Analysis of the October 2010 USDA Crop Production & WASDE Reports

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 2010 11 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 1995 96) provide strong supply demand support U.S. corn and grain sorghum prices for the remainder of 2010 and into 2011. With improved U.S. cash corn price projections for MY 2010 11 in the $4.60 to $5.40 /bu range, it is likely that price rationing will have some impact on feedgrain use. MY 2010 11 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 2010 11, 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 2010 11 are projected to decline to 175 mmt (26.3% S/U), down from 197 mmt (30.2% S/U) in MY 2009 10. However, MY 2010 11 ending stocks are still projected to be 50 mmt above MY 2007 08 when they declined to a 30 year record low of 124 mmt ( 20% S/U). Even though World wheat stocks in MY 2010 11 are not projected to be as tight as in MY 2007 08, 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 2010 11 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 2010 11). 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 2010 11, 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

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 2010 11 (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 2007 08. Total World use of coarse grains is projected to be 1,124 mmt in MY 2010 11, up 3.9 mmt from the September WASDE report and 6.4% larger than in MY 2007 08. World coarse grain ending stocks are projected to be 163.4 mmt in MY 2010 11, 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 2008 09 and down from 199 mmt in MY 2009 10, but still 1.5% higher than 160.94 mmt in MY 2007 08. World corn ending stocks are projected to be 132 mmt (15.8% S/U) in MY 2010 11, down 3.2 mmt from the September WASDE, and less than 148 mmt (18.3% S/U) in MY 2009 10 and 148 mmt (18.9% S/U) in MY 2008 09. World corn ending stocks are projected to account for 81.0% of total World coarse grain ending stocks in MY 2010 11, up from 74.5% in MY 2009 10 and 76.1% in MY 2008 09. Figure 1. World Ending Stocks of Coarse Grains, Wheat & Soybeans: MY 2004 05 thru MY 2010 11 240 Ending Stocks (mmt) 120 179 165 153 150 47 53 138 131 63 162 125 53 194 199 197 175 165 163 60 61 44 0 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 Marketing Year Coarse Grains (Corn, Sorghum, Barley, Oats, Millet, other) Wheat Soybeans World Wheat Stocks: World wheat ending stocks for MY 2010 11 are projected to be 174.7 mmt (26.3% S/U), down 3.13 mmt from the September WASDE (Figure 1). World wheat ending stocks in MY 2010 11 are down 11.1% from 196.5 mmt (30.2% S/U) in MY 2009 10, but are higher than 165.3 mmt (25.7% S/U) in MY 2008 09 and 125 mmt (20.2% S/U) in MY 2007 08 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 2010 11 are projected to be 71.43 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 2009 10, but up from 56.48 mmt (16.7% S/U) in MY 2008 09. The category of Oilseeds includes soybeans, sunflowers, cotton, canola, flaxseed, peanuts, and other oilseed type crops. Page 2

World soybean ending stocks are projected to be 61.42 mmt (24.3% S/U) in MY 2010 11, down 2.19 mmt from the September WASDE report, but up from 60.44 mmt (25.3% S/U) in MY 2009 10 and up from 43.98 mmt (19.9% S/U) in MY 2008 09. 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 2010 11 from the levels of the previous two marketing years. World wheat ending stocks in MY 2010 11 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 2010 11. Both World and U.S. grain prices are likely to continue to be supported in MY 2010 11 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 2010 11, 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 2010 11 = 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 2009 10, MY 2008 09 & MY 2007 08, respectively Tighter world Coarse Grain stocks; tight 14.5% S/U less than 15.2% S/U of MY 2007 08 U.S. Corn ending stocks in MY 2010 11 = 902 mb (6.7% S/U) (down 214 mb from September 2010 WASDE) o Versus 1.708 / 1.673 / 1.624 bb (13.0% / 13.9% / 12.7% S/U) for MY 2009 10, MY 2008 09 & MY 2007 08, respectively o U.S. Corn prices in $4.60 $5.40 /bu range in MY 2010 11 (vs $3.55 /bu in MY 2009 10) Steady to strong feed, ethanol & export use of U.S. corn in both MY 2009 10 & MY 2010 11 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 2010 11 (vs $3.22 /bu in MY 2009 10) Projected Corn Supply Demand for MY 2010 11: 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 155.8 bushels per acre (bu/ac). This yield projection is down from 162.5 bu/ac in the September report, and also down from the record high U.S. corn yield of 164.7 bu/ac in 2009. With projected 2010 U.S. corn planted acreage of 88.222 million acres and harvested area projected at 81.263 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 12.664 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 13.110 bb in 2009 (Table 1). For MY 2010 11, based on a) beginning stocks of 1.708 bb (up 322 mb from the September WASDE and up 35 mb from MY 2009 10), b) projected 2010 production of 12.664 bb, and c) imports of 10 mb, total supplies of Page 3

