Index. Index. Overview Page 1

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1 THE 2018 FOOD COMMODITY OUTLOOK REPORT Issue 2 A Detailed Quarterly Research and Forecast Analysis for the Beef, Chicken, Dairy, Pork, Grains, Shrimp, Canned Tomato and Coffee Markets for Published by American Restaurant Association Inc., or Overview The major corn and soybean harvests in the United States are winding down with another year of solid crops. So much so that the USDA is projecting the available domestic feed supply through next summer to be one of the biggest in the last decade. This does not guarantee low feed prices will persist but certainly Index makes the odds rather high. The South American planting season is underway with its fair share of challenges. These crops will play a bigger influence on feed prices during the next few months. But the Brazilian soybean harvest, although lower than the previous crop, is currently forecasted to be the second largest on record. Assuming no major crop failures there or Argentina, it s likely that engaging feed prices will continue. The soybean oil markets have been volatile as of late as the Trump Administration has apparently abandoned efforts to cut the biodiesel mandate for This, and the existing tariffs on biodiesel imports, are expected to cause demand for biodiesel feedstocks to be strong next year. The major feedstocks we are concerned about here are soybean oil and tallow. The USDA is forecasting soybean oil use for biodiesel to be a record. High protein wheat supplies aren t expected to be as much of a problem as anticipated earlier this fall. The USDA has raised their hard-red spring crop estimate, and supplies for such should be adequate. That said, some demand rationing for high protein spring wheat, including durum, is needed which should underpin prices. Protein producers are excited for the outlook around feed prices and are responding by raising production for next year. However, there are indications that year over year gains in chicken output during the winter could be less intense due to earlier layer number adjustments. This could be especially supportive of the wing markets. In dairy, domestic nonfat dry milk stocks are a record while prices are nearing decade lows. This may keep a lid on cheese prices deep into next year. Markets Expected to be Flat to Higher in 2018 Chicken, Cheese, Corn, Wheat, Coffee, Soybean Oil, Tomato Products, Beef Trim Markets Expected to be Lower in 2018 Pork, Beef Markets Believed to be Presenting Good Contracting Opportunities as of Late Corn, Wheat, Soybean Meal, Cheese, Nonfat Dry Milk Index Overview Page 1 Soybeans Page 2 Soybean Oil Page 3 Corn Pages 4-5 Current Situation Page 4 What to Monitor Page 4 Outlook Page 5 Wheat Page 6 Dry Beans Page 7 Rice Page 7 Coffee Page 8 Beef Pages 9-15 Current Situation Pages 9 What to Monitor Pages Outlook Pages Pork Pages Current Situation Pages 15 What to Monitor Pages Outlook Pages Dairy Pages Current Situation Page 20 What to Monitor Page Outlook Pages Chicken Pages Current Situation Page 24 What to Monitor Page Outlook Pages Shrimp Page 29 Tomato Product Page 30 necessarily indicative of future performance. Any examples given are strictly hypothetical and no representation is being made that a person will or is likely to achieve profits or losses similar to those examples. Neither the information, nor any opinion expressed constitutes a solicitation to buy or sell futures or options on futures contracts or OTC products. Covered parties (as defined below) shall not be liable for any direct, indirect, incidental, special or consequential damages of any kind, whatsoever (including attorney s fees and lost profits or savings) in any way due to, resulting from, or arising in connection with the Food Commodity Outlook Report, including its content, regardless of any negligence of the covered party including but not limited to technical inaccuracies and typographical errors. Covered Parties is defined as American Restaurant Association Inc., ARA Trading, ARA Hedging and the employees of the companies. Commodity trading involves risks, and you should fully understand those risks before trading American Restaurant Association Inc. This publication is protected under U.S. copyright law.

