Market Outlook & Price Projections: Corn, Wheat, Soy Complex & Palm Oil October 7 th, 2016

Transcription

1 Market Outlook & Price Projections: Corn, Wheat, Soy Complex & Palm Oil October 7 th, 2016 Patrick Sparks Global Risk Management, Inc. psparks@grmcorp.com Commodity trading is not suitable for all investors. There is an inherent risk of loss associated with trading commodity futures and options on futures contracts, even when used for hedging purposes. Only risk capital should be used when investing in the markets. Past performance is not indicative of future results

2 Production, MMT Ending Stocks, MMT Production, MMT Ending Stocks, MMT Production, MMT Ending Stocks, MMT 1,200 1, World Corn Production Ending Stocks World Corn: Record ending stocks Production outstripping demand this year /11 11/12 12/13 13/14 14/15 15/16 16/ World Wheat Production Ending Stocks 10/11 11/12 12/13 13/14 14/15 15/16 16/17 World Soybeans Production Ending Stocks 10/11 11/12 12/13 13/14 14/15 15/16 16/ World Wheat: Record ending stocks 4 straight years of record production World Soybeans: Ending stocks to fall slightly, 2 nd year in a row Record production 4/5 years Consumption growth has averaged 5% over last 5 years

3 2016/17 U.S. Grain and Soy Export Sales: the cure for low prices is.low prices Total Export Commitments vs. Last Year Corn: +87% vs. USDA forecasting +14% Wheat: +27% vs. USDA forecasting +23% Soybeans: +30% vs. USDA forecasting +2% 3

4 U.S. Weather - % of Normal Precipitation (30 days): heavy rainfall over the last 30 days has slowed harvest in some areas 4 Chart: HPRCC

5 5 CORN UPDATE

6 Corn Price Situation to Date: U.S. droughts in 2010 and 2011 Back to back record production in 2013 & 2014 rebuilds ending stocks from extremely tight levels 2012, U.S. experiences worst drought since the Dust Bowl Projected record yield in 2016 pushes prices to 7 year low 6

7 Yiled (bushels per acre) U.S. Corn Yields: only twice in the last 53 years (4%) have we seen 5 straight above trend yields U.S. Corn Yields vs. 15-Year Trend ( ) Yield 15-Year Trend = Record Yield - 8/30 years (26%) = Record yield - 1/30 years (3%) = Consecutive record yields - 8/30 years (26%) = 5% below trend yield 80 7

8 Million Bushels U.S. Corn Ending Stocks: highest in 29 years 2,500 U.S. Corn Ending Stocks 2,000 1,500 1,

9 Million Bushels U.S. Corn Demand Outlook: 6,500 Exports Feed Use Ethanol 5,500 4,500 3,500 Ethanol demand has plateaued 2,500 1, Exports picking up but strong production of other World exporters will keep competition high Feed projected to improve but limited by animal numbers and an abundance of feed alternatives Ethanol after avg. annual growth of 26% from 06 11, that rate is just 1% over the last 5 years 9

10 Production (MMT) Exports (MMT) South American Corn Supply: current corn/soybean price relationships suggest increased corn area this year Argentina Production Brazil Production Combined Exports

11 % Difference from Yearly Avg. Seasonality: under normal conditions, corn prices are pressured into the fall as the new crop harvest makes its way to the market 6% Corn Seasonal (10 Year) 4% 2% 0% -2% -4% -6% -8% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 11

12 12 Corn Price Seasonal: even in fundamentally bearish years, corn prices tend to rally into the first half of the next year from the harvest lows

13 Percent Change from Prior December Corn Price Seasonal: volatility in all years is biased to upside in Jan-June. July forward bias shifts depending on whether a Bull or Bear year. 40% Corn Seasonal: Nearby Monthly Average vs. Previous Dec ( ) Bear Years Bull Years % 20% BULL 10% 0% -10% 2016 BEAR -20% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 13

14 $/bushel ES/U% Forward Corn Prices: current ES/U % estimates relative to historical relationships show that corn could potentially trade lower from current levels CBOT Corn: Average Crop Year Price (Nearby Prices) Price Ending Stocks/Use $ % $7.00 $6.00 $5.00 $ % 16% 14% 12% 10% $3.00 $2.00 $1.00 $3.59 $3.95 8% 6% 4% 2% $ Strip 2017 Strip 0% 14 Note: based on Sep Aug crop year,

15 Corn Price Forward Outlook: Short term price range $ $3.00 (CZ16), current market = $3.40 Long term hazards (bullish scenario) Lower U.S. corn acres in 2017 Seasonal price strength Long term opportunities (bearish scenario) Brazil/Argentina production/export increases China policy de-stocking, export potential 15

