Plenty Of Issues To Talk About Trade war impact Size of the crops USDA data vacuum slowly fills Acreage questions Price forecast Input buying Weather Net farm income estimates Farm financial trends But There s A Bigger Issue!
U.S. average The 2 nd Demand Boom Is Dead $300 Actual Profit/Loss Per Acre Corn Soybeans $250 $200 $150 $100 $50 $0 -$50 -$100 -$150 3
Ethanol Is Over 4
China Bean Boom On Life Support 5
Six Years In A Row bushels per acre 200.0 180.0 Corn Yield Vs Trend Yield Trend 160.0 140.0 120.0 100.0 80.0 60.0 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017
bushels per acre Six In A Row A Record 55 Soybean yield vs trend 50 45 Yield Trend 40 35 30 25 20 2018 2016 2014 2012 2010 2008 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 1984 1982 1980 1978 1976 1974 1972 1970
Smaller Corn Crop U.S. 2018 Corn Production Farm Futures Average Trade Guess Range Of Guesses USDA November Harvested (millions) 81,413 81,680 80,850-82,100 81,767 Yield 177.2 177.9 176.7-179.9 178.9 Production (billions) 14,423 14,532 14,343-14,760 14,626 Source: USDA, Reuters, Farm Futures 8
Lower Yields, Less Acres U.S. 2018 Soybean Production Farm Futures Average Trade Guess Range Of Guesses USDA November Harvested (millions) 87,364 88,187 87,364-88,509 88,345 Yield 51.6 51.8 51-52.4 52.1 Production (billions) 4,505 4,572 4,490-4,620 4,600 Source: USDA, Reuters, Farm Futures 9
Carryout Trend Mixed U.S. 2018-2019 Ending Stocks million bushels Farm Futures Average Trade Guess Range Of Guesses USDA December Corn 1,684 1,708 1,621-1,787 1,781 Soybeans 880 926 800-1,015 955 Wheat 1,028 989 950-1,028 974 Source: USDA, Reuters, Farm Futures 10
Ready For A Move Friday 11
U.S. Shipments To China Should Be Booming 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% SHARE OF CHINESE SOYBEAN IMPORTS, 2014-2016 Argentina Brazil United States Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug 12
Winners Losers 1,400 1,200 1,000 800 600 400 HOW TARIFFS UPENDED SOYBEAN EXPORTS SEPTEMBER-DECEMBER CHINESE IMPORTS, MILLION BUSHELS 1,183 960 2017 2018 364 562 735 +48 mi bu 200 - China Brazil U.S. 15 Source: USDA, ABOIVE, China Customs Bureau 13
China Usually 57% to 62% SPAIN, 9% OTHER, 26% LEADING SOYBEAN EXPORT INSPECTIONS YEAR TO DATE JANUARY 31, 2019 ARGENTINA, 8% JAPAN, 4% MEXICO, 8% CHINA, 8%
Thousand Bushels Long Way To Go 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 WEEKLY SOYBEAN EXPORT INSPECTIONS S O N D J F M A M J J A 2017-18 2018-19 5-Yr. Avg.