2 Soybeans The Current Situation I. Soybean supplies are much improved. II. Soybean prices have been fairly soft during the fall due in part to the harvest and erratic export sales. As of mid-november, the soybean spot price was 4 percent below the prior year. III. The domestic crop a. USDA is estimating the harvest at 4.43 billion bushels which is 3 percent bigger than last year s crop and a record. What to monitor IV domestic supplies a. USDA is projecting the available supply to be the largest in 11 years. V. World soybean supplies b. World soybean supplies are ample. c. It s early but South America, the world's largest soybean exporting continent, is estimated to harvest 165 million metric tons of soybeans. This would be 4 percent less than the previous crop but historically large. VI. VII domestic crop d. U.S. acreage is unlikely to notably expand which could temper the margin of error with next year s crop. Other Grains e. U.S. wheat and corn supplies are adequate. World grain supplies are ample. This is expected to temper soybean prices during the next several months. US Soybean Ending Stocks as a Percent of Use, Source USDA, ARA 20.00% 18.00% 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 2005/062006/072007/082008/092009/102010/112011/12012/132013/142014/152015/162016/172017/18 The Outlook I. Soybean prices are expected to average near 2017 next year due to adequate supplies. But prices could firm during the back half of II. Similar soybean meal prices are expected as well. 2

3 Soybean Oil The Current Situation I. Soybean supplies are adequate. II. Soybean oil prices have firmed some in recent months due to expectations of increased biodiesel use. What to monitor I. See soybean what to monitor section on previous page. II. US biodiesel production a. Output continues to expand. Biodiesel use is forecasted to increase 13 percent with the crop, but this may be understated due to the import tariffs. III total soybean oil use is forecasted to rise 2.3 percent. IV. World palm oil and other food oil supplies. a. Palm oil output projected to be better for , up 7.3 percent. b. Carry-in stocks from are historically small. c. Overall production of world food oil projected to rise 4.7 percent in i. World food oil consumption is projected to rise 3.4 percent in ii. World soybean oil consumption is projected to rise 4.6 percent in iii. Available world food oil supply is projected to improve for the crop year but remain historically low. iv. World soybean oil available supply could be the tightest in the last decade. V. Major food oil consuming region Asia's economy is improving. a. Lower dollar could encourage soybean oil exports b. World palm oil prices could be tugged higher by soybean oil % 14.00% 12.00% 10.00% 8.00% 6.00% Available World Food Oil Stocks as a Percent of Use The Outlook I. Soybean oil prices are expected to average around $.35 a pound in 2018, which would be up roughly 9 percent from the previous year. 3

4 Corn The Current Situation I. Corn supplies are historically adequate due to the large harvests the last three falls. II. Corn prices have been relatively depressed this summer and have recently declined near $3 per bushel III domestic corn crop. a. USDA is estimating the domestic corn harvest at billion bushels, 3.8 percent below the prior crop but the second largest on record. b. The corn acre-yield estimate from the USDA is a record despite challenging weather. What to Monitor IV available U.S. corn supplies are projected to be the best in 11 years despite the smaller harvest due to a large carryover supply. V. Feed use is projected by the USDA for the crop year to be 2 percent bigger than the previous crop year. This may be understated. VI. Ethanol capacity is anticipated to be up modestly in 2018 at nearly 15 billion gallons annually. VII. Ethanol producer margins. a. Have improved with the firming gasoline prices and strong ethanol exports. b. Demand growth for ethanol should slow however. VIII corn crop use for ethanol is currently forecasted by the USDA at billion bushels, just.6 percent more than the prior crop. IX. US corn exports are projected to decline 16 percent in 2018 due to increased competition from South America. X. South American production. The harvest is estimated to be similar to the prior crop and near 40 percent more than the harvest. XI domestic crop. a. U.S. acreage near 90 million is expected which should be sufficient. b. However, the U.S. is way overdue for a weather induced short corn crop. 4

5 1990/ / / / / / / / / / / / / /17 Percent Corn the outlook The Outlook I. Corn supplies should remain relatively adequate. Prices are expected to remain south of $4 per bushel for the better part of next year Corn Ending Stocks (Aug 31) as a Percent of Use and Price Per Bushel Source USDA Ending Stocks Price 5

