Game Changers. Fundamental shifts Long term Impact

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2 Game Changers Fundamental shifts Long term Impact

3 Over The Past Three Years The U.S. co-op system has been cut by more than 50%. The world s largest seed genetics and chemical firms have merged, cutting the number of players by roughly 50%. The fertilizer industry has consolidated just as aggressively. 25% to 30% of farm equipment dealers are gone.

4 Over The Past Three Years Though numbers are not available, we estimate a minimum of 10% of U.S. row crop producers have either retired or had career changes. The final wash out is occurring now. China is cleaning up its act. Gasoline will be going to a 10% ethanol blend by Emission controls from factories is moving rapidly ahead Inefficient chemical plants located in cities will be closed and re-built in more rural areas, and will have tighter emission controls.

5 What We Are Left With: A new set of players in agribusiness firms, ag lenders and younger farmers. A new generation is moving in more techie and will all have a new set of ideas on how things should be done.

6 What We Are Left With: Larger and more sophisticated farm operations. As the old saying goes Bad times do not cause business failures. They expose them. That group is gone. The sorting out is almost over. Remaining farmers have solid balance sheets, are more sophisticated and most are more professional. All of the above changes the way producers, lenders and agribusiness suppliers work together. More targeted. Retail covering wider geographic areas.

7 Confirmation Bias Confirmation bias is the tendency to search for, interpret, favor, and recall information in a way that confirms one's preexisting beliefs or hypotheses, while giving disproportionately less consideration to alternative possibilities. Anything that does not support your beliefs is UNDERVALUED What the facts say Anything that confirms your beliefs is OVERVALUED Anything else that confirms your beliefs Unsupported by facts

8 Examples of confirmation bias: Confirmation bias exists in politics, finance, science, medicine, history, law, religion in all facets of the human experience: Politics: Hillary Clinton, Donald Trump Food/nutrition: Organic food GMO Meat, fat, and salt consumption Science, energy, farming Global warming Ethanol Fracking Poultry in cages Hogs in pens Antibiotics

9 Crude oil $/barrel Brent Crude vs. Corn 9.00 Corn $/bushel Corn Crude Corn (right scale) Brent Crude (left scale)

10 Source: EIA average U.S. Crude Oil Inventory As of February 23, crude oil inventory was: 18.6% below last year, 2.0% above 5-year average range Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec million barrels

11 Crude Oil monthly

12 April 2018 Crude Oil

13 Farm Economy

14 Emotions 7 Stages of Agricultural Economic Cycle 7 Stages of Ag Economic Confidence Skepticism Caution 2012 Euphoria Cycles Hope Concern Despair Time Now Copyright by Richard Brock and Associates, Inc.

15 Farm crisis? Or opportunity?

16 From cash burn that started in 2013 To equity burn the last two years

17 Observations

18 Cropland Value per Acre $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 Iowa $8, % Illinois $7, % Indiana $6, % Ohio $5, % Nebraska $4, % U.S. $4,090 unchanged $3,000 $2,000 $1,000 $ Source: USDA Land Values, August 2017 Summary

19 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, U.S. Gross Farm Income Correlation to Cropland Value Based upon USDA projected 2018 gross farm income as of February 2018, land values should be closer to $3,288 vs. $4,090 per USDA survey in August. Cropland is 24% "overvalued" by historical valuation measures. Actual Land Value Land value per regression formula 200% 190% $4,090 in % 170% 160% 150% 140% 130% $3, % 110% 100% 90% 80% 70% 60% 50% % overvalued 40% 30% 20% 10% 0% -10% % undervalued -20% -30% -40%

20 Corn Prices and Nitrogen Prices are Highly Correlated Nitrogen price index 400 Corn price $ National Corn Price (marketing year) USDA Nitrigen Price Index (1982 = 100) Nitrogen price index $7.00 $ $ $ Corn price $3.00 $2.00 $1.00 $- Source: USDA NASS through December, 2017

21 $/ton Retail Anhydrous Ammonia, DAP and Potash, llinois Source: USDA AMS through March 1, 2018 Price and change vs. 1-year ago Anhydrous $511-2% DAP $ % Potash $350 +8%

22 $/ac $700 Returns to Land for Midwest Corn Production assuming non-land costs of $417/acre (Iowa State for 2018 ) $600 $500 $400 $4.50 $4.00 $3.50 $300 $200 $3.00 $2.50 $100 $0 190 $3.50/bu = $248/ac return to land -$ Yield/ac

23 $/ac $450 $400 $350 $300 Returns to Land for Midwest Soybean Production assuming non-land costs of $254/acre (Iowa State for 2018) 55 $9.50/bu = $269/ac return to land $10.50 $10.00 $9.50 $9.00 $8.00 $250 $200 $150 $100 $ Yield/ac