Exports A Problem Before Tariffs Imports % Change 35% 30% 25% 20% 15% 10% 5% 0% -5% -10% Chinese soybean import growth vs GDP Growth 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 GDP % 16.0 14.0 12.0 10.0 8.0 6.0 4.0 Imports GDP
Year Of The Pig? Copyright China Photos/Getty Images 17
Price Discount Starting To Widen 18
Dryness In Brazil 19
Source: USDA, *Farm Futures Truce May Not Help Much WILL TRADE WAR CEASE-FIRE HELP? 2018 U.S. SOYBEAN EXPORTS UNDER FOUR SCENARIOS USDA forecast 1.900 China buys, weaker use 1.856 China buys, stronger use 1.943 Tariffs never happened, Chinese growth was strong 2.090 1.700 1.750 1.800 1.850 1.900 1.950 2.000 2.050 2.100 2.150 billion bushels
million bushels Excess Production 5,000 Soybean Supply Vs. Demand 4,500 Production Demand 4,000 3,500 3,000 2,500 2,000 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Rising World Production 1000s metric tons 350000 300000 250000 200000 150000 100000 50000 Total Production U.S. Agentina Brazil 0 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016
stocks to use Historically Large World Supplies 35% World soybean stocks to use 30% 25% 20% 15% 10% 5% 0%
Bearish Fundamentals, Bullish Trend 1,100 1,050 1,000 950 900 850 800 July Soybean Futures Seasonal Trends 8/3 9/3 10/3 11/3 12/3 1/3 2/3 3/3 4/3 5/3 6/3 7/3 800 775 750 725 700 675 650 Bull market year July 2019 Normal year
Corn Market Waits For USDA 25
million bushels Usage Could Top Production In 2018 Corn Supply Vs. Demand 16000 14000 TOTAL USE TOTAL PRODUCTION 12000 10000 8000 6000 4000 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19
1000s metric tons World Supply Smaller 1500000 1400000 1300000 1200000 1100000 1000000 900000 800000 700000 World coarse grain production vs demand Production Total Domestic Consumption
Tight Historically 120 World coarse grain days of supply without china 100 80 60 40 20 0 Source: USDA
Thousand Bushels Corn Window Opens 90,000 Weekly Corn Export Inspections 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 5-Yr. Avg. 2018-19 2017-18 S O N D J F M A M J J A
million bushels As Good As It Gets 3000 U.S. Corn Exports 2500 2000 1500 1000 500 0 70 73 76 79 82 85 88 91 94 97 00 03 06 09 12 15 18
million bushels Slow Growth U.S. Corn Feed Usage 7000 6000 5000 4000 3000 2000 1000 0
million bushels No Growth? 8000 U.S. Corn Food/Industrial Usage 7000 6000 5000 4000 3000 2000 1000 0 70 73 76 79 82 85 88 91 94 97 00 03 06 09 12 15 18
Lowest Price Since RFS Boom
Lousy Margins Average Corn Belt Ethanol Plant Margins $0.50 $0.40 $0.30 $0.20 $0.10 $0.00 -$0.10 -$0.20 -$0.30 -$0.40 -$0.50 34
September Lows Held 420 JULY CORN BULL VS BEAR YEARS 410 400 390 380 370 360 350 340 Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Bull Market Years July 2019 Normal Year 300 295 290 285 280 275 270
2019 Debate Begins Crop Acreage Change* Corn 90.3 million 1.3% Soybeans 84.6 million -5.5% Soft Red Winter Wheat 5.6 million -7.1% Hard Red Winter Wheat 22.8 million -0.6% White Winter Wheat 3.2 million -9.2% All Winter Wheat 31.6 million -2.7% Spring Wheat 12.5 million -5.3% Durum 2.5 million 19.8% All Wheat 46.6 million -2.5% Sorghum 5.1 million -12.1% Cotton 14.6 million 4.1% * vs USDA August 2018 estimates 36
Market Trades USDA s Baseline 94 92 90 88 86 84 82 80 78 76 USDA's Forecast For 2019 Acreage millions 89.1 Corn Soybeans 2018 2019 92 82.5 37
