 imports

2003-2008 average monthlyimports

Source: CEIC, DB Global Markets Research

Manufacturing32%

Mining4%

Agr iculture2%

Rural & other housing 7%

Economic housing 1%

Property developers 16%Others

20%

Other utilities5%

Power grids2%Other

infrastructure 3%

Road & water transport 6%

Railway 2%

Fiscal Stimulus Affects 16% Of Total FAI

24

Source: CEIC, Reuters, DB Global Markets Research

Fed Tightening & Industrial Metals

Industrial Metals Prices & Fed Tightening

Source: DB Global Markets Research, Bloomberg

80

100

120

140

160

180

200

220

240

-18 -15 -12 -9 -6 -3 0 3 6 9 12 15 18 21 24 27 30 33 36 39

Scale of Fed tightening inthe first 18 months of the cycle:1987: 225bp1994: 275bp1999: 175bp2004: 325bp

1987 cycle

1994 cycle

1999 cycle

Months before/after first tightening move

Fed tighteningbegins

Journal of Commerce Metals Index

2004 cycle

Historically the time to buy industrial metals has been 3-6 months before the start of a new Fed tightening cycle.

Outlook

25

Fed Tightening & Industrial Metals

The Winners & Losers During The Early Phases Of A New Fed Tightening Cycle

Source: DB Global Markets Research, Bloomberg

In the early phases of a new Fed tightening cycle, nickel and copper prices have historically been the strongest performers in

terms of spot price appreciation

Outlook

-40

-20

0

20

40

60

80

100

120

140

Nickel Copper Aluminium Lead Zinc Tin

1987 1994 1999 2004

% change in price in the 12 months after the first tightening move by the US Federal Reserve

58%

42%

30%

5% 14%

-4%

Average price risein the last four tightening cycles

26

The World’s Top Agricultural Producers

Global Agricultural Production

US & World Exports For Agriculture

0

100

200

300

400

500Sugar

Soybean

Rice

Wheat

Corn

Agricultural production in 2008-09 (million tonnes)

0

20

40

60

80

100

120

140

Wheat Corn Soybeans Sugar Cotton

Rest of world exports (million tonnes)

US exports (million tonnes)21%

10%

1%

43%58%US share ofworld exports

Data for 2008-09

We believe fundamentals in the agricultural sector remain relatively strong. We find that agricultural prices have been able to rally even during economic downturns. However, price rallies have tended to

occur in response to a decline in planting acreage and/or droughts. We believe lower corn plantings will provide support to corn prices this year. However, our relatively downbeat outlook for oil

prices this year removes an important ingredient to higher prices in certain parts of the agricultural complex.

Outlook

Source: USDA

27

Source: USDA

Long run is from 1972 with the exception of platinum, palladium and US natural gas where data runs from 1976, 1988 and 1990 respectively.

Source: DB Global Markets Research, Bloomberg, Data as of April 20 2009

Tracking How Far Commodity Prices Are From Their Historical Averages

Valuing Commodities In Real Terms

We estimate that gold is the most richly priced commodity in the world since prices in real terms are trading at a

significant premium to their long run historical average. We find that agriculture and certain parts of the metals complex are trading cheap when measured in real terms .

Outlook

-54-43 -40

-34-24 -24

-16 -15 -15-10

-4 -2

12 16 1628 32

4955

66

-80

-60

-40

-20

0

20

40

60

80

Co

tto

n

Co

ffe

e

Alu

min

ium

Su

ga

r

US

na

tura

l g

as*

Pa

llad

ium

*

Whe

at

Tin

Co

rn

Zin

c

So

ybe

an

s

Nic

ke

l

Silv

er

Ura

niu

m

Co

pp

er

Cru

de o

il

Le

ad

Co

co

a

Pla

tin

um

Go

ld

How far prices in real terms are currently trading compared to their average price since 1972

Expensive

Cheap

28

Corn, Soybeans & Wheat Inventory-to-Consumption Ratio

Global Grains Inventory Remain At Relatively Low Levels

Source: USDA

0

20

40

60

80

100

120

140

160

180

1965 1970 1975 1980 1985 1990 1995 2000 2005

Day

s of

use

Corn inventory-to-use ratio

Wheat inventory-to-use ratio

Soybean inventory-to-use ratio

Total available stocksdivided by daily consumption

Unlike the energy and metals complex, we have not seen a dramatic increasing in inventory building in the agricultural

complex. Indeed global inventory-to-consumption ratios remain at relatively low levels. We believe the next major release will be

the USDA’s projections for global inventories to be published in May.

