No lipstick for this pig USDA report bearish for soybeans -- period By Bryce Knorr, senior grain market analyst

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1 No lipstick for this pig USDA report bearish for soybeans -- period By Bryce Knorr, senior grain market analyst USDA s September reports were about as bearish for soybeans as you can get. A bigger than expected increase in yields could more than double the amount of soybeans left over a year from now when harvest 2019 begins. With or without Chinese tariffs on imports from the U.S., prices would be reeling. It s a symptom of a lousy market that even a huge disaster like Hurricane Florence won t make much difference to burdensome stocks. The Carolinas account for just 63 million of the billion bushels USDA found Sept. 12, less than a bushel per acre. Monday s Crop Progress ratings slipped the equivalent of nearly 2 bpa in North Carolina, with more to come. Even in years when a bullish pattern ultimately develops, futures show a strong seasonal tendency to move lower into the first week of October. After that the market typically gets a bounce. But in years following good crops these post-harvest highs on average hold. Futures normally sell off into the teeth of the Brazilian harvest in February, and the spring rally doesn t get back to these fall highs. The bearish pattern doesn t always prevail, of course. Bad weather during the South American growing season or a threat here in the U.S. in the spring or summer can move the needle. But winter rallies in recent years depended mostly on better than expected demand from China, something decided missing right now. China hasn t abandoned U.S. soybeans entirely; it s shipped out or unloaded some 14 million bushels since the tariffs went into effect in July. U.S. soybeans out of the Gulf for October are at a 26% discount to Brazil, enough to make sense economically for Chinese buyers. But the Chinese book of 2018 crop purchases is thin, once reason why commitments at the start of the new marketing year are well below some of the big levels of the past. With the U.S. set to impose new tariffs on Chinese imports, hopes for trade talks to restart may be scuttled before they have a chance to begin. But even if all goes back to normal, U.S. stocks could still top 600 million bushels in a year. Trying to predict Chinese demand is further clouded by African swine fever and cutbacks already in play to its hog industry, not to mention government efforts to get producers to use more corn and less protein in their rations. Gradually the supply situation should improve as U.S. producers cut acreage. Still, beans could win acres by default if the market doesn t offer more to corn growers. At current prices for 2019 futures corn and beans are a dead heat in a race for profits neither is even close to winner.

2 Nonetheless, most growers have hedges for 2018 production on the books. If those are in futures, puts or HTAs, get ready to roll the sales as far as possible to capture excellent carry while waiting for basis to strengthen from abysmal levels. November 2018-July 2019 futures tops 50 cents, more than six cents a bushel per month. And cash prices are so far below the board, they make my average cash price forecast of $7.62 look plausible. The combination of hedges, rolls, basis gains and USDA s tariff aid may bean a profit for some growers; remember, higher yields lower the cost of production per bushel, too. Run the numbers hard and if you re close to break even, take the money and run. Patience likely will be needed to get 2019 futures anywhere near profitable levels. But history suggests potential for rallies at some point during the marketing window for the crop, likely on weather here or abroad. The weather watch in South America is underway as Brazilian farmers begin planting with a few showers starting to work into the center-west.

3 Soybean Supply & Demand Area Average No Tariff 2019 Planted 90,142 89,557 90,142 89,557 89,557 87,538 Harvested 89,522 88,900 89,522 88,716 88,716 86,588 Yield Beginning stocks Production 4,392 4,693 4,393 4,694 4,694 4,376 Imports Supplies, total 4,715 5,113 4,715 5,126 5,126 5,205 Crushings 2,055 2,070 2,054 2,081 2,081 2,067 Exports 2,130 2,060 2,129 2,101 2,295 2,293 Seed Residual Use, total 4,321 4,265 4,308 4,319 4,518 4,498 Ending stocks Ave. cash price $9.40 $8.90 $9.41 $7.62 $8.60 $8.20 Ave. nearby fut. $10.08 $8.15 $9.20 $8.77 (To-Date) $9.70 Stocks to use 9.1% 19.9% 9.4% 18.7% 13.6% 15.7% Top Third of Price Range USDA $10.93 to $11.79 Bryce $8.85 to $9.56 $9.99 to $10.78 $9.52 to $10.27

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6 Projected U.S. Soybean Yields /4 6/18 7/2 7/16 7/30 8/13 8/27 9/10 9/24 10/8 10/22 State Model State model -- last year U.S. Model

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14 14000 Monthly Brazil Soybean Exports Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

15 CHINA SHARE OF BRAZIL SOYBEAN EXPORTS 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% * *Through August last quarter brazil soybean stocks Oct. 1 Brazil Stocks 885 Oct-Dec China imports 2017 crop year