Futures Start To Favor Soybeans A Little
Potential For Rallies 2019 Corn Supply and Demand Estimates Yield 174 Production 14,432 Use, total 14,710 Ending stocks 1,475 Ave. cash price $3.94 Top Third $4.33 to $4.48
November Close To Top Third 2019 Soybeans Supply and Demand Estimates Yield 50.3 Production 4,210 Exports 1,994 Use, total 4,147 Ending stocks 876 Ave. cash price $8.38 $9.73 to Top Thard $10.11
Corn Loses Less $300 $250 $200 $150 $100 $50 $0 -$50 -$100 -$150 Average U.S. Profit/Loss Per Acre Assumes average cash prices and costs, 2019 trend yield Corn Soybeans Wheat Source: USDA, *Farm Futures Projections
Tariff Deal Matters How 2019 Cash Prices Could Vary $10 $9 $8 $7 $6 $5 $4 $3 $2 $1 $0 $8.75 $8.38 $8.13 $7.97 $3.90 $3.94 $3.94 $3.94 USDA End to tariffs Tariffs stay on Tariffs stay, China cuts usage 42
Profit Potential A Factor CORN PROFIT PER ACRE VS SOYBEANS $45 $40 $35 $30 $25 $20 $15 $10 $5 $0 $7 $19 $32 $40 USDA End to tariffs Tariffs stay on Tariffs stay, China cuts usage 43
Soybeans Limit Downside 44
What About Weather? Copyright Scott Olson / Staff, Getty Images
No La Nina In Sight 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% ODDS 'LA NINA' WILL DEVELOP DJF 2019 JFM 2019 FMA 2019 MAM 2019 AMJ 2019 MJJ 2019 JJA 2019 JAS 2019 ASO 2019 Source: NOAA
Weak, Short-lived El Nino Expected 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% ODDS 'EL NINO' WILL EMERGE DJF 2019 JFM 2019 FMA 2019 MAM 2019 AMJ 2019 MJJ 2019 JJA 2019 JAS 2019 ASO 2019 Source: NOAA
Neutral = 177.2 BPA Corn, 51.2 Soybeans in 2019 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% -30% DIFFERENCE FROM TREND YIELD IN "NEUTRAL" YEARS Corn Soybeans
Late Rains Help Soybeans More 20% DIFFERENCE FROM SOYBEAN TREND YIELD IN YEARS WITH EL NINO BY FALL 15% 10% 5% 0% -5% -10%
What We Know SEC. 1107. AGRICULTURE RISK COVERAGE. Section 1117 of the Agricultural Act of 2014 (7 U.S.C. 9017) is amended (5) TREND-ADJUSTED YIELD. The Secretary shall calculate and use a trend-adjusted yield factor to adjust the yield determined under paragraph (2)(A) and subsection (b)(1)(a), taking into consideration, but not exceeding, the trend-adjusted yield factor that is used to increase yield history under the endorsement under the Federal Crop Insurance Act (7 U.S.C. 1501 et seq.) for that crop and county. ; and (5) effective for the 2019 through 2023 crop years, in the case of county coverage, assign an actual or benchmark county yield for each planted acre for the crop year for the covered commodity (A) for a county for which county data collected by the Risk Management Agency are sufficient for the Secretary to offer a county-wide insurance product, using the actual average county yield determined by the Risk Management Agency 50
Should You Update Yields? (1) ELECTION TO UPDATE. At the sole discretion of the owner of a farm, the owner of a farm shall have a 1-time opportunity to update, on a covered-commodity-by-covered-commodity basis, the payment yield that would otherwise be used in calculating any price loss coverage payment for each covered commodity on the farm for which the election is made. (2) METHOD OF UPDATING YIELDS FOR COVERED COMMODITIES. If the owner of a farm elects to update yields under paragraph (1), the payment yield for a covered commodity on the farm, for the