But There s A Bigger Issue!

Transcription

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2 Plenty Of Issues To Talk About Trade war impact Size of the crops USDA data vacuum slowly fills Acreage questions Price forecast Input buying Weather Net farm income estimates Farm financial trends But There s A Bigger Issue!

3 U.S. average The 2 nd Demand Boom Is Dead $300 Actual Profit/Loss Per Acre Corn Soybeans $250 $200 $150 $100 $50 $0 -$50 -$100 -$150 3

4 Ethanol Is Over 4

5 China Bean Boom On Life Support 5

6 Six Years In A Row bushels per acre Corn Yield Vs Trend Yield Trend

7 bushels per acre Six In A Row A Record 55 Soybean yield vs trend Yield Trend

8 Smaller Corn Crop U.S Corn Production Farm Futures Average Trade Guess Range Of Guesses USDA November Harvested (millions) 81,413 81,680 80,850-82,100 81,767 Yield Production (billions) 14,423 14,532 14,343-14,760 14,626 Source: USDA, Reuters, Farm Futures 8

9 Lower Yields, Less Acres U.S Soybean Production Farm Futures Average Trade Guess Range Of Guesses USDA November Harvested (millions) 87,364 88,187 87,364-88,509 88,345 Yield Production (billions) 4,505 4,572 4,490-4,620 4,600 Source: USDA, Reuters, Farm Futures 9

10 Carryout Trend Mixed U.S Ending Stocks million bushels Farm Futures Average Trade Guess Range Of Guesses USDA December Corn 1,684 1,708 1,621-1,787 1,781 Soybeans , Wheat 1, , Source: USDA, Reuters, Farm Futures 10

11 Ready For A Move Friday 11

12 U.S. Shipments To China Should Be Booming 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% SHARE OF CHINESE SOYBEAN IMPORTS, Argentina Brazil United States Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug 12

13 Winners Losers 1,400 1,200 1, HOW TARIFFS UPENDED SOYBEAN EXPORTS SEPTEMBER-DECEMBER CHINESE IMPORTS, MILLION BUSHELS 1, mi bu China Brazil U.S. 15 Source: USDA, ABOIVE, China Customs Bureau 13

14 China Usually 57% to 62% SPAIN, 9% OTHER, 26% LEADING SOYBEAN EXPORT INSPECTIONS YEAR TO DATE JANUARY 31, 2019 ARGENTINA, 8% JAPAN, 4% MEXICO, 8% CHINA, 8%

15 Thousand Bushels Long Way To Go 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 WEEKLY SOYBEAN EXPORT INSPECTIONS S O N D J F M A M J J A Yr. Avg.

16 Exports A Problem Before Tariffs Imports % Change 35% 30% 25% 20% 15% 10% 5% 0% -5% -10% Chinese soybean import growth vs GDP Growth GDP % Imports GDP

17 Year Of The Pig? Copyright China Photos/Getty Images 17

18 Price Discount Starting To Widen 18

19 Dryness In Brazil 19

20 Source: USDA, *Farm Futures Truce May Not Help Much WILL TRADE WAR CEASE-FIRE HELP? 2018 U.S. SOYBEAN EXPORTS UNDER FOUR SCENARIOS USDA forecast China buys, weaker use China buys, stronger use Tariffs never happened, Chinese growth was strong billion bushels

21 million bushels Excess Production 5,000 Soybean Supply Vs. Demand 4,500 Production Demand 4,000 3,500 3,000 2,500 2,

22 Rising World Production 1000s metric tons Total Production U.S. Agentina Brazil

23 stocks to use Historically Large World Supplies 35% World soybean stocks to use 30% 25% 20% 15% 10% 5% 0%

24 Bearish Fundamentals, Bullish Trend 1,100 1,050 1, July Soybean Futures Seasonal Trends 8/3 9/3 10/3 11/3 12/3 1/3 2/3 3/3 4/3 5/3 6/3 7/ Bull market year July 2019 Normal year

25 Corn Market Waits For USDA 25

26 million bushels Usage Could Top Production In 2018 Corn Supply Vs. Demand TOTAL USE TOTAL PRODUCTION

27 1000s metric tons World Supply Smaller World coarse grain production vs demand Production Total Domestic Consumption

28 Tight Historically 120 World coarse grain days of supply without china Source: USDA

29 Thousand Bushels Corn Window Opens 90,000 Weekly Corn Export Inspections 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10, Yr. Avg S O N D J F M A M J J A

