Analysis of the October 2010 USDA Crop Production & WASDE Reports

Transcription

1 Analysis of the October 2010 USDA Crop Production & WASDE Reports Daniel O Brien Extension Agricultural Economist, K State Research and Extension October 11, 2010 Summary of October 8 th 2010 Crop Production & WASDE USDA Reports In the October 8 th 2010 Crop Production and World Agricultural Supply Demand Estimate (WASDE) reports, the USDA made changes in its supply demand projections that have strong positive impacts on U.S. and World feedgrain price prospects, as well as positive direct and cross crop market effects on soybean and wheat price prospects. Market Implications for U.S. Corn and Grain Sorghum: Projections for MY of U.S. corn ending stocks below 1 billion bushels (902 mb) and % stocks to use of 6.7% (nearing historic lows of 5% in MY ) provide strong supply demand support U.S. corn and grain sorghum prices for the remainder of 2010 and into With improved U.S. cash corn price projections for MY in the $4.60 to $5.40 /bu range, it is likely that price rationing will have some impact on feedgrain use. MY appears to be a short crop marketing year for U.S. corn and other feedgrains. If a typical short crop corn price pattern emerges in MY , then strong prices in late fall 2010 may be matched or exceeded in the spring 2011 due to uncertainty about U.S. feedgrain and oilseed acreage (i.e., bidding for acres) and weather driven crop production prospect concerns. Market Implications for U.S. Wheat: World wheat ending stocks for MY are projected to decline to 175 mmt (26.3% S/U), down from 197 mmt (30.2% S/U) in MY However, MY ending stocks are still projected to be 50 mmt above MY when they declined to a 30 year record low of 124 mmt ( 20% S/U). Even though World wheat stocks in MY are not projected to be as tight as in MY , wheat prices have been supported by the market impact of a) export limits from Black Sea countries, b) the possibility of production problems in some major wheat exporters, c) continued steady growth in World wheat usage, and d) the current availability of sizable U.S. wheat stocks to help meet World export demand. Unless World wheat production markedly expands to meet or surpass wheat usage in the next 1 2 years or longer, ending stocks are will likely be relatively tight, supporting U.S. wheat prices at historically high levels. Market Implications for U.S. Soybeans: Current USDA WASDE soybean market projections for MY World supplies, domestic demand, exports, and ending stocks appear likely to support historically high U.S. price levels (i.e., $10.00 to $11.50 /bu for MY ). However, any appreciable threat to World soybean supply and/or demand factors could be expected to spark extreme price volatility in soybean markets. In particular, World soybean markets will be vulnerable to soybean production problems in either the U.S. or South America, or to any weakness in World soybean export demand, particularly from China given its dominant role in World soybean and soybean product markets. With strong prices forecast for both corn and soybeans for MY , it is likely that a strong competition for U.S. crop acres will occur in the spring of 2011, with new crop NOV 2011 soybean and DEC 2011 corn futures reflecting market concerns about 2011 acreage and production prospects. Page 1