16 Weekly Export Inspections in million bushels For week of 09/13/18 Average Trade Guess This Week Last Year Rate Needed to Meet USDA Forecast Year-to- Date Total This Year Year-to- Date Total Last Year This Week Last Week WHEAT CORN SOYBEANS Source: USDA, Reuters Weekly Soybean Export Inspections Thousand Bushels 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 S O N D J F M A M J J A Yr. Avg. Other, 3.5 Mexico, 5.2 SOYBEAN EXPORT INSPECTIONS WEEK ENDING SEPT. 13, 2018 Million bushels Italy, 1.9 South Korea, 2.2 Netherlands, 2.4 Spain, 4.7 Iran, 2.4 Argentina, 2.8 Indonesia, 3.8

17 1,000 MT Soymeal Export Commitments 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000, Year Average 2,000,000 Weekly Export Sales (million bushels) AS OF WEEK ENDING 9/6/18 Wheat Corn Soybeans Old Crop Sales New Crop Sales Total Sales Prior Week Trade Estimates Rate to reach USDA Forecast (Old Crop) Export Shipments Rate to reach USDA Forecast Commitments % of USDA estimate (Old Crop) 51% 25% 29% 5-year average for this week 47% 23% 43% Shipments % of USDA est. 30% 1% 2% 5-year average for this week 27% 0% 0% Source: USDA, Reuters, Farm Futures

18 Million bushels Total Soybean Shipments (Year To Date) 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Total Shipments % of USDA Forecast Million Bushels Total Soybean Sales & Shipments (Year to Date) 70% 60% 50% 40% 30% 20% 10% 0% Total Commitments % of USDA Forecast

19 Unshipped Soybean Sales Million Bushels New crop sales Next Year's Soybean Sales (Year to Date) Final Exports New crop sales Final exports 2,500 2,000 1,500 1, SOURCE: USDA.

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21 $2.50 CBOT Crush Margin $2.00 $1.50 $1.00 $0.50 $- 1/3/2014 1/3/2015 1/3/2016 1/3/2017 1/3/2018

22 Percentage Of Crush Margin From Soybean Oil 40% 35% 30% 25% 20% 1/1/16 4/1/16 7/1/16 10/1/16 1/1/17 4/1/17 7/1/17 10/1/17 1/1/18 4/1/18 7/1/18

23 35% World soybean stocks to use 30% 25% stocks to use 20% 15% 10% 5% 0% 30% U.S. Soybeans Stocks/Use 25% 20% stocks/use 15% 10% 5% 0%

24 November Soybeans Seasonal Trends Non-Bull Years Bull Years Nov November Soybean Futures Seasonal Trends Start Date +1 Week +2 Weeks +3 Weeks +4 Weeks +5 Weeks +6 Weeks 9/17 9/24 10/1 10/8 10/15 10/22 10/29 Ave. Gain/Loss (9.2) (13.0) (27.5) (21.4) (18.8) (16.9) % Up 45% 34% 30% 39% 43% 41% % Down 55% 66% 70% 61% 57% 59% Ave. Gain - Up year Ave Loss - Down Year (28.9) (32.7) (50.6) (60.9) (65.1) (64.6) Biggest Gain Biggest Loss (79.3) (172.8) (218.5) (292.0) (308.0) (338.3) This table shows the typical seasonal pattern at weekly intervals from the start date, based on average daily futures prices from Gains and losses are based on the difference between the closing price on the start date and the closing price on the weekly date shown.

25 1,100 1,050 1, July Soybean Futures Seasonal Trends /30 8/30 9/30 10/31 11/30 12/31 1/31 2/29 3/31 4/30 5/31 6/30 Bull market year July 2019 Normal year Commitment of Traders - Soybeans $12.00 $11.50 net position in contracts /15 4/15 7/15 10/15 1/16 4/16 7/16 10/16 1/17 4/17 7/17 10/17 1/18 4/18 7/18 Source: CFTC Index funds Hedge funds Futures $11.00 $10.50 $10.00 $9.50 $9.00 $8.50 $8.00 nearby futures

26 Commitment of Traders - Soybean oil net position in contracts nearby futures /15 4/15 7/15 10/15 1/16 4/16 7/16 10/16 1/17 4/17 7/17 10/17 1/18 4/18 7/18 20 Source: CFTC Index funds Hedge funds Futures Commitment of Traders - Soybean meal $ $400 net position in contracts $350 $300 $250 nearby futures /15 4/15 7/15 10/15 1/16 4/16 7/16 10/16 1/17 4/17 7/17 10/17 1/18 4/18 7/18 $200 Source: CFTC Index funds Hedge funds Futures

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