30 million bushels As Good As It Gets 3000 U.S. Corn Exports

31 million bushels Slow Growth U.S. Corn Feed Usage

32 million bushels No Growth? 8000 U.S. Corn Food/Industrial Usage

33 Lowest Price Since RFS Boom

34 Lousy Margins Average Corn Belt Ethanol Plant Margins $0.50 $0.40 $0.30 $0.20 $0.10 $0.00 -$0.10 -$0.20 -$0.30 -$0.40 -$

35 September Lows Held 420 JULY CORN BULL VS BEAR YEARS Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Bull Market Years July 2019 Normal Year

36 2019 Debate Begins Crop Acreage Change* Corn 90.3 million 1.3% Soybeans 84.6 million -5.5% Soft Red Winter Wheat 5.6 million -7.1% Hard Red Winter Wheat 22.8 million -0.6% White Winter Wheat 3.2 million -9.2% All Winter Wheat 31.6 million -2.7% Spring Wheat 12.5 million -5.3% Durum 2.5 million 19.8% All Wheat 46.6 million -2.5% Sorghum 5.1 million -12.1% Cotton 14.6 million 4.1% * vs USDA August 2018 estimates 36

37 Market Trades USDA s Baseline USDA's Forecast For 2019 Acreage millions 89.1 Corn Soybeans

38 Futures Start To Favor Soybeans A Little

39 Potential For Rallies 2019 Corn Supply and Demand Estimates Yield 174 Production 14,432 Use, total 14,710 Ending stocks 1,475 Ave. cash price $3.94 Top Third $4.33 to $4.48

40 November Close To Top Third 2019 Soybeans Supply and Demand Estimates Yield 50.3 Production 4,210 Exports 1,994 Use, total 4,147 Ending stocks 876 Ave. cash price $8.38 $9.73 to Top Thard $10.11

41 Corn Loses Less $300 $250 $200 $150 $100 $50 $0 -$50 -$100 -$150 Average U.S. Profit/Loss Per Acre Assumes average cash prices and costs, 2019 trend yield Corn Soybeans Wheat Source: USDA, *Farm Futures Projections

42 Tariff Deal Matters How 2019 Cash Prices Could Vary $10 $9 $8 $7 $6 $5 $4 $3 $2 $1 $0 $8.75 $8.38 $8.13 $7.97 $3.90 $3.94 $3.94 $3.94 USDA End to tariffs Tariffs stay on Tariffs stay, China cuts usage 42

43 Profit Potential A Factor CORN PROFIT PER ACRE VS SOYBEANS $45 $40 $35 $30 $25 $20 $15 $10 $5 $0 $7 $19 $32 $40 USDA End to tariffs Tariffs stay on Tariffs stay, China cuts usage 43

44 Soybeans Limit Downside 44

45 What About Weather? Copyright Scott Olson / Staff, Getty Images

46 No La Nina In Sight 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% ODDS 'LA NINA' WILL DEVELOP DJF 2019 JFM 2019 FMA 2019 MAM 2019 AMJ 2019 MJJ 2019 JJA 2019 JAS 2019 ASO 2019 Source: NOAA

47 Weak, Short-lived El Nino Expected 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% ODDS 'EL NINO' WILL EMERGE DJF 2019 JFM 2019 FMA 2019 MAM 2019 AMJ 2019 MJJ 2019 JJA 2019 JAS 2019 ASO 2019 Source: NOAA

48 Neutral = BPA Corn, 51.2 Soybeans in % 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% -30% DIFFERENCE FROM TREND YIELD IN "NEUTRAL" YEARS Corn Soybeans

49 Late Rains Help Soybeans More 20% DIFFERENCE FROM SOYBEAN TREND YIELD IN YEARS WITH EL NINO BY FALL 15% 10% 5% 0% -5% -10%

50 What We Know SEC AGRICULTURE RISK COVERAGE. Section 1117 of the Agricultural Act of 2014 (7 U.S.C. 9017) is amended (5) TREND-ADJUSTED YIELD. The Secretary shall calculate and use a trend-adjusted yield factor to adjust the yield determined under paragraph (2)(A) and subsection (b)(1)(a), taking into consideration, but not exceeding, the trend-adjusted yield factor that is used to increase yield history under the endorsement under the Federal Crop Insurance Act (7 U.S.C et seq.) for that crop and county. ; and (5) effective for the 2019 through 2023 crop years, in the case of county coverage, assign an actual or benchmark county yield for each planted acre for the crop year for the covered commodity (A) for a county for which county data collected by the Risk Management Agency are sufficient for the Secretary to offer a county-wide insurance product, using the actual average county yield determined by the Risk Management Agency 50

