Signs align for corn profit hopes Short crop in Brazil could be fix the market needs By Bryce Knorr, senior grain market analyst

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1 Signs align for corn profit hopes Short crop in Brazil could be fix the market needs By Bryce Knorr, senior grain market analyst Corn growers enjoyed an outbreak of optimism last week at Commodity Classic that seemed unimaginable just a few months ago. But while signs are starting to align for the corn market, don t let your hopes run wild. Continue to move old crop inventory, taking advantage of the rally on the board and firming basis, a combination that doesn t always happen. I ve recommended being 80% sold on old crop, with an average July futures price just above $4 thanks to hedges at higher values. That should yield a modest profit on the crop, which is plenty good enough in what started as a very challenging year. Whittling down old crop inventories should make it easier to focus on new crop. While December futures moved back above $4 for the first time since September, that s still not a profitable hedge, especially if your yields suffer any setback. Getting prices up to a comfortable selling level over the next month or two won t be easy, unless growers abandon corn in favor of soybeans. The other game-changer could be a short crop in Brazil, where most corn is planted behind soybeans. Rains delayed the bean harvest in the center-west, and acreage likely will fall a result. Southern Brazil is suffering from the same La Nina-inspired dryness that cut Argentine production, so the jury is out as far as yield potential too. USDA could cut another 100 million bushels off its forecast of Argentine production in the March 8 update. Brazil could lose 120 million bushels and that could be just the start. Some estimates already see the crop another 250 million bushels lower, and much of it isn t planted yet. The South American situation is one reason U.S. export prospects are improving after a very slow start. Sales and shipments have picked up noticeably, and barge freight values for September are some of the highest of the past 20 years on the upper Mississippi. U.S. exports surged two years ago on a short crop in Brazil, which is still fresh in the memory of end users. Ethanol production also is running better than USDA forecasts, and dry weather on the Plains could move more cattle into feedlots earlier too. USDA likely won t make big adjustments yet, and even when all is said and done at the end of the marketing year Aug. 31 more than 2.2 million bushels of corn could still be left over. Stocks for 2018 depend first on acreage, then on yield. We re surveying growers on intentions now and will report finding March 23. Profits favor soybeans, and a decline in seedings reported by USDA March 30 could move the market higher to buy acres unless beans fall apart. Fundamentals and history suggest rally potential for December into the $4.30 to $4.50 range, though that likely wouldn t happen until summer growing season weather kicks in. Seasonal trends show at least some tendency to top out now in years with a winter rally. Whether that happens in part depends on the mood among investors. Funds are buying agriculture again, corn included. That could change in a heartbeat, or a tweet. Countries looking to retaliate against U.S. tariffs might choose corn as a target if they feel supplies are available elsewhere. Mexico and Japan are the two biggest importers of U.S. corn and are already shopping around elsewhere. Weakness could be an opportunity to pick up a few call options, especially if volatility pulls back after a recent move higher.

2 Corn Supply & Demand USDA Bryce's Forecast Area Planted 94,004 90,167 90,000 90,703 90,108 Harvested 86,748 82,703 82,700 82,703 82,798 Yield Beginning stocks 1,737 2,294 2,352 2,294 2,256 Production 15,148 14,605 14,390 14,605 14,288 Imports Supply, total 16,942 16,947 16,792 16,936 16,580 Feed and residual 5,467 5,550 5,475 5,498 5,382 Food, seed and ind. 6,889 6,995 7,145 7,051 7,122 Domestic, total 12,356 12,545 12,620 12,549 12,504 Exports 2,293 2,050 1,900 2,132 2,113 Use, total 14,649 14,595 14,520 14,680 14,617 Ending stocks 2,294 2,352 2,272 2,256 1,963 Ave. cash price $3.36 $3.25 $3.40 $3.41 $3.68 Stocks to use 15.7% 16.1% 15.6% 15.4% 13.4% Ave. nearby futures $3.69 $3.60 $3.76 $3.98 Top Third $3.76 $4.28 of Price Range to $4.11 to $4.67

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10 70 U.S. Corn Stocks/Use stocks/use Corn Demand million bushels Industrial Feed Exports

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12 Average Corn Belt Ethanol Plant Margins $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 $0.50 $ ETHANOL PRODUCTION GALLONS FROM EACH BUSHEL USED Sep 14 Jan 15 May 15 Sep 15 Jan 16 May 16 Sep 16 Jan 17 May 17 Sep 17

13 Monthly U.S. ethanol production and stocks 35,000 thousand barrels 30,000 25,000 20,000 15,000 10,000 5, Source: USEIA, Farm Futures Production Stocks Stocks WEEKLY ETHANOL PRODUCTION AND STOCKS Production thousand barrels /1/14 12/1/14 3/1/15 6/1/15 9/1/15 12/1/15 3/1/16 6/1/16 9/1/16 12/1/16 3/1/17 6/1/17 9/1/17 12/1/ thousand barrels/day Ending stocks Daily Production

14 CHINESE CORN IMPORTS, SEPT-JAN (million bushels) Ukraine U.S. Total

15 Weekly Export Inspections in million bushels For week of 02/22/18 This Week Last Week 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 WHEAT CORN ,020 SOYBEANS ,388 1,596 Source: USDA, Reuters Weekly Export Sales (million bushels) AS OF WEEK ENDING 2/22/18 Wheat Corn Soybeans Old Crop Sales New Crop Sales Total Sales Prior Week (4.0) Trade Estimates Rate to reach USDA Forecast Export Shipments Rate to reach USDA Forecast Commitments % of USDA est. 86% 75% 89% 5-year average for this week 87% 72% 92% Shipments % of USDA est. 63% 43% 74% 5-year average for this week 67% 40% 79% Source: USDA, Reuters

16 Total Corn Sales & Shipments (Year to Date) % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Total Commitments % of USDA Forecast Corn Shipments (Year to Date) 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Total Shipments % of USDA Forecast

17 New crop sales Total Next Year's Corn Sales (Year to Date) New Crop Sales Final Exports Final exports Unshipped Corn Sales Million Bushels

18 70,000 Weekly Corn Export Inspections 60,000 Thousand Bushels 50,000 40,000 30,000 20,000 10,000 5-Yr. Avg S O N D J F M A M J J A Commitment of Traders - Corn $5.00 net position in contracts $4.50 $4.00 $3.50 nearby futures /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 Source: CFTC $3.00 Index funds Hedge funds Futures

19 DECEMBER CORN BULL VS BEAR YEARS /1 1/1 3/1 5/1 7/1 9/1 11/1 Bull Market 17-Dec Dec-18 Normal Year July Corn Bull vs Bear Years Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Bull Market Years July 2018 Normal Year

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