2 World Ending Stocks of Coarse Grains, Wheat and Soybeans World Coarse Grain & Corn Stocks: World coarse grain production and total supplies are both projected to be 1,089 mmt and 1,288 mmt, respectively, in MY (Figure 1). The production estimate was lowered 1% and the supply estimate was raised slightly from the October WASDE report. World coarse grain production is projected to be 1% larger, and World coarse grain total supplies are projected to be 5.8% larger than in the benchmark year of MY Total World use of coarse grains is projected to be 1,124 mmt in MY , up 3.9 mmt from the September WASDE report and 6.4% larger than in MY World coarse grain ending stocks are projected to be mmt in MY , down 2% from the September WASDE report, and representing 14.5% stocks to use. This level of ending stocks is down from 194 mmt in MY and down from 199 mmt in MY , but still 1.5% higher than mmt in MY World corn ending stocks are projected to be 132 mmt (15.8% S/U) in MY , down 3.2 mmt from the September WASDE, and less than 148 mmt (18.3% S/U) in MY and 148 mmt (18.9% S/U) in MY World corn ending stocks are projected to account for 81.0% of total World coarse grain ending stocks in MY , up from 74.5% in MY and 76.1% in MY Figure 1. World Ending Stocks of Coarse Grains, Wheat & Soybeans: MY thru MY Ending Stocks (mmt) Marketing Year Coarse Grains (Corn, Sorghum, Barley, Oats, Millet, other) Wheat Soybeans World Wheat Stocks: World wheat ending stocks for MY are projected to be mmt (26.3% S/U), down 3.13 mmt from the September WASDE (Figure 1). World wheat ending stocks in MY are down 11.1% from mmt (30.2% S/U) in MY , but are higher than mmt (25.7% S/U) in MY and 125 mmt (20.2% S/U) in MY the benchmark comparison year for World wheat supply demand in recent history. The types of wheat aggregated together to represent total wheat supplies include hard red winter, hard red spring, soft red winter, white wheat, and durum. World Oilseed & Soybean Stocks: World oilseed ending stocks for MY are projected to be mmt (19.1% S/U), down 1.69 mmt from the September WASDE report and down from 72.3 mmt (20.3% S/U) in MY , but up from mmt (16.7% S/U) in MY The category of Oilseeds includes soybeans, sunflowers, cotton, canola, flaxseed, peanuts, and other oilseed type crops. Page 2

3 World soybean ending stocks are projected to be mmt (24.3% S/U) in MY , down 2.19 mmt from the September WASDE report, but up from mmt (25.3% S/U) in MY and up from mmt (19.9% S/U) in MY Perspective on World Ending Stocks for Major Grains & Oilseeds: As shown in Figure 1, World coarse grain ending stocks are projected to decline markedly in MY from the levels of the previous two marketing years. World wheat ending stocks in MY are projected to be 11% lower than record highs in the previous marketing year. World soybean ending stocks are projected to remain at moderately high levels in MY Both World and U.S. grain prices are likely to continue to be supported in MY by a combination of supply demand factors, including a) reduced World wheat supplies, b) reduced 2010 production prospects for North American feedgrains, c) strong or strengthening U.S. export prospects for wheat, corn, grain sorghum, and soybeans, d) tighter than expected projected U.S. soybean ending stocks in MY , and e) the possibility of higher mandated U.S. grain based ethanol production and associated feedgrain use in the next 6 12 months by the U.S. Environmental Protection Agency. Current World market prospects support the case that tightening supply/demand fundamentals will provide support for U.S. grain and oilseed prices from fall harvest through for the remainder of 2010 and on into the 2011 spring planting and early crop development periods. Feedgrain Market Situation and Outlook Corn & Grain Sorghum Strong positive impact on feedgrain market outlook World Coarse Grain ending stocks in MY = 163 mmt (14.5% S/U) (down 3.4 mmt vs September WASDE) o Versus 199 / 194 / 161 mmt (18% / 18% / 15% S/U) for MY , MY & MY , respectively Tighter world Coarse Grain stocks; tight 14.5% S/U less than 15.2% S/U of MY U.S. Corn ending stocks in MY = 902 mb (6.7% S/U) (down 214 mb from September 2010 WASDE) o Versus / / bb (13.0% / 13.9% / 12.7% S/U) for MY , MY & MY , respectively o U.S. Corn prices in $4.60 $5.40 /bu range in MY (vs $3.55 /bu in MY ) Steady to strong feed, ethanol & export use of U.S. corn in both MY & MY Longer term focus on U.S. crop production prospects & ethanol policy decisions (E 10 to E 15?) thru fall o U.S. Grain Sorghum prices in $4.80 $5.60 /bu range in MY (vs $3.22 /bu in MY ) Projected Corn Supply Demand for MY : Based on October 1 st field conditions, in its October 8 th 2010 Crop Production report, the National Agricultural Statistical Service (NASS) projected that the U.S. average corn yield in 2010 would be bushels per acre (bu/ac). This yield projection is down from bu/ac in the September report, and also down from the record high U.S. corn yield of bu/ac in With projected 2010 U.S. corn planted acreage of million acres and harvested area projected at million acres (up 350,000 acres and 263,000 acres, respectively, from the September report), the October Crop Production report projects 2010 U.S. corn production of billion bushels (bb), down 496 mb from the September report, but still the second largest U.S. crop on record behind the previous high of bb in 2009 (Table 1). For MY , based on a) beginning stocks of bb (up 322 mb from the September WASDE and up 35 mb from MY ), b) projected 2010 production of bb, and c) imports of 10 mb, total supplies of Page 3