24 2,250,000 1,750,000 Minnesota Net Farm Income by Farm Size, ,978,368 Top 20% of farms 1,250, , , , , , ,277 60, ,274 55,481 8,509-16,440 6,078 34,532 85, , , , ,525 All farms 258, ,000 < >2,000 Farm size (ac) Source: FINBIN database, Minnesota Farm Business Management Education, SW Minnesota Farm Business Management Association, University of Minnesota Bottom 20% of farms

25 700, , , , , , , ,000 35,731 74,627 Minnesota Net Farm Income by Farm Size, , , , ,301 44,532 72,330 74,640-30,967-32,138-46,679-58, ,468 All farms 109, , ,345 Bottom -300,000 20% of -316,329 farms -400,000 < >2,000 Farm size (ac) Source: FINBIN database, Minnesota Farm Business Management Education, SW Minnesota Farm Business Management Association, University of Minnesota Top 20% of farms

26 million acres U.S. Planted U.S. Planted Area Acreage (million acres) Corn 91.0, Soybeans Source: USDA 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19 Source: USDA, Brock Associates Wheat 46.0 unch.

27 million metric tons 300 Production 250 Consumption Ending Stocks 200 Imports 150 China Corn Fundamentals Record consumption Production Ending Stocks 50 - Source: USDA, February 2018 Imports 80 Ending stocks/use ratio projected to be 33% at end of 17/18 from 51% at the end of 15/16.

28 U.S. Corn Supply & Demand

29 $10.00 $/bu $9.00 $8.00 Central Illinois Cash Corn Cycles Years +29% 26 Years +40% 22 Years +32% 16 yrs +63% ? yrs? $12? $8.54 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 $ Years $ Years $3.97 $ Years 9 Years 2018 $2.79 low Oct 1, 2014 Updated February 26, 2018

30 U.S. CORN SUPPLY AND DEMAND USDA Brock Marketing year begins Sept 1 15/16 16/17 Est. 17/18 Proj. 17/18 Proj. 18/19 Proj. ACREAGE (million) Planted Area Harvested Area Yield SUPPLY (mil bu) Beg. Stocks 1,731 1,737 2,293 2,293 2,352 Production 13,602 15,148 14,604 14,604 14,424 Imports Total Supply 15,401 16,942 16,947 16,947 16,826 USAGE (mil bu) Feed & Residual 5,120 5,467 5,550 5,550 5,600 Food/Seed/Ind 6,646 6,889 6,995 6,995 7,025 Ethanol & By-Products 5,224 5,439 5,525 5,525 5,550 Domestic Use 11,766 12,356 12,545 12,545 12,625 Exports 1,898 2,293 2,050 2,050 2,100 Total Use 13,664 14,649 14,595 14,595 14,725 Ending Stocks (Aug 31) 1,737 2,293 2,352 2,352 2,101 Stocks/Use 12.7% 15.7% 16.1% 16.1% 14.3% Farm Price ($/bu) $3.61 $3.36 $ $ $

31 Average Farm Price ($ / Bushel) U.S. Corn Ending Stocks/Use Ratio vs. Average Price (1997/ /19) / % stocks/use; $ /bu / % stocks/use; $ /bu post pre Source; USDA, Brock Associates % 10% 15% 20% 25% Corn Ending Free Stocks to Use Ratio "10" indicates 2010/11 marketing year

32 Corn Yield & Production Yield (bu/ac) Production (mil bu) State Change Change Iowa ,506 2,741 2, Illinois ,013 2,256 2, Nebraska ,693 1,700 1, Minnesota ,429 1,544 1, Indiana South Dakota Kansas Wisconsin Missouri Ohio North Dakota Texas Top 12 Total 11,863 13,220 12, United States ,602 15,148 14,

33 Panama 2% Guatemala 2% Canada 1% Costa Rica 2% S. Korea 4% Peru 9% U.S. Corn Export Shipments Taiwan 1% Spain 4% Colombia 13% R.O.W. 5% Japan 20% Mexico 37% Spain 2% Taiwan 2% Panama 1% Guatemala 2% Canada 0.6% Costa Rica 1% U.S. Corn Export Commitments R.O.W. 27% S. Korea 5% Peru 6% Colombia 7% Mexico 29% Japan 17% USDA FAS as of February 8, 2018 Shipments vs. last year: Japan: -18%, S. Korea -72%, Taiwan -80% Mexico: +9%,Colombia: +27%, Peru: +3%, All destinations: -29%

34 million metric tons 300 Production 250 Consumption Ending Stocks 200 Imports 150 China Corn Fundamentals Record consumption Production Ending Stocks 50 - Source: USDA, February 2018 Imports 80 Ending stocks/use ratio projected to be 33% at end of 17/18 from 51% at the end of 15/16.