purpose of calculating price loss coverage payments only, shall be equal to the product obtained by multiplying (A) 90 percent; (B) the average of the yield per planted acre for the crop of covered commodities on the farm for the 2013 through 2017 crop years, as determined by the Secretary, excluding any crop year in which the acreage planted to the covered commodity was zero; and (C) subject to paragraph (3), the ratio obtained by dividing (i) the average of the 2008 through 2012 national average yield per planted acre for the covered commodity, as determined by the Secretary; by (ii) the average of the 2013 through 2017 national average yield per planted acre for the covered commodity, as determined by the Secretary. (3) LIMITATION. In no case shall the ratio obtained under paragraph (2)(C) be less than 90 percent or greater than 100 percent. (4) USE OF COUNTY AVERAGE YIELD. For the purposes of determining the average yield per planted acre under paragraph (2)(B), if the yield per planted acre for a crop of a covered commodity for a farm for any of the crop years described in that subparagraph was less than 75 percent of the average of county yields for those crop years for that commodity, the Secretary shall assign a yield for that crop year equal to 75 percent of the average of the 2013 through 2017 county yield for the covered commodity. (6) TIME FOR ELECTION. An election under this subsection shall be made at a time and manner so as to be in effect beginning with the 2020 crop year, as determined by the Secretary.. 51
Updating Not A Slam-Dunk Decision 52
Most Should Gain 53
Will The Process Be Like Crop Insurance? 54
Falling ARC Corn Protection 2014-2018 Year Yield Price Revenue Guarantee 2014 149 $5.29 $790 $679 2015 149 $5.29 $790 $679 2016 155 $4.79 $741 $637 2017 163 $3.92 $638 $548 2018 168 $3.56 $597 $514 2019-Old 171 $3.52 $601 $517 2019-New 179 $3.52 $632 $543
Increased ARC Protection Could Add Up For Corn Trend Yield Adjustment: +1.68 BPA RMA Vs NASS Yield: * 2% BPA Revenue Guarantee: + 5% 56
More Could Update Soybeans 57
Will ARC Be More Fair? 58
Higher Yielding Counties May Benefit 59
Soybean ARC Could Improve Under New Bill Year Yield Price Revenue Guarantee 2014 43 $12.27 $530 $455 2015 43 $12.27 $530 $455 2016 45 $11.87 $528 $454 2017 47 $10.86 $505 $434 2018 48 $9.62 $464 $399 2019-Old 50 $9.24 $458 $394 2019-New 51 $9.24 $467 $402
Soybeans Gain Less From New ARC Trend Yield Adjustment: +.4 BPA RMA Vs NASS Yield: * 2% BPA Revenue Guarantee: + 2% 61
PLC Vs ARC Corn Advantage (Disadvantage) Profit/Loss Per Acre 62
PLC Depends On Your Outlook Profit/Loss Per Acre 63
Will CBOT Plan Work? $0.00 -$0.10 -$0.20 -$0.30 -$0.40 -$0.50 -$0.60 -$0.70 -$0.80 -$0.90 -$1.00 Corn Basis Could Strengthen average harvest basis 2016 2017 2018 2019 2016 2017 2018 2019 Corn Soybeans 64
Corn Basis Flat Since Dec Roll 10 Central Illinois Corn Basis 0 (10) (20) (30) (40) (50) (60) 9/1 11/1 1/1 3/1 5/1 7/1 Average 2018-2019 2017-2018 65
Storing For Carry 20 Central Illinois Soybean Basis 0 (20) (40) (60) (80) (100) 9/1 11/1 1/1 3/1 5/1 7/1 Average 2017-2018 2018-2019 66
$600 Rising For Spring $750 $650 $550 $450 $350 $250 $150 Ammonia Retail Gulf
per ton Rent A Barge! $900 $800 $700 $600 $500 $400 $300 $200 $100 $- Farmgate Ammonia April price 2007-2018 523 511 492 569 465 Source: USDA, Farm Futures 68