4 U.S. corn are projected to be bb (down 174 mb from the September WASDE report and down 409 mb from the record high in MY of bb). By category, projections of U.S. corn disappearance for MY are for corn ethanol use of 4.7 bb (up 140 mb from MY ), non ethanol food, seed and industrial use of 1.38 bb (up 10 mb from MY ), corn exports of 2.0 bb (down 100 mb from last month, but up 13 mb from MY ), and feed and residual use of 5.4 bb (up 150 mb from last month, and up 233 mb from MY ). Projected total corn use of bb is up 40 mb from the September WASDE report, and up 396 mb over the previous record high of bb in MY Ending stocks of U.S. corn are projected at 920 mb in MY (down 214 mb from last month s WASDE report, and down 806 mb from MY ), representing 6.7% ending stocks to use (down from 8.3% in the September WASDE report, down from 13.0% in MY , and from 13.9% in MY ). This would be the lowest % stocks to use figure for U.S. corn since MY (i.e., 5%). United States season average corn prices for MY were projected to be in the range of $4.60 $5.40 per bushel (up $0.60 /bu on both the lower and upper ends the range), with a midpoint of $5.00. This compares to an estimated MY price of $3.55 /bu, and $4.06 /bu in MY Adjustments in MY Corn Supply Demand: A number of adjustments were made in the MY U.S. corn supply demand balance sheet based on results from the September 1 st USDA NASS Quarterly Stocks Report (released on September 30 th ). Projected feed and residual use of U.S. corn was lowered 405 mb from last month, down to bb. Corn use for ethanol production was raised 25 mb to bb. Exports were estimated to be bb, up 7 mb. Total corn use was projected at bb (down 321 mb). Ending stocks were projected at bb (13.0% S/U), up 322 mb from the September WASDE. Table 1. U.S. Corn Supply Demand Balance Sheet: MY through MY Item Planted Area (million acres) Harvested Area (million acres) Yield per harvested acre (bushels/acre) million bushels Beginning Stocks 1,304 1,624 1,673 1,708 Production 13,038 12,092 13,110 12,664 Imports Total Supply 14,362 13,729 14,791 14,382 Ethanol for fuel 3,049 3,709 4,560 4,700 Non ethanol Food, Seed & Industrial 1,393 1,316 1,370 1,380 Exports 2,437 1,849 1,987 2,000 Feed & Residual 5,858 5,182 5,167 5,400 Total Use 12,737 12,056 13,084 13,480 Ending Stocks 1,624 1,673 1, % Ending Stocks to Total Use 12.8% 13.9% 13.0% 6.7% U.S. Average Farm Price ($/bushel) $4.20 $4.06 $3.55 $4.60 $5.40 Midpoint = $5.00 U.S. Corn Use and Ending Stocks Trends During MY through MY : Since MY , U.S. feed and residual use of corn has generally declined. However, the 5.4 bb projection for MY interrupts that trend (Figure 2). Corn use for ethanol has increased steadily over the same period from bb to 4.7 bb. Exports of U.S. corn have averaged bb since MY , nearly equal to the 2.0 bb Page 4