U.S. corn are projected to be 14.382 bb (down 174 mb from the September WASDE report and down 409 mb from the record high in MY 2009 10 of 14.791 bb). By category, projections of U.S. corn disappearance for MY 2010 11 are for corn ethanol use of 4.7 bb (up 140 mb from MY 2009 10), non ethanol food, seed and industrial use of 1.38 bb (up 10 mb from MY 2009 10), corn exports of 2.0 bb (down 100 mb from last month, but up 13 mb from MY 2009 10), and feed and residual use of 5.4 bb (up 150 mb from last month, and up 233 mb from MY 2009 10). Projected total corn use of 13.480 bb is up 40 mb from the September WASDE report, and up 396 mb over the previous record high of 13.084 bb in MY 2009 10. Ending stocks of U.S. corn are projected at 920 mb in MY 2010 11 (down 214 mb from last month s WASDE report, and down 806 mb from MY 2009 10), representing 6.7% ending stocks to use (down from 8.3% in the September WASDE report, down from 13.0% in MY 2009 10, and from 13.9% in MY 2008 09). This would be the lowest % stocks to use figure for U.S. corn since MY 1995 96 (i.e., 5%). United States season average corn prices for MY 2010 11 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 2009 10 price of $3.55 /bu, and $4.06 /bu in MY 2008 09. Adjustments in MY 2009 10 Corn Supply Demand: A number of adjustments were made in the MY 2009 10 U.S. corn supply demand balance sheet based on results from the September 1 st USDA NASS Quarterly Stocks Report (released on September 30 th ). Projected feed and residual use of U.S. corn was lowered 405 mb from last month, down to 5.167 bb. Corn use for ethanol production was raised 25 mb to 4.560 bb. Exports were estimated to be 1.987 bb, up 7 mb. Total corn use was projected at 13.084 bb (down 321 mb). Ending stocks were projected at 1.708 bb (13.0% S/U), up 322 mb from the September WASDE. Table 1. U.S. Corn Supply Demand Balance Sheet: MY 2007 08 through MY 2010 11 Item 2007 08 2008 09 2009 10 2010 11 Planted Area (million acres) 93.5 86.0 86.5 88.2 Harvested Area (million acres) 86.5 78.6 79.6 81.3 Yield per harvested acre (bushels/acre) 150.7 153.9 164.7 155.8 million bushels Beginning Stocks 1,304 1,624 1,673 1,708 Production 13,038 12,092 13,110 12,664 Imports 20 14 8 10 Total Supply 14,362 13,729 14,791 14,382 Ethanol for fuel 3,049 3,709 4,560 4,700 Non ethanol Food, Seed & Industrial 1,393 1,316 1,370 1,380 Exports 2,437 1,849 1,987 2,000 Feed & Residual 5,858 5,182 5,167 5,400 Total Use 12,737 12,056 13,084 13,480 Ending Stocks 1,624 1,673 1,708 902 % Ending Stocks to Total Use 12.8% 13.9% 13.0% 6.7% U.S. Average Farm Price ($/bushel) $4.20 $4.06 $3.55 $4.60 $5.40 Midpoint = $5.00 U.S. Corn Use and Ending Stocks Trends During MY 2004 05 through MY 2010 11: Since MY 2004 05, U.S. feed and residual use of corn has generally declined. However, the 5.4 bb projection for MY 2010 11 interrupts that trend (Figure 2). Corn use for ethanol has increased steadily over the same period from 1.323 bb to 4.7 bb. Exports of U.S. corn have averaged 2.063 bb since MY 2004 05, nearly equal to the 2.0 bb Page 4

projection for MY 2010 11. Corn ending stocks increased from MY 2006 07 to MY 2009 10 to a high of 1.708 bb, but are projected to markedly decline to 902 bb in MY 2010 11. Figure 2. Trends in U.S. Corn Use and Ending Stocks: MY 2004 05 through MY 2010 11 7,000 5,250 6,155 6,152 5,591 5,913 5,182 5,167 5,400 Million Bushels 3,500 1,750 0 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 Marketing Years Feed+Residual Ethanol Use Exports Other FSI Use Ending Stocks Projected Grain Sorghum Supply Demand for MY 2010 11: 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 2008. With projected planted acreage of 5.4 ma (down from 6.0 ma last month), and harvested acres of 4.658 ma (down from 5.176 ma in the October report), the October 8 th Crop Production report projects 2010 U.S. grain sorghum production to be 337.2 mb, down 39.2 mb from the September Crop Production report and down 45.8 mb from 2009. Based on a) beginning stocks of 41 mb (up 10 mb from the September WASDE, but down 14 mb from MY 2009 10) and b) production of 337 mb (down 39 mb from last month), total supplies of U.S. grain sorghum for MY 2010 11 are projected to be 378 mb (down 39 mb from the September WASDE and down 60 mb from MY 2009 10). Total use of 340 mb (down 30 mb from last month s WASDE and down 56 mb from MY 2009 10), 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 2009 10), 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 2010 11 (up 1 mb from last month, but down 3 mb from MY 2009 10), representing 11.2% ending stocks to use (up from 10.0% in the September WASDE and up from 10.3% in MY 2009 10). Average grain sorghum prices for MY 2010 11 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 2010 11 for grain sorghum would be $0.20 /bu higher than for U.S. corn. Adjustments in MY 2009 10 Grain Sorghum Supply Demand: Estimated grain sorghum food, seed and industrial use for MY 2009 10 is lowered to 90 mb (down 10 mb from September). Exports are lowered 1 mb to 166 mb for MY 2009 10. As a result, MY 2009 10 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

