Growers who hedge now should cover the upside with call options, say selling a December SRW $6.20 call to pay for a $5.20.

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1 Wheat market tries to get its mojo back Tighter global supplies should boost U.S. export hopes By Bryce Knorr, Senior Grain Market Analyst In a world without noise, the wheat market would be ready to rally. Even in today s climate filled with trade war fears, futures are showing the strength we ve expected for a while. Whether this rally will last or fall victim to the same type of selling seen before is the make-or-break question, and likely not only for wheat. Wheat s ability to move beyond tariffs would help other markets slowly get back to normal. So growers of corn, and maybe soybeans too, should pay attention. The outlook for U.S. prices improves even as estimates of production here are on the rise. Winter wheat crop ratings and yield estimates continue to creep higher. Spring wheat ratings started to show a little deterioration, with more likely on the way if drier forecasts hold, but yield losses should be offset by increased acreage reported June 29 by USDA. Indeed, the government should increase its estimate of production by nearly 75 million bushels July 12. Higher June 1 leftover stocks from the 2017 crop marketing year due to weaker feed usage and exports also put a little more bearish situation on supply. But lower world production increase U.S. export potential, and more importantly, global prices. The crop in France was hit by wet weather, which has prices there trading near the highest level in three years. Dry weather is cutting spring wheat yields from northern Germany into the Baltics, and also hurt winter wheat production out of the Black Sea. While none of these stories is an outright disaster, production in Australia could be if drought from the burgeoning El Nino continues. The upside for wheat isn t unlimited futures may do well just to get back up to highs put in earlier this year. But that could allow growers to get wheat priced higher, as well as get started on 2019 hedges. Winter wheat cash markets are also showing strength at long last for growers on the Plains. That s started to reduce carries, which were running nearly 7.5 cents a month for hard red winter wheat futures to May. Carry is still profitable for winter wheat producers with on-farm storage into 2019 and year-round markets. But rising prices likely will suck more out of spreads if the rally continues. Growers who hedge now should cover the upside with call options, say selling a December SRW $6.20 call to pay for a $5.20. HRW suffered more than SRW on the pullback in prices, as lack of deliverable supply eliminated carry between July and September. Demand for hard wheat should be better, which could again send Kansas premium to Chicago. The outlook for Minneapolis likely will key off production in Canada. There are dry spots north of the border, too, but potential still looks decent. Lack of higher protein competition out of Northern Europe and Australia should benefit North America most, especially if dryness starting to develop in Argentina spreads.

2 Wheat Supply & Demand Table USDA Bryce Area Planted 50,154 46,012 47,300 46,012 47,821 Harvested 43,890 37,586 38,900 37,586 38,336 Yield Beginning stocks 976 1,181 1,080 1,181 1,086 Production 2,309 1,741 1,827 1,741 1,901 Imports Supply, total 3,402 3,076 3,043 3,072 3,117 Food Seed Feed and residual Domestic, total 1,167 1,096 1,147 1,086 1,108 Exports 1, ,030 Use, total 2,222 1,996 2,097 1,986 2,138 Ending stocks 1,181 1, , Average price $3.89 $4.75 $5.10 $4.31 $5.02 Stocks to use ratio 53.1% 54.1% 45.1% 54.7% 45.8% Ave. Nearby Futures Chicago $5.18 Kansas City Hard Red $5.32 Minneapolis $5.90 Top Third of Price Range 2018 Chicago $5.38 to $5.78 Kansas City Hard Red $5.52 to $5.91 Minneapolis $5.90 to $6.45

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 ,035 1, , ,018 1, , , ,000 1, , , ,082 1, , BK ,

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7 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

8 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 40 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

9 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 46 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

10 55 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

11 52 U.S. Winter Wheat Yields /23 11/13 12/4 12/25 1/15 2/5 2/26 3/19 4/9 4/30 5/21 6/11 7/2 Last Year - National Model State-by-State yields National Yield Model "Last Year -- State Model" 50% Ratings accuracy improves modestly percentage of yield variance captured by weekly winter wheat ratings 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 4/7 4/14 4/21 4/28 5/5 5/12 5/19 5/26 6/2 6/9 6/16 6/23 6/30 Source: Farm Futures

12 55 Projected U.S. Spring Wheat Yields /21 6/4 6/18 7/2 7/16 7/30 8/13 8/27 9/10 Previous year State Model U.S. Model

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33 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) 35% 30% 25% 20% 15% 10% 5% 0% Total Commitments % of USDA Forecast

34 Accumulated Wheat Export Shipments % 6% 5% 4% 3% 2% 1% 0% Total Shipments % of USDA Forecast Hard Red Winter Wheat Exports (Year to Date) 70% 60% 50% 40% 30% 20% 10% 0% Total Commitments % of USDA Forecast

35 Soft Red Winter Wheat Exports (Year to Date) 70% 60% 50% 40% 30% 20% 10% 0% Total Commitments % of USDA Forecast Hard Red Spring Wheat Exports (Year to Date) 40% 35% 30% 25% 20% 15% 10% 5% 0% Total Commitments % of USDA Forecast

36 White Wheat Exports (Year to Date) % 40% 35% 30% 25% 20% 15% 10% 5% 0% Total Commitments % of USDA Forecast Weekly Wheat Export Inspections 35,000 30,000 Thousand bushels 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

37 Chicago December Futures /6 3/6 5/6 7/6 9/6 11/6 Bull Non-Bull Dec Dec-17 Kansas City December Futures /1 2/1 3/1 4/1 5/1 6/1 7/1 8/1 9/1 10/1 11/1 Bull Years Non-Bull Years Dec. 2018

38 Minneapolis December Futures Feb Mar Apr May Jun Jul Aug Sep Oct Nov December 2018 Bull Years Bear Years

39 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 /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 $3.00 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 $4.00 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 $3.50 Source: CFTC Index funds Hedge funds Futures

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

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