16 16 WHITE CORN UPDATE

17 White Corn Market Highlights: Huge increase in U.S. white corn acres this year Good growing conditions keeps U.S. yield estimates high Record U.S. production should replenish stocks Record U.S. exports are projected for the coming year White corn premiums weakening once we get into harvest Mexico production looks solid but demand stays elevated 17

18 '000 Acres U.S. White Corn Planted Acres: big increase in acres this year as high premiums encouraged a 24% YOY gain in plantings 1, U.S. White Corn Planted Acres

19 U.S. All White Corn - Planted Acres % GMO % % % % % % % % % Widespread acceptance of GMO by end users, producers and importers 19

20 Million Bushels U.S. White Corn Ending Stocks: build substantially from last years ultra tight levels. The large acreage base this year provides some cushion for yield adversity this year 18 U.S. White Corn Ending Stocks Imported Mexican corn /01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 20

21 Million Bushels U.S. White Corn Exports: tight World stocks of white corn increased imports from 2 nd tier U.S. customers 80 Cumulative U.S. White Corn Exports Million Bushels Year Range 13/14 14/15 15/16 21

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23 Bushels/Acre RSA Yield: lowest yield since 2007 and one of the worst ever relative to trend 90.0 RSA Yield Trending higher due to better cultivars, farming practices, GMO adaptation

24 GRM Mission Trip to South Africa with USGC- May 16 Purpose Government policy GMO restrictions Food safety vs. food crisis dilemma Cultural norms yellow corn is for animals Socioeconomic status splits U.S. market outlook shocks RSA government Won t Argentina just grow WC for us Trait approval process DAFF expediting the process given the situation August update/future implications Slow but promising 24

25 Global White Corn Summary Mexico Adequate rainfall allowed for normal development of the crop in most parts of Mexico Strong global white corn demand will keep bringing buyers to Mexico to support their needs United States Massive acreage increase this year, favorable growing conditions throughout the summer support a strong yield South Africa Record prices for both white and yellow corn early in 2016, Becomes a net importer Large increases in planted acres is expected for the coming year in response to the high prices Overall U.S. ending stocks tightened to uncomfortable levels this year but stocks look to replenish U.S. premiums to yellow corn are falling as we get into new crop With a return to normal weather, South Africa should go back to being a net exporter U.S. exports are projected to be a record for the coming year 25

26 26 WHEAT UPDATE

27 KC Wheat Price Situation to Date: High corn prices. Poor Russian Production 4 straight years of record World wheat production puts World wheat stocks at record levels 2012, U.S. experiences worst drought since dust bowl 27

28 Ending Stocks (mil. bushels) Production (mil. bushels) U.S. Wheat Supply: no shortage of wheat in the marketplace U.S. All Wheat Ending Stocks 1,200 Ending Stocks Production 2,900 1,000 2, ,500 2,300 2,100 1, , ,500 28

29 U.S. Wheat Exports: lowest market share in modern history in the 15/16 crop year 50% U.S. % Share of Global Wheat Exports ( ) 45% 40% 35% 30% 25% 20% 15% 10% 29

30 World Wheat Exports: Russia is set to take over as the World s top exporter for the first time in history this year 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% World Share of Wheat Exports ( ) Australia Canada European Union Black Sea United States 30

31 MMT Russian Wheat Exports: has gone from one of the World s largest importers of wheat to one of the largest exporters Russia Net Wheat Imports/Exports Net Exporter Net Importer 31

32 Million Acres U.S. Wheat Acreage: 2017 acres may possibly be the lowest in nearly a century! 90 U.S. All Wheat Planted Acres

33 $/bushel KC Wheat Basis: plenty of low protein wheat available KC HRW 13 Pro +/- HRW Ordinary 33 Chart: The LaSalle Group

34 Chicago Wheat Seasonal: In years similar to 2016/17, when ESU is greater than 30% and increasing from the previous year, there tends to be limited rallies into the following crop year 34

35 $/Bushel Wheat/Corn Price Relationships: wheat prices are strongly influenced by corn prices $9.50 KC Wheat Average Crop Year Price vs. U.S. All Wheat Ending Stocks to Use % ( ) $8.50 $ Supported by corn high corn prices $ $ $4.50 Current $ % 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% Ending Stocks / Use % 35