6 Wheat The Current Situation I. US wheat stocks are limited to ample depending on class. II. Hard winter prices as of mid-november were 17 percent higher than the previous year while hard spring wheat was up 24 percent. III. The USDA is estimating the total domestic wheat harvest at 1.74 billion bushels which is 25 percent less than the previous harvest. a. Hard red spring and durum wheat harvests are projected to be historically small. What to Monitor IV available high protein spring wheat supplies are expected to be historically limited due to the short harvests. a. Domestic durum wheat harvest down 47 percent from the prior crop. b. Hard red spring harvest down at least 22 percent. V total wheat use is projected by the USDA to decline 4 percent due mostly to a decline in exports. VI US stocks a overall wheat crop stocks are expected to be historically ample but hard red spring and durum will be historically limited Wheat Ending Stocks (May 31) as a Percent of Total Use, Source USDA and ARA 10 Hard Winter Hard Spring Soft Red White Durum Total 10 Year Avg 2015/ / /18 VII. The U.S. winter wheat crop. Domestic plantings are likely to remain historically small which makes the margin of error with the crops tighter. a. The National Weather Service is forecasting drought to expand in parts of winter wheat country in the coming months. The Outlook I. Limited supplies make the upside price risk in hard red spring and durum wheat substantial with prices like to average near 20 percent above 2017 at times next year. 6

7 Dry Beans The Current Situation I. Existing dry bean supplies are adequate but not burdensome. II. Both pinto and black bean prices were sharply below 2016 as of late November. What to Monitor I domestic edible bean output is estimated at 35.3 million which is 23 percent better than the previous crop. II acreage is likely to remain fairly big due to continued deflated grain and oilseed prices. The Outlook I. Dry bean prices are expected to remain fairly appealing in 2018, well below respective five-year averages. Rice The Current Situation I. Rice prices have firmed as of late. a. The long grain rice market as of late November was 13 percent above the same week a year ago. II rice acreage is estimated to be 19 percent smaller than last year. What to Monitor I domestic output is estimated at million hundredweight which is down 20 percent from the previous crop. II rice plantings domestically should improve. The Outlook I. The smaller harvest this year is expected to cause rice prices to average near 10 percent higher in

8 Coffee The Current Situation I. Coffee prices have mostly traded below year ago levels as of late due in part to a deflated value of the Brazilian real. a. As of late November, Arabica coffee futures were trading 12 percent below What to Monitor I. The value of the Brazilian Real. If the Real firms it would be supportive for coffee prices. But political turmoil there should keep the real deflated for most of II. III. Outlook for both the 2018 Brazilian and Vietnamese coffee harvests are favorable with the flowering stage in Brazil positive this fall coffee supplies are very susceptible to any adverse weather which could make the coffee markets especially volatile during the next year. WORLD COFFEE STOCKS AS A PERCENT OF USE, SOURCE FAS 19.39% 17.34% 14.86% 15.52% 15.17% 15.95% 13.73% 13.35% 11.79%11.41% 12.16%12.30%11.81%11.98% 9.91% The Outlook I. Coffee prices are expected to average 5 percent to 10 percent above 2017 levels next year. But if supply concerns continue price gains could be steeper. 8

9 METRIC TONS Beef The Current Situation I. As of late November, the USDA choice boxed beef cutout was 14.9 percent higher than last year but down slightly from the five-year average for the date. II. III. Retail beef prices remain historically low domestic beef production through September was 4.5 percent bigger than the previous year. IV. Total cow slaughter through September was 7.1 percent more than V. Beef exports have been improving. US beef imports have risen as well. The U.S. has remained a net importer US Monthly Beef Imports - US Beef Exports, Souce FAS VI. VII. Feed prices remain relatively attractive. Feedlot margins have been fair despite the rise in feeder cattle prices. Higher gasoline prices are hurting restaurant traffic. 9

