Ending stocks can adjust due to a variety of factors from changes in production as well as adjustments to beginning stocks and demand.

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4 Wire services such as Reuters and Bloomberg offer a survey of analysts expectations for high-profile USDA reports. These surveys hold interest because they help clarify what constitutes a shock or surprise to the market as well as what constitutes new information to the futures market. Ahead of key reports, traders are employing a base of information or a set of expectations in terms of what they think yields, production and ending stocks should be. Oftentimes it is not the numbers in the USDA reports, but the numbers relative to pre-report expectations that influence price changes in the futures market. The table above provides an average trade estimate from a range of estimates provided by many private firms and analysts. Given the NASS crop ratings to date for corn and soybeans, there was a general expectation for USDA to lower U.S. average yields and production in August. Ending stocks can adjust due to a variety of factors from changes in production as well as adjustments to beginning stocks and demand. 4

5 The August WASDE report was seen as bearish with front month wheat, corn and soybean futures losing 19, 15, and 33 cents respectively on August 10. Higher-than-anticipated US production and ending stocks weighed heavily on prices for these three crops. 5

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8 In the August 10 report USDA made some old crop demand adjustments. Crush was reduced by 10 million bushels and Exports were increased by 50 million. These adjustments reduced old crop ending stocks from 410 million in July to 370 million, which becomes the revised Beginning Stocks for 2017/18. Other adjustments to the new crop balance sheet included a 121 million bushel increase in Production. After reducing Beginning Stocks by 40 million from last month, Total Supply increased by only 82 million bushels. On the demand side, Crush was reduced by 10 million and Exports were increased by 75 million to a record billion. The net change to Ending Stocks was an increase of 15 million bushels to 475 million, which would be the highest since 2006.

9 It s important to note that soybean yield potential is still being determined across much of the U.S. Cornbelt. Therefore, the pre-report expectation was for USDA to keep the US average yield at or slightly below 48 bushels. A slight drop was largely expected due to the drought conditions in parts of the upper Plains and yield uncertainty around herbicide drift in other areas. Instead, the US yield was revised higher to 49.4 bushels per acre; 1.4 bu. above the July report and higher than the average pre-report guess of 47.5 bushels per acre. As a result, US production was increased to billion bushels, up 121 million bushels from July and 74 million bushels above last year s record. 9

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11 U.S. soybean exports have increased each year since the historic 2012 drought. In August the USDA projected a 5 th consecutive year of record U.S. exports. Continued growth in U.S. export demand has largely been driven by Chinese import demand. In the current marketing year, China accounts for roughly 62% of known export sales. Including the USDA s initial projection for 2017, China s soybean import demand has grown almost 1.3 billion bushels or 57% since Over the same time period, U.S. soybean exports have increased 908 million bushels or 69%. 11

12 The net change to 2017/18 Ending Stocks was an increase of 15 million bushels to 475 million, which would be the highest since The 2017 yield and production is still being determined and export demand for US supplies will certainly be influenced by the size of the upcoming South American crop. 12

13 The U.S. season average soybean price range for 2017/18 is forecast at $8.45 to $10.15 per bushel, with the mid-point of the range being $9.30/bu. The stocks-to-use ratio by definition is a ratio that indicates the level of Ending Stocks as a percentage of Total Use of the commodity. The graph above helps illustrate the relationship between ending stocks and price. This also helps to determine the probable direction of price movement on a year-to-year basis. 13

14 The August USDA report historically produces an average 2% price move in corn/soybeans which this year would amount to 8-10 cents in corn and cents in soybeans. This year s price reaction in soybeans to the report was 33 cents. November futures have lost as much as 52 cents following the August 10 USDA report. Been a volatile summer with the November contract trading as low as $9.07 on June 23. On developing drought concerns in the western Cornbelt and high temperatures, prices turned higher near the end of June and traded up to $10.47 on July 11. The November contract closed above $10 in four out of five weeks in July. August is still a key weather month for soybeans and price volatility can surface quickly. The late June break-away gap at $9.55 is the first overhead resistance point. The lowest close of 2017 at $9.11 acts as key technical support. 14

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16 In the August 10 report USDA made only minor old crop adjustments (-.2 mln cwt to imports). Adjustments to the new crop balance sheet included a 4 million cwt. decrease in Production. After reducing Beginning Stocks by.2 million cwt. from last month, Total Supply was decreased by 4.2 to million cwt. Adjustments to 2017/18 demand: Domestic Use was lowered by 2 million and Exports were unchanged month-to-month. The net change to Ending Stocks was a decrease of 2.2 million to 17.7 million cwt., which would be the lowest level since 2013.

17 With lower 2017 production and ending stocks, the August USDA report was supportive to rice market. USDA cut 2017 long-grain production by 4 million cwt. In the August report USDA kept planted and harvested acreage unchanged. It appears USDA lowered its long-grain yield projection from about 7500 lbs/ac (166.7 bu.) down to 7277 lbs or bu. The August yield projection is very close to the previous 5-yr avg for long-grain. 17

18 USDA cut 2017 long-grain production by 4 million cwt. On the demand side, '17 domestic use was lowered by 2 million cwt. The net change was a 2 million cwt drop month-to-month in ending stocks to 17.7 million cwt. This would be the smallest long-grain ending stocks since At present, rice is one of the few crops (if not the only one) in the region that has a price-supportive supply/demand outlook. 2017/18 Ending Stocks are projected to decline a significant 13.6 mln cwt. or 43% from last year. 18