Outlook

32

Chinese Agricultural Imports Are Increasing

China’s Trade Position In Agriculture

-40000

-30000

-20000

-10000

0

10000

20000

1960 1966 1972 1978 1984 1990 1996 2002 2008

Soybeans Corn

Wheat Cotton

China's net trade balance in:

Tonnes (000s)

Rising netimports

Source: USDA, Global Markets Research

China has become increasingly reliant on agricultural imports. The country may already be building strategic reserves in a

number of agricultural commodities, such as soybeans and rice. Urbanisation and rising living standards are expected to intensify agricultural shortages over the medium term.

Outlook

33

US Planting Intentions

US Acreage & The Role Of Oil

Crude Oil & Corn Prices

The first chart tracks the net change in acreage for the four US major crops. Note these changes do not measure actual changes

in acreage but the intended changes in plantings declared by US farmers at the end of March for the next marketing year. We find that many agricultural commodities have displayed a loose positive correlation with the oil prices, for example rubber,

palm oil, soybeans, corn and rapeseed. Consequently, we believe a constraining factor for higher agricultural prices in 2009 could be the lacklustre outlook for crude oil

prices.

Outlook

Net change in US crop acreage accordingto the annual prospective plantings survey

-10

-5

0

5

10

15

2002 2003 2004 2005 2006 2007 2008 2009

Cha

nge

in a

crea

ge (

mill

ion

acre

s)

Corn Soybeans Wheat CottonCorn & wheat acreage cut 0

100

200

300

400

500

600

700

800

0 20 40 60 80 100 120 140 160

Cor

n pr

ice

(US

c/bu

shel

)

Crude oil price (USD/barrel)

Data from 2003-2009

Source: USDA

34

Source: Bloomberg

Commodity indices are the most commonly used underlying for investments. Major differences exist in terms of futures roll rules and sector allocations.

Once the investor has chosen a suitable commodity index, the exposure is obtained in the form of a structured note, fund or swap/option.

Commodity returns are generated from spot price movements as well as from the futures rolls (=roll yield). In backwardated markets investors generate a positive roll yield, in contango markets investors incur negative roll returns

Deutsche Bank has created a series of award winning commodity indices:

Feb’03 Launch of the Deutsche Bank Liquid Commodity Index, DBLCI

Feb’03 Launch of the DBLCI-Mean Reversion Index, DBLCI-MR

May’06 Launch of the DBLCI-Optimum Yield Index, DBLCI-OY

Jan’07 Launch of the DBLCI-OY Broad Index

Jan’07 Launch of the DBLCI-OY Balanced Index

Jan’07 Launch of the DBLCI-MR ‘Plus’

Dec’07 Launch of the DB Commodity Harvest Index

Sep’08 Launch of the DBLCI-MR Enhanced

Sep’08 Launch of the DBLCI Long-Short Index

Commodities As An Asset Class & The DBLCI Family

35

The Evolution Of Commodity Indices

DBLCI - Fixed weight, fixed roll index

- Invests in 6 commodities

S&P GSCI - Fixed weight, fixed roll index

- Invests in 24 commodities

DJ-AIGCI - Fixed weight, fixed roll index

- Invests in 19 commodities

DBLCI - MR - Dynamic sector weights

- Invests in 6 commodities

DBLCI - MR

‘Plus’- Dynamic weight and

dynamic allocation index

- Downside protection

DBLCI - OY Balanced

- Fixed weight, dynamic roll index

- Invests in 14 commodities

DB Commodity Booster Index

- Replicates benchmark commodity index using Optimum Yield

Sector Focus: DB Agriculture Index

- Dynamic roll index comprising 7 agriculture commodities

The choice of commodity index needs to be aligned with the investment objectives of the investors.

Beta Allocation Strategies1991 - 2003

Enhanced Beta Allocation Strategies2003 - 2007

Alpha Generation Strategies2008

DB Commodity Harvest Index

- Return from roll yield

- Provides exposure to outperformance of DB Commodity Booster Index against the benchmark S&P GSCI SM

36

The Battle Between Spot & Roll

-30

-20

-10

0

10

20

30

Energy PreciousMetals

IndustrialMetals

Agriculture Livestock

Spot return Roll return Excess return

% returns ytd

The Composition Of Returns In 2009

Outlook

In contrast to 2008, when the lion’s share of commodity index returns’ weakness was attributable to lower spot prices, so far in

2009 contango forward curves and the implied roll return have become the Achilles heel to long only commodity index investors. We find that while spot returns have been sufficiently large enough in the precious and industrial metals’ sectors to overwhelm

the negative roll return, this was not the case in the energy and livestock sectors, where negative roll returns have been

significantly larger than spot returns since the end of last year.