36 $/bushel ES/U% Forward Kansas City Wheat Prices: current ES/U% estimates indicate wheat prices could trade lower from current values Kansas City Wheat: Average Crop Year Price (Nearby Prices) $10.00 $9.00 $8.00 Price Ending Stocks/Use 60% 50% $7.00 $6.00 $ % 30% $4.00 $3.00 $2.00 $1.00 $0.00 $ Strip $ Strip 20% 10% 0% 36 Note: based on Jun May crop year, prices as of close

37 Wheat Price Forward Outlook: Short term price range $ $3.75 (KWZ16), current market = $4.06 Long term hazards (bullish scenario) Lower wheat acres highly likely Near record short speculative fund position Current wheat/corn ratio implies cheap wheat Long term opportunities (bearish scenario) Exports unlikely to solve wheat supply glut, need major crop problem Abundance of cheep feed supplies 37

38 38 SOY COMPLEX UPDATE

39 Soybean Price Situation to Date: 2012, U.S. experiences worst drought since dust bowl 3 rd straight record crop in South America in 2015 and back to back record U.S. crops Record tight U.S. stocks and strong demand 39

40 Yiled (bushels per acre) U.S. Soybean Yields: 2016 was the 4 th straight record soybean yield U.S. Soybean Yields vs. 15-Year Trend ( ) Yield 15-Year Trend = Record Yield - 11/30 years (37%) = Record yield - 6/30 years (20%) = Consecutive record yields - 8/30 years (26%) = 5% below trend yield

41 Imports (MMT) Chinese Soy Demand: China buys over 60% of World soybean exports and consumes almost a third of World soybean production Chinese Soybean Imports Imports Avg. 5 Year YOY Growth % 30% 25% 20% 15% 10% 5% 0% 41

42 Production (MMT) South American vs. U.S. Production: in 2002, South America took over the U.S. in production size Soybean Production South America United States

43 Soybean Oil Price Situation to Date: Soybean oil use for Biodiesel increased 78% over the prior year Record demand for soybean meal and good soybean production increases soybean crush, soyoil supplies Tight soyoil stocks and El Nino strikes palm oil areas 43

44 Million Pounds U.S. Soybean Oil Ending Stocks: projected to tighten this year as record demand pulls on inventories 4000 U.S. Soybean Oil Ending Stocks USDA WASDE Report

45 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 Million Pounds U.S. Biodiesel Demand Growth: continues to grow due to government mandated use 7,000 US Soybean Biodiesel Use 6,000 5,500 5,950 5,000 4,874 4,689 5,010 5,037 4,000 3,000 2,763 2,981 2,737 2,000 2,021 1,681 1,

46 Yield (lbs/bu.) U.S. Soybean Oil Yields: with a wet finish to this years soybean crop, oil yields are expected to take a significant step back this year NOPA Soyoil Yield ( ) 2010/ / / / /15 7-Yr Avg 2015/ Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep 46 Data: NOPA

47 % Difference from Yearly Avg. Seasonality: strong rallies are normally seen in the first half of the year with pressure into soybean harvest 8% Soybean Oil Seasonal (10 Year) 6% 4% 2% 0% -2% -4% -6% -8% -10% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 47

48 $/cwt. Forward Soybean Oil Prices: prices are at the lower end of the 10 year range $60.0 $50.0 CBOT Soyoil: Average Crop Year Price (Nearby Prices) $55.31 $54.00 $52.57 $48.25 $40.0 $38.83 $38.63 $32.15 $34.63 $31.41 $31.20 $33.79 $34.06 $30.0 $27.96 $20.0 $17.20 $21.31 $22.09 $23.82 $10.0 $ Strip 2017 Strip 48 Note: based on Oct Sep crop year,

49 Soybean Oil Price Forward Outlook: Short term price range $ $31.50 (BOZ16), current price = $33.34 Long term hazards (bullish scenario) Lower soybean oil yields ahead Biodiesel consumption strong Weak soybean meal demand Long term opportunities (bearish scenario) U.S./South America soybean production increasing Palm oil production set to rebound from El Nino 49

50 50 PALM OIL UPDATE

51 Supply: the weakness in production in August may signal a more significant hangover from El Nino dryness than initially anticipated as production usually peaks into Sep/Oct. 51 Chart: LaSalle

52 Supply: the resurgence in export demand and the slow seasonal growth in palm oil production has created an uncomfortably tight situation with ending stocks now at their lowest in 6 years. 52 Chart: LaSalle

53 Palm Oil Prices: dwindling stocks shot the market up to 4 year highs but the rally has stalled out as the market is choosing to focus on stocks rebounding on weaker demand moving forward 53

54 54 THANK YOU!