19 USDA made only minor adjustments to the old crop (2016) balance sheet in the August report. They did reduce the avg. long-grain producer price for '16 from $4.37 to $4.32/bu. The projected avg. producer price for the '17 crop was increased to $5.40/bu. for long grain up from $5.26 in July. 19

20 New crop rough rice futures have remained in an up-trending channel since early May 2017 following heavy rains in Arkansas and Missouri which reduced planting intentions. On a weekly basis, prices have settled higher 12 out of the last 15 weeks. Previous chart highs for the September contract near $12.40 have been retested in recent weeks, with the September 17 contract closing at $ the week of August 7. With harvest underway, the ability of the market to continue higher will depend on a variety of factors including the yield and quality of the 2017 crop. 20

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22 Adjustments to the new crop balance sheet included a 102 million bushel decrease in Production. On the demand side, Feed was reduced by 25 million bushels to billion and Exports were decreased by 25 million to billion. The net change to Ending Stocks was an decrease of 52 million bushels to billion 97 million bushels less than 2016/17.

23 No adjustments were made in August to planted and harvested acreage. On declining crop ratings, USDA lowered the US average corn yield by 1.2 bushels per acre to the 3 rd highest on record. The lower yield estimate pulled production down by 102 million bushels to billion the 3 rd largest US crop on record. 23

24 This map includes a state-by-state 2017 yield projection for corn and the yield change from Arkansas' 2017 corn yield is expected to be very good at 182 bushels per acre. Neighboring states such as Louisiana and Mississippi are both projected to have record corn yields of 192 and 185 bushels per acre. In contrast to the Midsouth region, the map well illustrates the impact of drought this year on corn yields in the Dakotas and Iowa. 24

25 A record US yield and record production in 2016 helped push ending stocks back above 2 billion bushels for the first time since With harvested acreage expected to decline by 3.2 million acres this year and production down almost 1 billion bushels, 2017/18 ending stocks are expected to fall modestly. 25

26 Old crop and new crop stocks-to-use ratios are projected to hold near 16%. Thus, average producer prices are expected to change very little year-to-year, remaining near $3.30 per bushel. USDA s current producer price range for the 2017 crop is $2.90 to $3.70 per bushel unchanged from the July projection. 26

27 The September 2017 contract is retesting its life of contract lows at $3.48 made on August 30, Similar to November soybeans, new crop corn futures made summer highs on July 11 with the September contract trading up to $4.04 ¾. Following the August 10 report, the September contract has lost 23 cents and has retraced almost all of the price gains made in the past year. Technicians might argue that a double-bottom formation could support prices at the $3.48-$3.49 price level. Traders will be closely monitoring Pro Farmer s crop tour the week of August

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29 In the August report, USDA made a surprisingly large 1.55 million bale increase to 2017 production. Some of this increase was offset by lower beginning stocks and higher new crop exports. 2017/18 carry-over of 5.8 million bales is expected to keep producer prices soft and in the range of 55 to 67 cents. 29

30 Largest U.S. production since U.S. harvested acreage is projected to be up 1.54 million in Average yield currently projected at 892 lbs/ac. which ties the 2012 record. 30

31 2017/18 U.S. exports are expected to be lower on increasing production in India, Pakistan and China. Production gains are also expected in Australia and Brazil. With higher production expected, India and Pakistan imports are projected to decline by a combined 1.6 million bales in the 2017/18 marketing year. 31

32 A sharp 2 million increase in planted acres this year and the potential for a record U.S. yield will help push ending stocks to almost 6 million bales. Domestic mill use has been flat in the U.S. for the last several years. Production shortfalls in key exporting countries will be needed in order for the U.S. to move this year s large crop onto the export market. Favorable harvest weather and good quality will also be needed to maintain strong export market share for the U.S. 32

33 A large increase in 17/18 ending stocks is expected to keep producers prices subdued. Currently, the new crop stocks-to-use ratio is projected at 33%; more than double last year s stocks-to-use of roughly 15%. 33

34 Prior to the August USDA report, December 17 futures were finding support from the prospect of further increases in old crop exports, lower 17/18 beginning stocks, equity market strength and continued weakness in the U.S. dollar. On August 9 the December contract settled at rallying almost 500 points since late June. The sharp increase in 2017 production to million bales was a surprise to traders and prices quickly fell the 300 point limit on August 10. Prices appear on a path to retest the June and July lows between and Market direction is largely dictated this month by weather patterns in west Texas. Crop conditions in Texas improved slightly over the past week from 45% to 51% good/excellent. 34

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36 Chicago wheat struggles to move higher given ample supplies and the need to be competitive in export and feed demand channels. After trading above $6 last month, the July 2018 contract is likely to retrace all gains made year-to-date and fall back to the $4.83 area where the contract traded in early January. Soft Red Winter supplies are comfortable and feed and export demand for the class has been trending lower over the past few years. For acreage to recover this fall, July 18 futures will likely need to retest the $6 level to attract grower interest. 36

37 2017/18 total demand for SRW is roughly half as much as it was in This is largely due to declining feed and export demand for the class. 37

38 Export and feed demand have fallen most since Global wheat supplies are record large with U.S. wheat sometimes at price premium to European and Black Sea wheat. Also, building corn supplies have displaced wheat to some extent in feed rations. 38

39 2017 ending stocks are projected to be very close to the record highs seen in 2009, with stocks-to-use expected to exceed the 2009 level. 39

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