10 f 2018f Million Pounds Beef what to monitor What to Monitor I. The January 1st US cattle and calf herd was 1.8 percent bigger than last year marking the second largest annual rise since Additional cattle herd expansion is anticipated in 2018 but it is expected to be slow. II. The USDA is forecasting 2018 US beef exports to improve 4 percent from this year. Exports to China should continue to improve but remain relatively small. Heavy exported US beef items include; short plates, skirts, chucks and briskets. III. Corn prices, the chief feed ingredient for cattle, are expected to remain relatively attractive for cattle feeders. Feeder cattle prices are likely to decline in the coming months which should help cattle feedlot margins. IV. Dairy cow slaughter is expected to remain solid in 2018 due to one of the largest domestic herds in 20 years. Beef cow slaughter should be modestly better total cow slaughter is forecasted to rise 5 percent from last year. V. Cattle slaughter weights could improve versus prior year levels which could weigh on fat beef trim prices. VI. Domestic beef demand is likely to be robust at times. VII. The U.S. dollar could remain sideways in The USDA is forecasting US beef imports in 2017 to rise 2 percent from this year with the U.S. annually a net importer. But the trend towards utilization of fresh beef could temper the upisde in lean beef trim import prices. U.S. Beef Imports- US. Beef Exports

11 1,000 Metric Tons Beef what to monitor continued VIII. IX. Beef production in 2018 is forecasted at 27.7 billion pounds up 4.5 percent from this year. Per capita beef consumption in 2018 is forecasted to rise 3.3 percent. World beef consumption could remain solid Beef Consumption, Source FAS World US 11

12 1/4 1/25 2/15 3/8 3/29 4/19 5/10 5/31 6/21 7/12 8/2 8/23 9/13 10/4 10/25 11/15 12/6 12/27 Price(lb.) Beef the outlook Outlook X. Beef production gains next year are expected to weigh on beef prices. However, bigger exports and strong demand domestically is expected to temper the downside in prices. XI. Lean beef prices are expected to be similar with 2017 levels next year as demand continues to rise for fresh ground beef products. 90% Beef Trim 5 yr avg Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Ann % Beef Trimmings Forecast 2018 Forecast 12

13 1/4 2/2 3/1 3/29 4/26 5/24 6/21 7/19 8/16 9/13 10/11 11/8 12/6 Price(lb.) XII. Beef the outlook continued Improved exports could be supportive of beef end cut prices. The markets could average near 2017 levels. 167a Choice Knuckle 5 yr avg Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Ann a Choice Beef Knuckle Forecast 2018 Forecast 13

14 1/4 2/2 3/1 3/29 4/26 5/24 6/21 7/19 8/16 9/13 10/11 11/8 12/6 Price(lb.) III. Beef the outlook continued The beef middle meat markets are expected to average below 2017 levels next year due to improved output but watch demand x1 Beef Strip CH 5 yr avg Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Ann x1 Choice Beef Strip Forecast Forecast

15 2000/ / / / / / / / / / / / / / / / / /18 Dollars Pork The Current Situation I. Pork prices have generally traded above 2017 levels this fall. As of late November, the USDA pork cutout was 10 percent higher than the same week in 2016 but down 4 percent from the five-year average for the date. II. III. IV. Pork production in 2017 through September was 2.7 percent more than the previous year. Pork exports have been solid. US hog producer margins have remained solid due in part to low feed costs. a. Sow (female swine) slaughter in 2017 through September was up 2.4 percent versus V. Retail pork prices have firmed. VI. The September 1 US hog and pig inventory was 2.5 percent bigger than the prior year. The breeding herd was 1.2 percent larger than 2016 and the second biggest since June What to Monitor I. The USDA is forecasting US pork exports to rise 6 percent in 2018 to a record. II. Retail pork prices will need to compete with low chicken and beef prices. III. Lower feed costs should continue fueling solid herd expansion. Estimated Cost to Produce One Pound on a Hog

16 Pork what to monitor continued IV. Swine breeding herd expansion could slow this year but remain historically solid. U.S. SWINE BREEDING HERD (1,000 HEAD, USDA) V. US pork production in 2018 is forecasted by the USDA to increase 4.6 percent from this year with the available per capita supply continuing to climb. VI. Pork belly stocks remain historically low but should rebuild with the better production and higher retail bacon prices. 16