5 projection for MY Corn ending stocks increased from MY to MY to a high of bb, but are projected to markedly decline to 902 bb in MY Figure 2. Trends in U.S. Corn Use and Ending Stocks: MY through MY ,000 5,250 6,155 6,152 5,591 5,913 5,182 5,167 5,400 Million Bushels 3,500 1, Marketing Years Feed+Residual Ethanol Use Exports Other FSI Use Ending Stocks Projected Grain Sorghum Supply Demand for MY : Based on October 1 st field conditions, in its October 8 th 2010 Crop Production report, USDA NASS projected that the U.S. average grain sorghum yield in 2010 would be 72.4 bu/ac (Table 2). This yield projection is down from 72.7 bu/ac in the September report, but still higher than 69.4 bu/ac in 2009 and 65.0 bu/ac in With projected planted acreage of 5.4 ma (down from 6.0 ma last month), and harvested acres of ma (down from ma in the October report), the October 8 th Crop Production report projects 2010 U.S. grain sorghum production to be mb, down 39.2 mb from the September Crop Production report and down 45.8 mb from Based on a) beginning stocks of 41 mb (up 10 mb from the September WASDE, but down 14 mb from MY ) and b) production of 337 mb (down 39 mb from last month), total supplies of U.S. grain sorghum for MY are projected to be 378 mb (down 39 mb from the September WASDE and down 60 mb from MY ). Total use of 340 mb (down 30 mb from last month s WASDE and down 56 mb from MY ), consisted of food, seed and industrial use (including ethanol use) of 90 mb (down 10 mb from last month), exports of 160 mb (down 6 mb from MY ), and feed and residual use of 90 mb (down 10 mb from the September WASDE). Ending stocks of U.S. grain sorghum are projected at 38 mb in MY (up 1 mb from last month, but down 3 mb from MY ), representing 11.2% ending stocks to use (up from 10.0% in the September WASDE and up from 10.3% in MY ). Average grain sorghum prices for MY are projected to be in the range of $4.80 $5.60 /bu (up $1.10 /bu on the lower end and up $1.20 /bu on the upper end of the projected range), with a midpoint of $5.20 /bu. If realized, the U.S. average price in MY for grain sorghum would be $0.20 /bu higher than for U.S. corn. Adjustments in MY Grain Sorghum Supply Demand: Estimated grain sorghum food, seed and industrial use for MY is lowered to 90 mb (down 10 mb from September). Exports are lowered 1 mb to 166 mb for MY As a result, MY ending stocks are increased 10 mb to 41 mb, representing 10.3% stocks to use (up from 7.6% S/U in September). Page 5

6 Table 2. U.S. Grain Sorghum Supply Demand Balance Sheet: MY through MY (October 8, 2010, 2010 USDA WASDE Report) Item Planted Area (million acres) Harvested Area (million acres) Yield per harvested acre (bushels/acre) million bushels Beginning Stocks Production Total Supply Food, Seed & Industrial Exports Feed & Residual Total Use Ending Stocks % Ending Stocks to Total Use 11.1% 11.7% 10.3% 11.2% U.S. Average Farm Price ($/bushel) $4.08 $3.20 $3.22 $4.80 $5.60 Midpoint = $5.20 U.S. Grain Sorghum Use and Ending Stocks Trends During MY through MY : Increased use of grain sorghum in ethanol production is reflected by higher food, seed and industrial use beginning in MY and lasting through MY (Figure 3). Ending stocks for U.S. grain sorghum have remained in the range of 32 to 66 mb since MY , with 38 mb of ending stocks (11.2% stocks to use) projected for MY Figure 3. Trends in U.S. Grain Sorghum Use & Ending Stocks During MY thru MY (October 8, 2010 USDA WASDE Report) Million Bushels Marketing Years Feed+Residual Exports Food, Seed & Industrial Use Ending Stocks Market Implications for U.S. Corn and Grain Sorghum: Projections of MY U.S. corn ending stocks below 1 billion bushels (down to 902 mb) and 6.7% stocks to use (nearing historic lows of 5% in MY ) Page 6