Table 2. U.S. Grain Sorghum Supply Demand Balance Sheet: MY 2007 08 through MY 2010 11 (October 8, 2010, 2010 USDA WASDE Report) Item 2007 08 2008 09 2009 10 2010 11 Planted Area (million acres) 7.7 8.3 6.6 5.4 Harvested Area (million acres) 6.8 7.3 5.5 4.7 Yield per harvested acre (bushels/acre) 73.2 65.0 69.4 72.4 million bushels Beginning Stocks 32 53 55 41 Production 497 472 383 337 Total Supply 530 525 438 378 Food, Seed & Industrial 35 95 90 90 Exports 277 143 166 160 Feed & Residual 165 233 140 900 Total Use 477 471 396 340 Ending Stocks 53 55 41 38 % 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 2004 05 through MY 2010 11: Increased use of grain sorghum in ethanol production is reflected by higher food, seed and industrial use beginning in MY 2008 09 and lasting through MY 2010 11 (Figure 3). Ending stocks for U.S. grain sorghum have remained in the range of 32 to 66 mb since MY 2004 05, with 38 mb of ending stocks (11.2% stocks to use) projected for MY 2010 11. Figure 3. Trends in U.S. Grain Sorghum Use & Ending Stocks During MY 2004 05 thru MY 2010 11 (October 8, 2010 USDA WASDE Report) 320 277 Million Bushels 240 160 80 191 194 184 153 140 113 66 55 57 50 45 32 165 35 53 233 166 160 143 140 95 90 90 90 55 41 38 0 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 Marketing Years Feed+Residual Exports Food, Seed & Industrial Use Ending Stocks Market Implications for U.S. Corn and Grain Sorghum: Projections of MY 2010 11 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 1995 96) Page 6

provide strong underlying fundamental supply demand support U.S. corn and grain sorghum prices for the remainder of 2010 and on into 2011. With U.S. cash corn prices for MY 2010 11 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 2010 11 as a short crop year as opposed to a normal marketing year. Since MY 1973 74, 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 2010 11, 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 2010 11 = 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 2009 10, MY 2008 09 & MY 2007 08, 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 2010 11 = 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 2009 10, MY 2008 09, & MY 2007 08, respectively o U.S. wheat prices in $5.20 $5.80 /bu range in MY 2010 11 (vs $4.87 /bu in MY 2009 10) 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 2010 11 Projected Wheat Production for MY 2010 11: 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 2010 11 is 2.223 bb (down 41.4 mb from last month, and compared to 2.218 bb from MY 2009 10 and 2.499 bb for MY 2009 10 (Table 3). This projection is based on a) planted area of 53.603 ma (down 702,000 acres from the September Crop Production Report, and down from 59.168 ma in MY 2009 10), b) harvested area of 47.657 ma (down 606,000 acres from the September estimate, and down from 49.893 ma in MY 2009 10), 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 2009 10). Projected Wheat Supply Demand for MY 2010 11: Based on a) beginning stocks of 976 mb (up 319 mb from MY 2009 10), b) 2010 U.S. wheat production of 2.224 bb, and c) imports of 100 mb, total supplies of U.S. wheat for MY 2010 11 are projected to be 3.299 bb (up 39 mb from the September WASDE, and up 306 mb from MY 2009 10). Total use of 2.446 bb (up 10 mb from the last WASDE and up 428 mb from MY 2009 10) consisted of projections of food use of 940 mb (up 23 mb from MY 2009 08), seed use of 76 mb, exports of 1,250 mb (up 369 mb or 42% from MY 2009 10), and feed and residual use of 180 mb (up 10 mb from the September WASDE, and up 30 mb from MY 2009 10). As indicated in the previous WASDE report, U.S. wheat Page 7

