Rain and grain Best hope for rally could be January USDA report. By Bryce Knorr, Senior Grain Market Analyst

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1 Rain and grain Best hope for rally could be January USDA report By Bryce Knorr, Senior Grain Market Analyst Corn and soybeans aren t the only numbers in play when USDA releases its Jan. 11 reports. Weather that slowed corn and soybean harvest also delayed winter wheat seeding. There s a strong correlation between seeding rates and the amount of prevent plant acres farmers claim. Only 95% of winter wheat fields were planted in USDA s final Crop Progress report for 2018 at the end of November, suggesting acreage could be 2 million lower than initial expectations. If USDA confirms that trend with its first survey of acreage Jan. 11 it could be enough to trigger at least a modest rally that could provide pricing opportunities on remaining 2018 inventory and expected 2019 production. Otherwise, all that rain and snow improved soil moisture dramatically. Just 10% of winter wheat fields and 24% of spring wheat fields entered winter in drought. Nearly half those areas were in drought at some point during the winter of Rain doesn t always make grain, but it helps. The El Nino cycle could also be a factor this year. The warming of the equatorial Pacific is expected to be over by summer. If that happens it could hurt spring wheat yields. But whether the El Nino ends or stays in place, its presence over the winter suggests improved chances for above normal winter wheat yields. Overseas developments could also be important. U.S. exports got off to a sluggish start in the first half of the marketing year. USDA said don t worry, expecting Russia to slow down on sales, improving U.S. prospects in the second half of the season. If they don t, more wheat could be left over ahead of the summer harvest, making rallies more difficult. I expect USDA to raise its forecast of 2018 carryout due to weaker exports, but the agency may again resist. Even though Egypt has started buying U.S. soft red winter wheat, Russia s supplies still appear more than adequate. The weak ruble keeps prices very strong there, an incentive for sellers to move as much as they can. The Russian crop is rated a little worse than a year ago, with dryness focused in the Volga region north of the Black Sea. Quality issues in the region remain a concern, but big buyers like Egypt are focused on price, especially with the country s buying agency lagging behind on its payments. Slowing world economic growth could be another concern headed into 2019 that could keep demand from rising. December can be a turning point for new crop wheat contacts. Ability to hold November lows can generate additional gains, turning the trend bullish through the winter. That could be the key trend to watch that could trigger outright fund buying.

2 Wheat Supply & Demand Table USDA Bryce Area Planted 46,012 47,997 47,997 48,298 Harvested 37,586 39,600 39,556 40,844 Yield Beginning stocks 1,181 1,099 1,099 1,022 Production 1,740 1,884 1,885 1,979 Imports Supply, total 3,078 3,123 3,115 3,129 Food Seed Feed and residual Domestic, total 1,078 1,149 1,137 1,084 Exports 901 1, ,039 Use, total 1,979 2,174 2,094 2,122 Ending stocks 1, ,022 1,006 Average price $4.72 $5.10 $4.67 $5.11 Stocks to use ratio 55.5% 43.6% 48.8% 47.4% Ave. Nearby Futures Chicago $4.95 $5.40 Kansas City Hard Red $5.07 $5.54 Minneapolis $5.50 $6.01 Top Third of Price Range Chicago $5.19 to $5.63 $5.68 to $6.16 Kansas City Hard Red $5.25 to $5.59 $5.94 to $6.34 Minneapolis $5.50 to $6.01 $6.01 to $6.60

3 Beginning Stocks Production Total Supply Domestic use Exports Total Use Ending stocks Soft Red Winter BK White BK Durum BK Hard Red Spring BK Hard Red Winter ,018 1, , , ,000 1, , , ,082 1, , , BK ,

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8 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% ODDS 'EL NINO' WILL EMERGE OND 2018 NDJ 2018 DJF 2018 JFM 2018 FMA 2018 MAM 2018 AMJ 2019 MJJ 2019 JJA 2019 Source: NOAA

9 Illinois Winter Wheat Yields /29 12/29 02/28 04/30 06/30 Last year This year 85 Ohio Winter Wheat Yields /29 11/29 12/29 01/29 02/28 03/31 04/30 05/31 06/30 Last Year This Year

10 Kansas Winter Wheat Yields /29 11/29 12/29 01/29 02/28 03/31 04/30 05/31 06/30 Last year This year 33 Oklahoma Winter Wheat Yields /29 11/29 12/29 01/29 02/28 03/31 04/30 05/31 06/30 Last Year This Year