35 World Corn Ending Stocks and Stocks/Use mil. metric tons 250 Ending stocks/use 60% '17/18 revised 3.5 mmt lower % % % 50 20% - 75/76 80/81 85/86 90/91 95/96 00/01 05/06 10/11 10% Ending Stocks (left scale) Ending Stocks/Use (right scale) Source: USDA FAS, February 2018

36 2018 Final Crop Revenue Insurance Base Prices 2018 base 2017 base 2018 base price vs. price price 2017 crop insuance Corn Dec futures % Soybeans Nov futures % Mpls. Wheat Sep futures % Nov. Soybean/Dec. corn price ratio

37 Ethanol

38 billion gallons 20 U.S. Ethanol Production & Domestic Consumption vs. RFS Mandate RFS Statutory Mandate Total fuel ethanol production Domestic consumption Source: EIA, EPA, February 2018

39 Ethanol Costs, Revenues, and Profitability/gallon $/gallon (0.50) Profitability Costs Revenues Feb. est: breakeven Source: Iowa State University through November 2017, Brock estimates for Dec and Jan

40 million gallons Ethanol Exports Surge to Record High Net Exports up 33% for the Year Exports Imports Net exports Record monthly net exports Source: USDA FAS (through December 2017; January data to be released in March)

41 million gallons % +5% +89% +15% U.S. Gross Ethanol Exports 2017 exports up 17% vs. last year +77% % -87% +67% Source: EIA. (percent of U.S gross exports next to country name)

42 Total U.S. DDGS Exports Down 2% in 2017 Exports to China down 84% from last year 1000 metric tons 1, Exports to rest of world up 19% from last year metric tons 1,100 1, Source: USDA FAS through December 2017; January data to be released in March

43 Continuous Monthly Corn Futures

44 July 2018 Corn Support

45 December 2018 Corn Support

46 Soybean Supply & Demand

47 Marketing year begins Sep 1 15/16 16/17 Est. 17/18 Proj. 17/18 Proj. 18/19 Proj. ACREAGE (million) Planted Acres Harvested Acres Yield SUPPLY (mil bu) Beg. Stocks Production 3,926 4,296 4,392 4,392 4,475 Imports Total Supply 4,140 4,515 4,718 4,719 5,030 USAGE (mil bu) U.S. SOYBEAN SUPPLY AND DEMAND USDA Brock Crush 1,886 1,899 1,950 1,950 1,980 Exports 1,936 2,174 2,100 2,100 2,200 Seed Residual Total Use 3,944 4,213 4,188 4,189 4,320 Ending Stocks (Aug 31) Stocks/Use 5.0% 7.2% 12.7% 12.6% 16.4% Farm Price ($/Bu) $8.95 $9.47 $

48 Soybean Yield & Production Yield (bu/ac) Production (mil bu) State Change Change Illinois Iowa Minnesota Indiana Nebraska Missouri Ohio South Dakota North Dakota Kansas Arkansas Wisconsin Top 12 Total 3,296 3,672 3, United States ,926 4,296 4,392 95

49 U.S. Soybean Export Shipments U.S. Soybean Export Commitments Netherlands 3% Indonesia 3% Thailand 3% Pakistan 2% Taiwan 2% Japan 3% Mexico 5% E.U. 7% Spain 2% Germany 2% R.O.W. 1% China 67% Pakistan 2% Taiwan 2% Netherlands 2% Thailand 3% Indonesia 3% Vietnam 1% Spain 1% Japan 3% Germany 2% Mexico 6% Unknown 7% R.O.W. 3% China 59% E.U. 6% USDA FAS as of February 8, 2018 Shipments vs. last year: China: -21%, E.U -5%, Mexico: +5%,Japan: +7%, Peru: +14%, All destinations: -13%

50 Soybean Production (million bu) United States 4, /18 proj. world production: 12,747 4,115 Brazil 5,000 4,500 4,000 3,500 3,000 2,500 1,984 Argentina 2,000 1,500 Source: USDA FAS, February 2018 China 522 1,

51 World Soybean Ending Stocks and Stocks/Use mil. metric tons Ending stocks/use 40% '17/18 revised 0.4 mmt lower 35% 30% 25% 20% 15% 10% 5% - 75/76 80/81 85/86 90/91 95/96 00/01 05/06 10/11 Ending stocks (left scale) Ending stocks/use (right scale) Source: USDA FAS, February %

52 9/83 Continuous Monthly Soybean Futures Approximate time from peak to peak 5 yrs 5 yrs 4 yrs 2.5 yrs 4 yrs -51% 6/88-53% 7/93 5/97-56% 4/00 5/04 4 yrs 4 yrs -53% 7/08-53% 9/12 Broken Support 11/15-42% 20 $/bu /91 2/05 9/86 4 7/99 3 yrs 3 yrs 2 yrs 2 Approximate time from peak to trough