7 provide strong underlying fundamental supply demand support U.S. corn and grain sorghum prices for the remainder of 2010 and on into With U.S. cash corn prices for MY projected higher into the $4.60 to $5.40 /bu range, it is likely that price rationing will impact feedgrain exports and possibly other uses of U.S. corn. It appears justified to consider MY as a short crop year as opposed to a normal marketing year. Since MY , Kansas corn prices during short crop years have tended to move higher from September into November and December, but then to decline in January. From January on, corn prices then have tended to move higher until eventual matching and exceeding Nov Dec highs in April and then reaching marketing year highs in May. From May, Kansas corn prices have tended to first move slightly lower in June, and then to eventually fall markedly in July and August as the following year s feedgrain crop develops. If current projections continue of tight U.S. corn stocks in MY , April May 2011 corn prices could set highs during the April May 2011 resulting from uncertainty about 2011 U.S. feedgrain and oilseed acreage (i.e., bidding for acres ) and from weather driven 2011 crop production concerns. Wheat Market Situation & Outlook Wheat Market Impact Positive impact on wheat market outlook World wheat ending stocks in MY = 175 mmt (26.3% S/U) (down 3 mmt from September WASDE report) o Versus 197 / 165 / 125 mmt (30% / 26% / 20% S/U) for MY , MY & MY , respectively Year to year decline in World wheat ending stocks, resulting from production problems and limits in exportable wheat supplies in key wheat production regions Higher World prices to ration some wheat exports, offsetting declining wheat production and supplies U.S. wheat ending stocks in MY = 853 mb (35% S/U) (down 49 mb from September 2010 WASDE report) o Versus 976 / 657 / 306 mb (48% / 29% / 13% S/U) for MY , MY , & MY , respectively o U.S. wheat prices in $5.20 $5.80 /bu range in MY (vs $4.87 /bu in MY ) Improved U.S. wheat export prospects due to World wheat production problems. Higher prices driven by U.S. exports, leading to reductions in large U.S. wheat ending stocks in MY Projected Wheat Production for MY : Based on the results of the USDA NASS 2010 Small Grains Annual Summary released on September 30 th, the October 8 th WASDE projection for total U.S. wheat production for MY is bb (down 41.4 mb from last month, and compared to bb from MY and bb for MY (Table 3). This projection is based on a) planted area of ma (down 702,000 acres from the September Crop Production Report, and down from ma in MY ), b) harvested area of ma (down 606,000 acres from the September estimate, and down from ma in MY ), and c) projected average U.S. wheat yields of 46.7 bu/ac (down 0.2 bu/ac from September, but up 2.2 bu/ac from MY ). Projected Wheat Supply Demand for MY : Based on a) beginning stocks of 976 mb (up 319 mb from MY ), b) 2010 U.S. wheat production of bb, and c) imports of 100 mb, total supplies of U.S. wheat for MY are projected to be bb (up 39 mb from the September WASDE, and up 306 mb from MY ). Total use of bb (up 10 mb from the last WASDE and up 428 mb from MY ) consisted of projections of food use of 940 mb (up 23 mb from MY ), seed use of 76 mb, exports of 1,250 mb (up 369 mb or 42% from MY ), and feed and residual use of 180 mb (up 10 mb from the September WASDE, and up 30 mb from MY ). As indicated in the previous WASDE report, U.S. wheat Page 7

8 exports are projected to increase due to crop production problems in other key wheat exporting counties in MY Ending stocks of U.S. wheat are projected at 853 mb (34.9% S/U) in MY (down 49 mb from the September WASDE, and down 123 mb from MY ). Projected U.S. wheat ending stocks to use for MY have decreased each month since the July WASDE, falling from 49.8% to 39.9% to 37.0% to 34.9% in the October WASDE. Average U.S. wheat prices for MY were projected to be in the range of $5.20 $5.80 /bu (up $0.25 /bu on the bottom end, and up $0.15 /bu on the top end of the price range), with a midpoint of $5.50. This compares to an estimated MY average price of $4.87 per bushel. Table 3. U.S. Wheat Supply Demand Balance Sheet: MY through MY Item Planted Area (million acres) Harvested Area (million acres) Yield per harvested acre (bushels/acre) million bushels Beginning Stocks Production 2,051 2,499 2,218 2,224 Imports Total Supply 2,620 2,932 2,993 3,299 Food Use Seed Use Exports 1,263 1, ,250 Feed & Residual Total Use 2,314 2,275 2,018 2,446 Ending Stocks % Ending Stocks to Total Use 13.2% 28.9% 48.4% 34.9% U.S. Average Farm Price ($/bushel) $6.48 $6.78 $4.87 $5.20 $5.80 Midpoint = $5.50 U.S. Wheat Use and Ending Stocks Trends During MY through MY : Food use of U.S. wheat has been consistently in the range of 910 to 948 mb since MY , averaging 928 mb per marketing year (Figure 4). The October WASDE forecast of 940 mb for MY is slightly larger than average for the period. Since MY , exports of U.S. wheat have been more variable, ranging from 865 mb to bb. Just as for food use, the October WASDE wheat export forecast of 940 mb is slightly larger than average for the period. Ending stocks of U.S. wheat increased from a 60 year low of 306 mb in MY , to 657 mb in MY , to 973 mb in MY , but are projected to decline to 853 mb in MY Page 8