11 Texas Winter Wheat Yields /29 11/29 12/29 01/29 02/28 03/31 04/30 05/31 06/30 Last year This year South Dakota Winter Wheat Yields /29 11/29 12/29 01/29 02/28 03/31 04/30 05/31 06/30 Last Year This Year

12 60 Nebraska Winter Wheat Yields /29 11/29 12/29 01/29 02/28 03/31 04/30 05/31 06/30 Last Year This Year 60 Montana Winter Wheat Yields /29 11/29 12/29 01/29 02/28 03/31 04/30 05/31 06/30 Last Year This Year

13 52 U.S. Winter Wheat Yields /29 11/19 12/10 12/31 1/21 2/11 3/4 3/25 4/15 5/6 5/27 6/17 Series1 State-by-State yields National Yield Model "Last Year -- State Model"

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35 Total Ending Stocks of Major Exporters 120, ,000 80,000 60,000 40,000 20, Includes U.S., Argentina, Australia, Canada, EU and FSU Total Wheat Exports (Year to Date) 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Total Commitments % of USDA Forecast

36 Accumulated Wheat Export Shipments % 60% 50% 40% 30% 20% 10% 0% Total Shipments % of USDA Forecast Hard Red Winter Wheat Exports (Year to Date) 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% Total Commitments % of USDA Forecast

37 Soft Red Winter Wheat Exports (Year to Date) 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% Total Commitments % of USDA Forecast Hard Red Spring Wheat Exports (Year to Date) 140% 120% 100% 80% 60% 40% 20% 0% Total Commitments % of USDA Forecast

38 White Wheat Exports (Year to Date) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Total Commitments % of USDA Forecast Weekly Wheat Export Inspections 35,000 Thousand bushels 30,000 25,000 20,000 15,000 10,000 5, Yr. Avg. J J A S O N D J F M A M SOURCE: USDA

39 Kansas City July Futures /1 10/1 12/1 2/1 4/1 6/1 Bull Year July 2019 Normal Year 300 Kansas City July Wheat Seasonal Trend Start Date +1 Week +2 Weeks +3 Weeks +4 Weeks +5 Weeks 12/5 12/12 12/19 12/26 1/2 1/9 Ave. Gain/Loss (4.9) (3.8) (1.8) 0.8 (2.1) % Up 16/42 15/42 21/42 20/42 21/42 % Down 25/42 27/42 21/42 21/42 21/42 Ave. Gain Ave Loss (12.4) (11.8) (16.7) (17.2) (22.7) Biggest Gain Biggest Loss (40.5) (46.8) (79.3) (95.5) (105.3) 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.

40 650 Chicago July Futures /25 7/25 9/25 11/25 1/25 3/25 5/25 Bull Non-Bull Jul-18 Chicago July Wheat Futures Seasonal Trend Start Date +1 Week +2 Weeks +3 Weeks +4 Weeks +5 Weeks 12/5 12/12 12/19 12/26 1/2 1/9 Ave. Gain/Loss (3.6) (4.3) (3.1) (2.7) (1.9) % Up 19/45 18/45 21/45 19/45 21/45 % Down 26/45 27/45 23/45 26/45 24/45 Ave. Gain - Up year Ave Loss - Down Year (13.4) (17.3) (21.3) (19.4) (25.0) Biggest Gain Biggest Loss (50.0) (50.5) (74.8) (93.3) (104.8) This table shows the typical seasonal pattern at weekly intervals from the start date, based o 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.

41 Commitment of Traders - Chicago Wheat $7.00 $ $6.00 net position in contracts $5.50 $5.00 $4.50 $4.00 $3.50 nearby futures $3.00 1/15 3/15 5/15 7/15 9/15 11/15 1/16 3/16 5/16 7/16 9/16 11/16 1/17 3/17 5/17 7/17 9/17 11/17 1/18 3/18 5/18 7/18 9/18 11/18 Source: CFTC Index funds Hedge funds Futures Commitment of Traders - K.C. Wheat $ $6.50 net position in contracts $6.00 $5.50 $5.00 $4.50 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 10/18 $3.50 Source: CFTC Index funds Hedge funds Futures

42 Commitment of Traders - Minneapolis Wheat (Futures and Options Combined) $8.00 Contracts /14 7/14 1/15 7/15 1/16 7/16 1/17 7/17 1/18 7/18 $7.00 $6.00 $5.00 $4.00 $3.00 Large traders Nearby Futures

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