53 July 2018 Soybeans Broken resistance Bull flag Objective $10.49 Support

54 November 2018 Soybeans Bull flag Objective $10.38 Broken resistance Support

55 Wheat

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57 U.S. Winter Wheat Seedings (mil acres) Forecast seeded area for 18/19 crop million ac, down fractionally from 2017/ Source: USDA 2018 crop

58 U.S. WHEAT SUPPLY AND DEMAND USDA Brock Marketing year begins June 1 16/17 Est. 17/18 Proj. 17/18 Proj. 18/19Proj. ACREAGE (million) Planted Area Harvested Area Yield SUPPLY (mil bu) Beg. Stocks 976 1,181 1,181 1,005 Production 2,309 1,741 1,741 1,867 Imports Total Supply 3,402 3,076 3,067 3,002 USAGE (mil bu) Food/Seed 1,010 1,017 1,012 1,026 Feed & Residual Domestic Use 1,167 1,117 1,112 1,156 Exports 1, ,000 Total Use 2,222 2,067 2,062 2,156 Ending Stocks (May 31) 1,181 1,009 1, Stocks/Use 53.2% 48.8% 48.7% 39.2% Farm Price ($/Bu) $3.89 $ $ $

59 Wheat, Monthly Continuous Broken resistance Support

60 July 2018 Chicago Wheat Futures Support

61 U.S. COTTON SUPPLY AND DEMAND Marketing year begins Aug 1 15/16 16/17 Est. 17/18 Proj. 17/18 Proj. 18/19 Proj. ACREAGE (million acres) Planted Area Harvested Area Yield SUPPLY (million 480-lb. bales) Beginning Stocks (August 1) Production Imports Total Supply USAGE (million 480-lb. bales) USDA Brock Mill Use Exports Total Use Unaccounted STOCKS (million 480-lb. bales) Ending Stocks (July 31) Farm Price ( /lb)

62 44% Cotton's Share of Fiber Consumption, U.S. 42% 40% 38% 36% 34% 32% 30% Source: USDA ERS, Cotton and Wool Yearbook, November 2017 (updated annually in November)

63 May 2018 Cotton Futures Support

64 December 2018 Cotton Futures Support

65 Livestock

66 billion lbs U.S. Meat Production and Forecast (and percent change 2017 vs. 2016, 2018 vs. 2017) +2.0% All red meat and poultry combined: +2.6%, +3.8% Beef +3.8% +2.0% Poultry +5.9% +5.1% +2.6% Pork proj Source: USDA ERS, February 2018 proj. 2018

67 Estimated Returns for Finishing Medium #1 Steer Calves, 560 lbs to 1,300 lbs, to Choice Slaughter grade, Iowa - Southern Minnesota Source: Iowa State University, through January, $/head (100) (200) (300) (400) (500) (600)

68 million head : million; +7.9% vs Cattle on Feed year average 9.75 Source: USD NASS 9.50 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

69 June 2018 Live Cattle Resistance Support

70 May 2018 Feeder Cattle Resistance Support

71 December 1 Hog Inventory (million head) Total inventory % % Market inventory Source: USDA NASS Kept for Breeding %

72 U.S. Pork Exports and Exports as a % of Production Exports (1000 mt) 3,000 2,500 U.S. Exports 2,000 Exports as a % of Production 1,500 1, % +7.5% 45 proj (%) Exports (% of production) Source: USDA, February 2018

73 2017 U.S. Pork Export Destinations Australia 4% China + Hong Kong 9% South Korea 9% Rest of world 14% Canada 10% Japan 22% Mexico 32% Calendar year 2017 vs Mexico +12% Japan +1% China -18% Canada -1% S. Korea +29% Australia +11% World total +7.5% Source: USDA, February, 2018

74 Farrow to Finish Production Costs, Returns, and Profitability Cost vs. Selling Price per cwt (carcass) Selling price per cwt (carcass) Costs per cwt (carcass) P/L per head (right scale) $3.56 $0.71 $-5.58 $15.07 $8.14 $2.75 $0.90 * History based upon ISU Estimated Costs & Returns Brock hedging profits (loss) per head Brock proj.* P/L

75 June 2018 Lean Hogs Resistance

76 Take Away Points The majority of grain producers should have a profitable year much better than USDA forecast Survivors will become better managers Marketing will still be the key separating winners from losers controlling costs also high on list Pork and poultry producers could have a challenging year. Demand growth needs to continue at a phenomenal pace to support current prices.

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78 For More Information on the Brock Report, write, or call BROCK ASSOCIATES 2050 W. Good Hope Rd. Milwaukee, WI (800)