17 1/4 1/25 2/15 3/8 3/29 4/19 5/10 5/31 6/21 7/12 8/2 8/23 9/13 10/4 10/25 11/15 12/6 12/27 Price(lb.) Pork the outlook The Outlook I. The 4.6 percent rise in pork output and the better available per capita supply should cause fairly appealing pork prices to persist. Tempering bacon demand could weigh on the belly markets. Belly 5 yr avg Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Ann Pork Belly (Cutout) Forecast 2018 Forecast 17

18 1/4 1/25 2/15 3/8 3/29 4/19 5/10 5/31 6/21 7/12 8/2 8/23 9/13 10/4 10/25 11/15 12/6 12/27 Price(lb.) Pork the outlook continued II. Ham prices are anticipated to be fairly flat next year due to solid production growth. Ham lb. 5 Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Ann Ham (23-27 lb.) Forecast 2018 Forecast 18

19 1/4 2/2 3/1 3/29 4/26 5/24 6/21 7/19 8/16 9/13 10/11 11/8 12/6 Price(lb.) Pork the outlook continued III. Better pork supplies and ample alternative protein stocks should cause attractive pork rib prices to persist next year. Sparerib 5 Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Ann Pork Sparerib (4.25 lb. & down) Forecast 2018 Forecast

20 Dairy The Current Situation I. The cheese markets have mostly traded below 2016 levels as of late. As of late November, the CME cheese block market was 5.9 percent more expensive than the same week last year while butter was up by 20 percent. II. Milk prices have firmed during most of fall due to higher cheese prices. III. Feed costs have remained attractive for milk farmers. IV. The US milk cow herd in October was.7 percent larger than a year ago, and one of the biggest in decades. V. Milk per cow yields this fall have been weakened due to softening farmer margins. VI. Cheese and butter exports have been good due to firmer international prices. Domestic cheese stocks are historically large while butter supplies are adequate. What to Monitor I. Feed costs for milk producers should remain relatively attractive. The average feed cost for milk farmers in 2018 is expected to only be up modestly. II. Softer margins are expected to cause the 2018 milk cow herd size growth to slow but remain historically large- the biggest since 1996 according to the USDA Annual US Milk Cow Herd (1,000 head USDA) 20

21 Million Pounds Dairy what to monitor continued III. Total U.S. milk production next year is projected by the USDA to rise 1.8 percent to billion pounds- but this may be modestly overstated Annual US Milk Production Gain IV. World dairy prices and dairy exports. International dairy prices should continue to decline due to rebounding milk output. This should temper U.S. exports. V. Domestic and international nonfat dry milk stocks remain ample which is expected to depress nonfat dry milk and class IV milk prices. a. This could encourage cheese production in favor of butter. 21

22 1/4 1/25 2/15 3/8 3/29 4/19 5/10 5/31 6/21 7/12 8/2 8/23 9/13 10/4 10/25 11/15 12/6 12/27 Price(lb.) The Outlook Dairy the outlook I. Milk production growth should slow during the next several months, but this could be more than offset by slower exports. II. The cheese markets are expected to trade above 2017 levels next year but only modestly due to cheese output growth. CME Block Cheese 5 yr avg Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Ann lb. Cheese Block (CME) Forecast 2018 Forecast 22

23 1/4 1/25 2/15 3/8 3/29 4/19 5/10 5/31 6/21 7/12 8/2 8/23 9/13 10/4 10/25 11/15 12/6 12/27 Price(lb.) Dairy the outlook continued III. Butter prices are anticipated to remain historically expensive. CME Butter 5 year average Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Ann Butter (CME) Forecast 2018 Forecast 23