38

Source for all charts: DB Global Markets Research, Bloomberg (Data as of April 21, 2009)

The Composition Of Returns In 2008

-60

-50

-40

-30

-20

-10

0

10

Energy PreciousMetals

IndustrialMetals

Agriculture Livestock

Spot return Roll return Excess return

% returns

DB Commodity Harvest Index

Outlook

The DB Commodities Harvest index not only has a zero correlation with other asset classes such as bonds

and equities, but, it also exhibits a negative correlation with the base index S&PGSCI Light Energy index. Since the DB Commodity Harvest index is designed to be non-directional, the returns are largely independent

of spot price movements. This unique property has enabled the index to deliver strong positive returns during

downturns in commodity markets.

Index Details

Source: Bloomberg

Summary Rule based, non directional index that seeks to generate stable alpha commodity returns without taking direct exposure to commodity spot prices. This strategy would have generated impressive alpha returns of approx. 5.5% per annum since 1997.

Components DB Commodity Harvest Index takes a long exposure to the DB Commodity Booster Index – S&P GSCISM Light Energy and a short exposure to the S&P GSCISM Light Energy

Rebalancing The long and short exposure is rebalanced on a monthly basis to minimise the exposure to commodity spot prices. Further, the weight of each commodity in the long exposure is re-set annually to match the weight in the short exposure

Currency Available in USD, EUR and JPY

S&P GSCI Light Energy Weighting

Live CattleWheat

GoldAluminum

WTI

Feeder Cattle

Red Wheat

Copper

Silver

Brent

RBOB Gas

Lean Hogs

Corn

Lead

Soybeans

Nickel

Heating Oil

GasOil

Cotton

Zinc

Natural Gas

SugarCof fee

Cocoa

0%

5%

10%

15%

20%

25%

30%

35%

40%

Energy (39.4%) Industrial Metals(16.8%)

Precious Metals (5.1%) Agriculture (30.8%) Livestock (7.8%)

Investments via swaps (ER +TR), certificates, and structured notes

and options

Components of the S&PGSCI-LEI

44

Commodity Index Scorecard

Total returns since the end of 2008 (%)

-13.5-12.0

-10.6-9.1

-6.4-5.4

-2.0 -1.5

2.5

6.0

-15

-10

-5

0

5

10

S&PGSCI

DBLCI DBLCI-MR

DBLCI-OY

DJAIG RJ/CRB DBLCI-OY

Balanced

DBLCI-MR Plus

DBHarvestIndex

DBHarvest10% TV

Alpha Strategies Continue To Perform

Source: DB Global Markets Research, Bloomberg (Data as of April 20, 2009)

Outlook

The OY methodology enables Deutsche Bank to create non-directional, market neutral exposure to commodities. This is done by

combining the short exposure to a benchmark commodity index with an equivalent long exposure through replication of that index

using the OY methodology

– DB Commodity Harvest Index is designed to provide market neutral stable returns at a low volatility

– DB Commodity Harvest 10 Vol Index is designed to provide a target vol exposure to the DB Commodity Harvest

Index

The DBLCI-OY & The DB Commodity Harvest

-30

-25

-20

-15

-10

-5

0

5

10

15

Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09

DB Commodity Harvest

DBLCI-OY

Total returns (% mom)

43

Source: DB Global Markets Research

Commodity Index Returns Scorecard

Total Volatility** Excess SharpeReturn* Return* Ratio # maximum no. of months < -5%

Beta allocation indices

DBLCI TM 8.64% 23.26% 5.14% 22.10% -24.43% 25

S&P GSCI TM 1.38% 24.35% -1.92% -7.90% -27.14% 29

DJ-AIGCI SM 3.19% 16.69% -0.18% -1.06% -21.15% 20

Mean reversion based indices

DBLCI-MR TM 9.55% 19.13% 6.01% 31.43% -19.56% 21

DBLCI-MR TM 'Plus' 14.53% 13.43% 10.83% 80.68% -8.73% 8

DBLCI-MR TM 'Enhanced' 10.06% 15.90% 6.51% 40.94% -21.83% 11

DB Commodity Trend 14.28% 11.78% 10.76% 91.36% -15.12% 4

Optimum yield based indicesDBLCI-OY 11.94% 19.91% 8.32% 41.82% -22.75% 17

DBLCI-OY Balanced 10.65% 16.08% 7.08% 44.03% -22.06% 11

DB Commodity Booster Index - S&P GSCI TM 10.55% 20.49% 6.98% 34.07% -24.43% 16

DB Commodity Booster Index - DJ-AIGCI SM 9.94% 14.77% 6.39% 43.24% -20.08% 9

DB Agricultural Index 2.75% 16.81% -0.41% -2.44% -15.15% 13

Market neutral alpha indicesDB Commodity Harvest Index 9.24% 3.52% 5.71% 162.43% -3.18% 0