51 Should You Update Yields? (1) ELECTION TO UPDATE. At the sole discretion of the owner of a farm, the owner of a farm shall have a 1-time opportunity to update, on a covered-commodity-by-covered-commodity basis, the payment yield that would otherwise be used in calculating any price loss coverage payment for each covered commodity on the farm for which the election is made. (2) METHOD OF UPDATING YIELDS FOR COVERED COMMODITIES. If the owner of a farm elects to update yields under paragraph (1), the payment yield for a covered commodity on the farm, for the purpose of calculating price loss coverage payments only, shall be equal to the product obtained by multiplying (A) 90 percent; (B) the average of the yield per planted acre for the crop of covered commodities on the farm for the 2013 through 2017 crop years, as determined by the Secretary, excluding any crop year in which the acreage planted to the covered commodity was zero; and (C) subject to paragraph (3), the ratio obtained by dividing (i) the average of the 2008 through 2012 national average yield per planted acre for the covered commodity, as determined by the Secretary; by (ii) the average of the 2013 through 2017 national average yield per planted acre for the covered commodity, as determined by the Secretary. (3) LIMITATION. In no case shall the ratio obtained under paragraph (2)(C) be less than 90 percent or greater than 100 percent. (4) USE OF COUNTY AVERAGE YIELD. For the purposes of determining the average yield per planted acre under paragraph (2)(B), if the yield per planted acre for a crop of a covered commodity for a farm for any of the crop years described in that subparagraph was less than 75 percent of the average of county yields for those crop years for that commodity, the Secretary shall assign a yield for that crop year equal to 75 percent of the average of the 2013 through 2017 county yield for the covered commodity. (6) TIME FOR ELECTION. An election under this subsection shall be made at a time and manner so as to be in effect beginning with the 2020 crop year, as determined by the Secretary.. 51

52 Updating Not A Slam-Dunk Decision 52

53 Most Should Gain 53

54 Will The Process Be Like Crop Insurance? 54

55 Falling ARC Corn Protection Year Yield Price Revenue Guarantee $5.29 $790 $ $5.29 $790 $ $4.79 $741 $ $3.92 $638 $ $3.56 $597 $ Old 171 $3.52 $601 $ New 179 $3.52 $632 $543

56 Increased ARC Protection Could Add Up For Corn Trend Yield Adjustment: BPA RMA Vs NASS Yield: * 2% BPA Revenue Guarantee: + 5% 56

57 More Could Update Soybeans 57

58 Will ARC Be More Fair? 58

59 Higher Yielding Counties May Benefit 59

60 Soybean ARC Could Improve Under New Bill Year Yield Price Revenue Guarantee $12.27 $530 $ $12.27 $530 $ $11.87 $528 $ $10.86 $505 $ $9.62 $464 $ Old 50 $9.24 $458 $ New 51 $9.24 $467 $402

61 Soybeans Gain Less From New ARC Trend Yield Adjustment: +.4 BPA RMA Vs NASS Yield: * 2% BPA Revenue Guarantee: + 2% 61

62 PLC Vs ARC Corn Advantage (Disadvantage) Profit/Loss Per Acre 62

63 PLC Depends On Your Outlook Profit/Loss Per Acre 63

64 Will CBOT Plan Work? $0.00 -$0.10 -$0.20 -$0.30 -$0.40 -$0.50 -$0.60 -$0.70 -$0.80 -$0.90 -$1.00 Corn Basis Could Strengthen average harvest basis Corn Soybeans 64

65 Corn Basis Flat Since Dec Roll 10 Central Illinois Corn Basis 0 (10) (20) (30) (40) (50) (60) 9/1 11/1 1/1 3/1 5/1 7/1 Average

66 Storing For Carry 20 Central Illinois Soybean Basis 0 (20) (40) (60) (80) (100) 9/1 11/1 1/1 3/1 5/1 7/1 Average

67 $600 Rising For Spring $750 $650 $550 $450 $350 $250 $150 Ammonia Retail Gulf

68 per ton Rent A Barge! $900 $800 $700 $600 $500 $400 $300 $200 $100 $- Farmgate Ammonia April price Source: USDA, Farm Futures 68

