Agricultural Markets Situation & Outlook

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1 Agricultural Markets Situation & Outlook VP s Outlook & Policy 3 December 2012 Matthew C. Roberts Roberts.628@osu.edu

2 The Big Questions Progress of winter crops: SA soybean & corn NA winter wheat US export pace US moisture Adjustment in Animal Inventories 2

3 Chinese Meat Consumption ,000 70,000 60,000 50,000 40,000 30,000 20,000 10, Beef and Veal Swine Broiler 3 Thousand Metric Tonnes

4 Chinese Oilseed Consumption Growing by 13%/yr since ,000 Sunflowerseed Peanut Rapeseed Cottonseed Soybean 120, ,000 80,000 60,000 40,000 20, / / / / / / / / / / / / / / / / / / / / / / /2013 Thousand Metric Tonnes 4

5 500, , , , , , , , ,000 50,000 0 Chinese Grain Consumption Climbing by 4%/year since / / / / / / / / / / / / / / / / / / / / / / /2013 Barley Millet Rice, Milled Sorghum Wheat Corn 5

6 The real currency of agriculture is land. Chinese soybean imports in 2011 are about 1.9bn bushels, or 45m acres. US Ethanol usage is 5bn bu, net of DGS is about 3.4bn bu, or 22m acres Plus Chinese feed grains, Indian demand, etc., 6

7 Global Corn Inventories Very Low Percent MMT Use Production Stocks-to-Use Ratio (%) Year

8 Global Stocks Situation Tight, Not Dire But it assumes: Solid Harvests in FSU & Europe Record Harvests in S.Am, which are behind in planting. Good WW harvests in US, which are in historically poor condition. 8

9 CORN 2010/ / /13 Proj. 2012/13 Proj. 13/14 Oct Nov MCR Proj Million Acres Area Planted Area Harvested Bushels Yield per Harvested Acre Million Bushels Beginning Stocks Production Imports Supply, Total Feed and Residual Food, Seed & Industrial 2/ Ethanol & by products 3/ Domestic, Total Exports Use, Total Ending Stocks CCC Inventory Free Stocks Outstanding Loans Avg. Farm Price ($/bu) 4/

10 Even including DDGS, Feeding at 1996 Levels Million Bushels Year

11 Energy Independence and Security Act of 2007 Renewable Fuels Standards Calendar Year Total Convent l Biofuel (min 20% GHG reduc after 2010) Advanced Biofuel (min 50% GHG reduction) Cellulosic Biofuel (min 60% GHG reduction) Advanced Non Cellulosic Biofuel Biobased Diesel Advanced non Cellulosic non Biodiesel Biofuel ? ?

12 Ethanol Production Volumes Down in Last Three Months Consumption Production 900kbpd = 13.8bgpy 12

13 High Prices have Rationed Exports Million Bushels '00 '05 '10 Year

14 Corn Inventories Are Incredibly Tight, even with current harvest. Percent Billion Bushels Use Production Stocks-to-Use Ratio (%) Year

15 But weather remains key Very wet in Argentina corn plantings significantly delayed. 15

16 US Corn Belt remains very dry. 16

17 Summary What will happen to yields in the January final crop report? Lots of anecdotes, modest data. I expect total harvest to increase somewhat based on basis levels and prices over the past 3 months. 17

18 Soybeans: Global Situation Very Tight 2012 Drought in US 2012 Drought in S. Am All eyes on South America Brazilian conditions are improving Argentine conditions are worsening 18

19 S.Am 13 forecast is 33mmt greater than 12 production Percent Stocks-to-Use Ratio (%) Million Metric Tons 300 Production Use Year

20 Domestic Soybean Demand Declining? 2,500 Million Bushels 2,000 1,500 1, '00 '05 '10 Year

21 Soy exports lower, but rising Million Bushels 1,700 1,600 1,500 1,400 1,300 1, ,100 1, '00 '05 '

22 South American Moisture Brazilian moisture improving in last 10 days. 22

23 Soybean Summary Global Markets Very Tight, Dependent on S. Am Crop. Export Demand underestimated. What will happen if Mississippi River closes? Room for higher prices w/ Soy. 23

24 World Wheat Supplies Far Better Situation than 07/ Percent Stocks-to-Use Ratio (%) MMT Use 675 Production Year Source: WOAB, USDA

25 Even with low plantings, SRW stocks are and will remain ample. 60 Stocks/Use Ratio (%) '02 '05 '08 '11 Year

26 26

27 Why is marketing different in short vs. normal years? Storage Pressure Little or no spread improvement, only basis Market s desire for buffer stocks Following year almost always lower 27

28 Dec/Nov New Crop Corn Price v Final Old Crop Corn Yield ( ) Low Yield, Rising Price (3) High Yield, Rising Price (10) Low Yield, Falling Price (10) High Yield, Falling Price (11) 28

29 Dec/Nov New Crop Corn Price v Final Old Crop Soybean Yield ( ) Low Yield, Rising Price (4) High Yield, Rising Price (14) Low Yield, Falling Price (8) High Yield, Falling Price (7) 29

30 Most Years Yields are above trend % are below trend 19% are 10% or more below 32% are 5% or more below

31 Soybeans are similar % are below trend 13% are 10% or more below 29% are 5% or more below

32 What about animal industries? 32

33 Thou. Head BEEF COW SLAUGHTER Federally Inspected, Monthly JAN MAR MAY JUL SEP NOV Avg Livestock Marketing Information Center Data Source: USDA-NASS C-S-20 11/23/12

34 Thou. Head 310 DAIRY COW SLAUGHTER Federally Inspected, Monthly Avg JAN MAR MAY JUL SEP NOV Livestock Marketing Information Center Data Source: USDA-NASS C-S-21 11/23/12

35 Thou. Head 300 SOW SLAUGHTER Federally Inspected, Monthly Avg JAN MAR MAY JUL SEP NOV Livestock Marketing Information Center Data Source: USDA-NASS H-S-02 11/23/12

36 Mil. Eggs 220 BROILER EGGS SET Weekly Avg JAN APR JUL OCT 2012 Livestock Marketing Information Center Data Source: USDA-NASS P-S-10 11/29/12

37 Mil. Birds 180 BROILER CHICKS PLACED Weekly Avg JAN APR JUL OCT 2012 Livestock Marketing Information Center Data Source: USDA-NASS P-S-11 11/29/12

38 Summary Markets are very, very tight, and prices reflect that How much feed demand has been destroyed? Will it come back? How much will we plant in 2013? Corn wants acreage Soybeans want acreage Cotton can give some acreage Wheat won t give acreage; will probably increase. 38

39 To Do for 2013 Crop Producers: Insure, Insure, Insure in Over time, early marketing (between now & Jan) and call purchasing is best strategy for post short crop years. Hold 2012 crop, hedge it, buy calls, look to profit from basis improvements wait for desperation but basis will fall if Mississippi closes. Livestock Producers/End Users: Right now, you are holding all of the risk. Purchase 50% of needs through March 1, if MS River closes, purchase remainder on weaker basis. On corn, current prices are an opportunity for pricing through March 1. In the March/April frame, buy summer heavily in anticipation of high basis. 39

40 Matt Roberts (614)