DB Commodity Harvest Index - S&P GSCI TM 11.44% 6.22% 7.84% 126.08% -6.52% 1

DB Commodity Harvest Index - DJ-AIGCI SM 7.71% 5.37% 4.23% 78.81% -9.19% 1

Other asset classesEquities (S&P 500) -0.04% 21.44% -3.59% -16.76% -16.43% 20

Fixed Income (US Govt. All Total Return) 6.43% 5.12% 2.88% 56.19% -3.93% 0

* annualised return based on total return and excess return ** annualised vol of the daily lognormal returns # calculated as a quotient of excess return and the volatility ## based on total return

Data from January 1998 to March 2009 ***

***Data for DB Agricultural Index and DB Commodity Trend from January 1999

Monthly drawdown ##

Comparative Performance Table

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Spot neutrality means significant drawdown events are a rare occurrence for the DB Commodity Harvest Index

Source: DB Global Markets Research, Bloomberg

# calculated as a quotient of excess return and the volatility ## based on total return

Data from January 1998 to March 2009 ***

***Data for DB Agricultural Index and DB Commodity Trend from January 1999

Commodities Outlook: Key Themes

Oil prices to trade sideways. Price rallies to become more sustainable from 2010.

Energy

Gold price rallies require another relapse in global equity markets & further USD weakness.

Precious Metals

The sector is fundamentally cheap. Oil price weakness is expected to limit price advances in the sector during 2009. We expect rallies to be driven by supply side events related to weather or lower crop

plantings until demand recovers during 2010.

Agriculture

Contango will sustain headwinds for long only commodity indices. We prefer bullish alpha plays such as the DB Commodities Harvest Index.

Commodities Indices

Industrial metals to outperform gold from the fourth quarter of the year. We view fundamentals as strongest in copper and zinc, weakest in aluminium.

Industrial Metals

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Deutsche Bank Commodities Research Deutsche Bank Commodities Research compliment fundamental and financial analysis on the four broad

commodity sectors with the aim of delivery of directional, forward curve, volatility and relative value trade ideas.

These trades are then employed and executed as part of the team’s proprietary trading book.

If you would like to subscribe to more than 30 other commodity research products please contact your local DB

Sales person.

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Analyst CertificationThe views expressed in this report accurately reflect the personal views of the undersigned lead analyst. In addition, the undersigned lead analyst has not and will not receive any compensation for providing a specific recommendation or view in this report. Michael Lewis

Appendix 1: Certification and Disclaimer

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Country-Specific Disclosures

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New Zealand: This research is not intended for, and should not be given to, "members of the public" within the meaning of the New Zealand Securities Market Act 1988.

Russia: This information, interpretation and opinions submitted herein are not in the context of, and do not constitute, any appraisal or evaluation activity requiring a license in the Russian Federation.

Appendix 1: Regulatory Disclosures

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Appendix 1: Disclaimer

Global DisclaimerInvesting in and/or trading commodities involves significant risk and may not be suitable for everyone. Participants in commodities transactions may incur risks from several factors, including changes in supply and demand of the commodity that can lead to large fluctuations in price. The use of leverage magnifies this risk. Readers must make their own investing and trading decisions using their own independent advisors as they believe necessary and based upon their specific objectives and financial situation. Past performance is not necessarily indicative of future results. Deutsche Bank makes no representation as to the accuracy or completeness of the information in this report. Deutsche Bank may buy or sell proprietary positions based on information contained in this report. Deutsche Bank has no obligation to update, modify or amend this report or to otherwise notify a reader thereof. This report is provided for information purposes only. It is not to be construed as an offer to buy or sell any financial instruments or to participate in any particular trading strategy.

Unless governing law provides otherwise, all transactions should be executed through the Deutsche Bank entity in the investor’s home jurisdiction . In the U.S. this report is approved and/or distributed by Deutsche Bank Securities Inc., a member of the NYSE, the NASD, NFA and SIPC. In Germany this report is approved and/or communicated by Deutsche Bank AG Frankfurt authorised by Bundesanstalt für Finanzdienstleistungsaufsicht. In the United Kingdom this report is approved and/or communicated by Deutsche Bank AG London, a member of the London Stock Exchange and regulated by the Financial Services Authority for the conduct of investment business in the UK and authorised by Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). This report is distributed in Hong Kong by Deutsche Bank AG, Hong Kong Branch, in Korea by Deutsche Securities Korea Co. and in Singapore by Deutsche Bank AG, Singapore Branch. In Japan this report is approved and/or distributed by Deutsche Securities Inc. This report may not be reproduced, distributed or published by any person for any purpose without Deutsche Bank's prior written consent. Please cite source when quoting.

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