24 2000/ / / / / / / / / / / / / / / / / /18 Dollars Chicken The Current Situation I. Chicken breast prices as of late November were trending 4.8 percent above the prior year. Chicken wing prices were down 3.4% from II. US chicken exports have been flat. III. Feed costs have remained attractive. IV U.S. chicken production through October was 2.4 percent larger than last year. V. Domestic chicken demand has been solid. Retail prices in recent months have remained low. VI. Turkey supplies have been ample while table egg supplies have tightened. What to Monitor I. Feed costs for chicken producers are projected to be relatively flat in 2018 which usually would encourage chicken output growth. Estimated Cost to Produce One Pound of Chicken Corn Soybean Meal II. III. IV. Broiler chick placements have been trending 1.9 percent above year ago levels in recent weeks which suggests year over year gains in chicken output could moderate in the coming months. The broiler hatchery flock as of November 1 was 5.9 percent larger than the prior year, however, pullet placement data suggests the number of broiler layers will decline in the coming months. Most recent pullet placement numbers have been strong which is supportive of chicken production for later in

25 ,000 lbs. Chicken what to monitor continued V. Chicken production growth at 1.8 percent for 2018 is forecasted by the USDA but that may be understated. Chicken production during the winter is only expected to be higher by 1.6 percent Annual Chicken Production Change, USDA IV. The USDA is forecasting 2018 chicken exports to be 2.9 percent better than last year as trade restrictions continue to ease. V. Bird weights could be heavier in 2018 due to low feed costs. Smaller sized chicken breasts and wings will continue to demand a price premium. VI. VII. Demand for chicken in the U.S. could be spotty due to ample alternative protein supplies. Egg and turkey supplies growth may be constrained. The USDA is forecasting a 1 percent rise in turkey output and a 1.5 percent increase in table egg production for

26 1/4 1/25 2/15 3/8 3/29 4/19 5/10 5/31 6/21 7/12 8/2 8/23 9/13 10/4 10/25 11/15 12/6 12/27 Price(lb.) Chicken the outlook The Outlook I. Near 2 percent chicken production growth next year could keep chicken prices fairly flattish with II. Just a slight gain in chicken breast prices is anticipated for ARA BnSl Chicken Breast Index 5 yr avg Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Ann ARA Boneless Skinless Chicken Breast Index Forecast 2018 Forecast 26

27 1/4 2/2 3/1 3/29 4/26 5/24 6/21 7/19 8/16 9/13 10/11 11/8 12/6 Price(lb.) Chicken the outlook continued III. Some chicken wing price relief is anticipated for 2018 assuming the USDA is understating chicken production. ARA Chicken Wing Index 5 yr avg Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Ann ARA Chicken Wing Index Forecast 2018 Forecast

28 1/4 1/25 2/15 3/8 3/29 4/19 5/10 5/31 6/21 7/12 8/2 8/23 9/13 10/4 10/25 11/15 12/6 12/27 Price(lb.) Chicken the outlook continued IV. Leg quarter prices should improve as exports recover in Chicken Leg Quarter 5 Year Average Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Ann Chicken Leg Quarter Forecast 2018 Forecast

29 Metric Tons Shrimp The Current Situation I. Shrimp prices have mostly trended below2017 levels this fall. II. US shrimp imports have been solid due in part to the elevated value of U.S. prices and U.S. Dollar. Disease challenges with the world's largest shrimp producer Thailand are persisting. III. US Gulf of Mexico shrimp landings have been inconsistent. What to monitor I. Shrimp imports in 2018 are projected to remain historically solid. Roughly 90 percent of the shrimp consumed in the US is imported US Shrimp Imports II. US shrimp landings may decline in 2018 due to lower prices and elevated fuel markets. IV. Shrimp demand in the US could be spotty due to ample alternative protein supplies. The Outlook I. Shrimp prices are expected to average close to below this year s levels in 2018 due to better imports. 29

30 Million Tons Tomato Products, Canned The Current Situation- I. The latest (June 1) canned tomato inventory was 10 percent larger than the prior year. II. Canned tomato demand has been disappointing tracking 2 percent below the previous year. III. Canned tomato prices have mostly traded above 2016 levels this fall. What to Monitor I. The total canned tomato supply for the season is projected to be 2 percent less than the prior crop due to a smaller harvest. II. Exports could be solid in US Canned Tomato Supply (June 1-May 31) The Outlook I. Canned tomato prices are expected to average similar to above 2017 levels during most of neat year. 30