Chinese Sales Ended Urea Rally $550 $500 $450 $400 $350 $300 $250 $200 $150 Urea Retail Gulf
per ton Should Get Cheaper $700 Farmgate Urea 2007-2018 April price $600 $500 $400 366 336 360 390 356 350 351 $300 $200 $100 $- Source: USDA, Farm Futures 70
Affected By N $550 $500 $450 $400 $350 $300 $250 Retail DAP Gulf
per ton DAP Should Get Cheaper $900 $800 $700 $600 $500 $400 $300 $200 $100 $- Farmgate DAP 2007-2018 April price 463 432 479 513 451 Source: USDA, Farm Futures 72
Steady Prices At Higher Levels Potash $560 $510 $460 $410 $360 $310 $260 $210 Retail Midwest Terminal
per ton $360 To $400 Farmgate Potash 2006-2018 April price $900 $800 $700 $600 $500 $400 362 321 340 379 404 $300 $200 $100 $- Source: USDA, Farm Futures 74
Winter Lows In 260 240 GROUP 3 DIESEL SEASONAL Average 2017-2018 2018-2019 220 200 180 160 140 120 100 80 7/1 8/1 9/1 10/1 11/1 12/1 1/1 2/1 3/1 4/1 5/1 6/1
per gallon What Polar Vortex? $0.70 CME Swaps Curve Conway Kansas wholesale price $0.65 $0.60 $0.55 $0.50 $0.45 Source: CME Group
Fed s Could Hit Pause Button 90% 80% 70% ODDS OF FEDERAL FUNDS RATES THROUGH DEC 2019 82% 60% 50% 40% 30% 20% 10% 0% 8% 10% 200-225 225-250 (Current) 250-275 Source: CME Group
Yield Curve Starts To Invert per cent 3.00 TREASURY YIELD CURVE INTEREST RATE ON TREASURY SECURITIES AT VARIOUS MATURITY 2.50 2.00 1.50 1.00 0.50 0.00 2/1/17 2/1/18 2/1/19 78
This Is Why The Yield Curve Matters per cent 10 INTEREST RATE SPREAD ON TREASURIES 3 Mo 10 Yr 9 8 7 6 5 4 3 2 1 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Source: Federal Reserve
Dollar Fairly Valued 160 140 120 100 80 60 40 20 0 Dollar Follows Rates Long-Term Dollar Prime 25 20 15 10 5 0
Interest Rates Bite 35% Debt Service vs Gross Sales 30% 25% 20% 15% 10% 5% 0% 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: USDA 81
Worries Ease 60% I WORRY ABOUT WHETHER I LL BE ABLE TO PAY BACK THE DEBT I OWE % agreeing 50% 40% 34% 34% 38% 41% 44% 39% 43% 48% 47% 43% 43% 45% 43% 44% 50.3% 44% 30% 28% 20% 10% 0% Nov-12 Aug-13 Dec-13 Aug-14 Jan-15 Mar-15 15-Aug 16-Jan 16-Mar Aug-16 Jan-17 Mar-17 Aug-17 Jan-18 18-Mar 18-Aug Jan-19
MFP Raised Income $140 $120 Net Farm Income billions of dollars $113.6 $123.8 $100 $80 $60 $57.4 $70.0 $78.0 $62.2 $77.1 $96.5 $92.4 $81.4 $61.5 $75.4 $75.9 $63.1 $40 $20 $0 Source: USDA ERS, *Farm Futures
Income Down? 60% 50% HOW GROWERS VIEW 2019 INCOME VS 2018 51% 40% 30% 20% 32% 17% 10% 0% Lower Same Higher 84
Financial Stress Indicators More Farms Vulnerable Marginal Income Marginal Solvency Vulnerable Nov-12 3.2% 9.5% 1.1% Aug-13 2.3% 6.2% 0.5% Dec-13 2.9% 8.8% 1.2% Aug-14 3.0% 9.4% 1.0% Jan-15 4.5% 10.3% 1.3% Mar-15 4.4% 10.5% 1.8% Aug-15 6.3% 8.4% 1.3% Jan-16 10.3% 11.9% 2.3% Mar-16 11.5% 13.1% 3.7% Aug-16 13.1% 19.6% 4.4% Jan-17 11.5% 19.7% 3.5% Mar-17 12.9% 12.8% 3.9% Aug-17 11.6% 11.1% 3.1% Jan-18 11.7% 10.8% 3.6% Mar-18 14.6% 13.1% 4.2% Aug-18 12.7% 16.1% 3.7% Jan-19 16.5% 16.2% 5.5%
Not A Debt Crisis 25 Debt to Assets Ratio p e r c e n t 20 15 10 5 0 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 Source: USDA ERS
Profit Crisis 45% Profit Margin 40% 35% 30% 25% 20% 15% 10% 5% 0% 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: USDA ERS 87
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bryce.knorr@informa.com
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