9 Figure 4. Trends in U.S. Wheat Use and Ending Stocks: MY through MY ,500 1,263 1,250 Million Bushels 750 1,066 1, , Marketing Years Food Use Exports Seed Use Feed+Residual Ending Stocks Market Implications for U.S. Wheat: World wheat markets went into a near panic during late June early July 2010 at the onset of wheat production problems in the Black Sea, and Europe, and with announcements by Russia of severe export limits. This reaction propeled a price rally in wheat markets lasting throughout July and into early August. Since market highs on August 6 th, KCBT December 2010 wheat futures prices have remained at least $1.70 /bu higher than their late June lows, but have been moving ina somewhat sideways pattern. World wheat ending stocks for MY are projected to decline to mmt (26.3% S/U), down from mmt (30.2% S/U) in MY However, MY ending stocks are still projected to be 50.2 mmt above the 30 year lows in MY of mmt ( 20% S/U). Even though MY World wheat stocks are not projected to be as tight as in MY , the impact of a) export limits from Black Sea countries, b) the possibility of production problems for some major wheat exporters, c) continued steady growth in World wheat usage, and d) the current availability of sizable U.S. wheat stocks to help meet World export demand, have all continued to provided support for wheat futures prices since the July 2010 wheat price rally. Until, or rather, unless World wheat production markedly expands to meet or surpass wheat usage in the next 1 2 years or more, World wheat ending stocks are projected to continue to be tight. Prices for wheat in the U.S. are expected to remain at high levels. Soybean Market Situation & Outlook Soybeans Neutral to positive impact on soybean market outlook World Oilseed ending stocks in MY = 71.4 mmt (19.1% S/U) (down 1.69 mmt vs September WASDE report) o Versus 72 / 56 / 62 mmt (20% / 17% / 18% S/U) for MY , MY & MY , respectively Continued strength in World export markets for soybeans, soybean meal and soybean oil provide support for oilseed market prices No decline anticipated in World Oilseed stocks due to U.S. & South American production (absent unanticipated 2010 U.S. or 2011 South American soybean crop production problems) Dependence on Chinese demand & South American supplies for strength in U.S. soy complex exports Page 9

10 U.S. Soybean ending stocks in MY = 265 mb (8% S/U) (down 85 mb from September WASDE report) o Versus 151 / 138 / 205 mb (4.5% / 4.5% / 7% S/U) for MY , MY & MY , respectively o U.S. Soybean prices in $10.00 $11.50 /bu range in MY (vs $9.59 /bu in MY ) Record U.S. soybean exports supporting prices so far in MY MY U.S. Soybean crush, soybean meal exports & soybean oil exports down at least marginally versus MY due to World (South American) competition Projected Soybean Supply Demand for MY : In its October 8 th 2010 Crop Production report, USDA NASS projected 2010 U.S. soybean planted acreage at ma, down ma from the September Crop Production report, but up from ma in 2009 (Table 4). Projected 2010 harvested area is ma, down ma from September, but up from ma in Projected U.S. average yields in 2010 are a record high 44.4 bu/ac, which is down 0.3 bu/ac from September, but up 0.4 bu/ac from Soybean production in the U.S. is projected to be a record high bb in 2010, which is down 75 mb from September, but up from bb in 2009 (Table 4). Based on a) MY U.S. beginning stocks of 151 mb (up 13 mb from MY ), b) 2010 production of bb, and c) imports of 10 mb, total supplies of U.S. soybeans for MY are projected to be bb (down 74 mb from the September WASDE, but up 57 mb from MY ). Total use of bb consists of domestic crushings of bb (up 15 mb from the September WASDE, but down from bb in MY ), record high exports of bb (up 35 mb from the September WASDE, and up from the previous record high bb in MY ), seed use of 88 mb, and residual use of 32 mb (down 38 mb from September, but up from 21 mb in MY ). Ending stocks of U.S. soybeans are projected to be 265 mb in MY , which is down 85 mb from the September WASDE, but up from 151 mb in MY This represents 8.0% ending stocks to use, down from 10.6% in the September WASDE, but still up from 4.5% in both MY and MY Average U.S. soybean prices for MY are projected to be in the range of $10.00 $11.50 per bushel (up $0.85 /bu on each end of the range), with a midpoint of $10.75 /bu. This compares to an estimated MY U.S. average price of $9.59 /bu, which is down $0.01 /bu from the September WASDE report. Soybean meal exports from the U.S. in MY are projected to be 9.1 mln. tons, down 21% from the previous year. Exports of U.S. soybean oil in MY of 2.5 billion lbs is up 0.4 bln lbs from September, but down from 3.4 bln lbs the previous year. Use of U.S. soybean oil for biodiesel production in MY (in the form of methyl ester) is projected to be 2.9 billion lbs., up 45%. Page 10