69 Chinese Sales Ended Urea Rally $550 $500 $450 $400 $350 $300 $250 $200 $150 Urea Retail Gulf

70 per ton Should Get Cheaper $700 Farmgate Urea April price $600 $500 $ $300 $200 $100 $- Source: USDA, Farm Futures 70

71 Affected By N $550 $500 $450 $400 $350 $300 $250 Retail DAP Gulf

72 per ton DAP Should Get Cheaper $900 $800 $700 $600 $500 $400 $300 $200 $100 $- Farmgate DAP April price Source: USDA, Farm Futures 72

73 Steady Prices At Higher Levels Potash $560 $510 $460 $410 $360 $310 $260 $210 Retail Midwest Terminal

74 per ton $360 To $400 Farmgate Potash April price $900 $800 $700 $600 $500 $ $300 $200 $100 $- Source: USDA, Farm Futures 74

75 Winter Lows In GROUP 3 DIESEL SEASONAL Average /1 8/1 9/1 10/1 11/1 12/1 1/1 2/1 3/1 4/1 5/1 6/1

76 per gallon What Polar Vortex? $0.70 CME Swaps Curve Conway Kansas wholesale price $0.65 $0.60 $0.55 $0.50 $0.45 Source: CME Group

77 Fed s Could Hit Pause Button 90% 80% 70% ODDS OF FEDERAL FUNDS RATES THROUGH DEC % 60% 50% 40% 30% 20% 10% 0% 8% 10% (Current) Source: CME Group

78 Yield Curve Starts To Invert per cent 3.00 TREASURY YIELD CURVE INTEREST RATE ON TREASURY SECURITIES AT VARIOUS MATURITY /1/17 2/1/18 2/1/19 78

79 This Is Why The Yield Curve Matters per cent 10 INTEREST RATE SPREAD ON TREASURIES 3 Mo 10 Yr Source: Federal Reserve

80 Dollar Fairly Valued Dollar Follows Rates Long-Term Dollar Prime

81 Interest Rates Bite 35% Debt Service vs Gross Sales 30% 25% 20% 15% 10% 5% 0% Source: USDA 81

82 Worries Ease 60% I WORRY ABOUT WHETHER I LL BE ABLE TO PAY BACK THE DEBT I OWE % agreeing 50% 40% 34% 34% 38% 41% 44% 39% 43% 48% 47% 43% 43% 45% 43% 44% 50.3% 44% 30% 28% 20% 10% 0% Nov-12 Aug-13 Dec-13 Aug-14 Jan-15 Mar Aug 16-Jan 16-Mar Aug-16 Jan-17 Mar-17 Aug-17 Jan Mar 18-Aug Jan-19

83 MFP Raised Income $140 $120 Net Farm Income billions of dollars $113.6 $123.8 $100 $80 $60 $57.4 $70.0 $78.0 $62.2 $77.1 $96.5 $92.4 $81.4 $61.5 $75.4 $75.9 $63.1 $40 $20 $0 Source: USDA ERS, *Farm Futures

84 Income Down? 60% 50% HOW GROWERS VIEW 2019 INCOME VS % 40% 30% 20% 32% 17% 10% 0% Lower Same Higher 84

85 Financial Stress Indicators More Farms Vulnerable Marginal Income Marginal Solvency Vulnerable Nov % 9.5% 1.1% Aug % 6.2% 0.5% Dec % 8.8% 1.2% Aug % 9.4% 1.0% Jan % 10.3% 1.3% Mar % 10.5% 1.8% Aug % 8.4% 1.3% Jan % 11.9% 2.3% Mar % 13.1% 3.7% Aug % 19.6% 4.4% Jan % 19.7% 3.5% Mar % 12.8% 3.9% Aug % 11.1% 3.1% Jan % 10.8% 3.6% Mar % 13.1% 4.2% Aug % 16.1% 3.7% Jan % 16.2% 5.5%

86 Not A Debt Crisis 25 Debt to Assets Ratio p e r c e n t Source: USDA ERS

87 Profit Crisis 45% Profit Margin 40% 35% 30% 25% 20% 15% 10% 5% 0% Source: USDA ERS 87

88 Thank You Go To FarmFutures.Com For More

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90 Questions?