11 Table 4. U.S. Soybean Supply Demand Balance Sheet: MY through MY Item Planted Area (million acres) Harvested Area (million acres) Yield per harvested acre (bushels/acre) million bushels Beginning Stocks Production 2,677 2,967 3,359 3,408 Imports Total Supply 3,261 3,185 3,512 3,643 Domestic Crushings 1,803 1,662 1,752 1,665 Exports 1,159 1,279 1,498 1,520 Seed Residual Total Use 3,056 3,047 3,361 3,305 Ending Stocks % Ending Stocks to Total Use 6.7% 4.5% 4.5% 8.0% U.S. Average Farm Price ($/bushel) $10.10 $9.97 $9.59 $10.00 $11.50 Midpoint = $10.75 U.S. Soybean Use and Ending Stocks Trends During the MY through MY Period: U.S. soybean exports have trended higher from MY to MY increasing from 940 mb up to bb (Figure 5). Projected U.S. soybean crush of bb in MY is nearly equal to the lower end of the range of bb to bb since MY Projected MY ending stocks of 265 mb are the largest since MY , but lower than in MY and MY Figure 5. U.S. Soybean Use and Ending Stocks: MY through MY ,100 1,750 1,696 1,739 1,808 1,803 1,662 1,752 1,665 1,498 1,520 Million Bushels 1,400 1, , , ,159 1, Marketing Years Domestic Crush Exports Seed & Residual Ending Stocks Page 11

12 Market Implications for U.S. Soybeans: The ongoing strength of U.S. and World soybean prices during MY has been based mainly on export demand particularly shipments of soybeans and soybean products to China. Growth in World total soybean use over this most recent three year period (from mmt in MY to mmt to mmt in MY ) trends upward with growth in World soybean exports (from 77.3 mmt in MY to 92.8 mmt to 95 mmt in MY ). In MY China accounted for 41.1 mmt (53%) of World soybean imports, followed by 50.5 mmt (58%) in MY , and a projected level of 55 mmt (59%) in MY Projected World soybean ending stocks in MY of mmt are greater than ending stocks levels of mmt in MY and mmt in the tight supply year or MY This may indicate a relatively small margin for error (17.44 mmt or 6.8% of projected MY World soybean production) between ending stocks projections for the current marketing year, and those in the most recent short crop year in MY Given current USDA WASDE projections for MY of World soybean supplies, exports and domestic demand, as well as ending stocks balances it is likely that U.S. soybean prices will remain at historically high levels (i.e., $10.00 to $11.50 /bu for MY ). However, given the record of price volatility of soybean and other grain commodity markets since fall 2006, any appreciable threat to World soybean supply and/or demand factors could be expected to spark extreme price volatility in soybean prices in MY In particular, World soybean markets will be vulnerable to soybean production problems in either the U.S. or South America, or to any weakness in World soybean export demand, particularly from China given its dominant role as a buyer in World soybean and soybean product markets. With strong prices forecast for both corn and soybeans for MY , it is likely that a strong competition for U.S. crop acres will occur in the spring of 2011, with new crop NOV 2011 soybean and DEC 2011 corn futures reflecting market concerns about 2011 acreage and production prospects. Page 12