exports are projected to increase due to crop production problems in other key wheat exporting counties in MY 2010 11. Ending stocks of U.S. wheat are projected at 853 mb (34.9% S/U) in MY 2010 11 (down 49 mb from the September WASDE, and down 123 mb from MY 2009 10). Projected U.S. wheat ending stocks to use for MY 2010 11 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 2010 11 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 2009 10 average price of $4.87 per bushel. Table 3. U.S. Wheat Supply Demand Balance Sheet: MY 2007 08 through MY 2010 11 Item 2007 08 2008 09 2009 10 2010 11 Planted Area (million acres) 60.5 63.2 59.2 53.6 Harvested Area (million acres) 51.0 55.7 49.9 47.7 Yield per harvested acre (bushels/acre) 40.2 44.9 44.5 46.7 million bushels Beginning Stocks 456 306 657 976 Production 2,051 2,499 2,218 2,224 Imports 113 127 119 100 Total Supply 2,620 2,932 2,993 3,299 Food Use 948 927 917 940 Seed Use 88 78 69 76 Exports 1,263 1,015 881 1,250 Feed & Residual 16 255 150 180 Total Use 2,314 2,275 2,018 2,446 Ending Stocks 306 657 976 853 % Ending Stocks to Total Use 13.2% 28.9% 48.4% 34.9% U.S. Average Farm Price ($/bushel) $6.48 $6.78 $4.87 $5.20 $5.80 Midpoint = $5.50 U.S. Wheat Use and Ending Stocks Trends During MY 2004 05 through MY 2010 11: Food use of U.S. wheat has been consistently in the range of 910 to 948 mb since MY 2004 05, averaging 928 mb per marketing year (Figure 4). The October WASDE forecast of 940 mb for MY 2010 11 is slightly larger than average for the period. Since MY 2004 05, exports of U.S. wheat have been more variable, ranging from 865 mb to 1.263 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 2007 08, to 657 mb in MY 2008 09, to 973 mb in MY 2009 10, but are projected to decline to 853 mb in MY 2010 11. Page 8

Figure 4. Trends in U.S. Wheat Use and Ending Stocks: MY 2004 05 through MY 2010 11 1,500 1,263 1,250 Million Bushels 750 1,066 1,003 908 306 1,015 657 881 976 853 0 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 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 2010 11 are projected to decline to 174.7 mmt (26.3% S/U), down from 196.5 mmt (30.2% S/U) in MY 2009 10. However, MY 2010 11 ending stocks are still projected to be 50.2 mmt above the 30 year lows in MY 2007 08 of 124.2 mmt ( 20% S/U). Even though MY 2010 11 World wheat stocks are not projected to be as tight as in MY 2007 08, 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 2010 11 = 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 2009 10, MY 2008 09 & MY 2007 08, 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

U.S. Soybean ending stocks in MY 2010 11 = 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 2009 10, MY 2008 09 & MY 2007 08, respectively o U.S. Soybean prices in $10.00 $11.50 /bu range in MY 2010 11 (vs $9.59 /bu in MY 2009 10) Record U.S. soybean exports supporting prices so far in MY 2010 11 MY 2010 11 U.S. Soybean crush, soybean meal exports & soybean oil exports down at least marginally versus MY 2009 10 due to World (South American) competition Projected Soybean Supply Demand for MY 2010 11: In its October 8 th 2010 Crop Production report, USDA NASS projected 2010 U.S. soybean planted acreage at 77.714 ma, down 1.154 ma from the September Crop Production report, but up from 77.451 ma in 2009 (Table 4). Projected 2010 harvested area is 76.823 ma, down 1.163 ma from September, but up from 76.372 ma in 2009. 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 2009. Soybean production in the U.S. is projected to be a record high 3.408 bb in 2010, which is down 75 mb from September, but up from 3.359 bb in 2009 (Table 4). Based on a) MY 2010 11 U.S. beginning stocks of 151 mb (up 13 mb from MY 2009 10), b) 2010 production of 3.408 bb, and c) imports of 10 mb, total supplies of U.S. soybeans for MY 2010 11 are projected to be 3.569 bb (down 74 mb from the September WASDE, but up 57 mb from MY 2009 10). Total use of 3.305 bb consists of domestic crushings of 1.665 bb (up 15 mb from the September WASDE, but down from 1.752 bb in MY 2009 10), record high exports of 1.520 bb (up 35 mb from the September WASDE, and up from the previous record high 1.498 bb in MY 2009 10), seed use of 88 mb, and residual use of 32 mb (down 38 mb from September, but up from 21 mb in MY 2009 10). Ending stocks of U.S. soybeans are projected to be 265 mb in MY 2010 11, which is down 85 mb from the September WASDE, but up from 151 mb in MY 2009 10. 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 2009 10 and MY 2008 09. Average U.S. soybean prices for MY 2010 11 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 2009 10 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 2010 11 are projected to be 9.1 mln. tons, down 21% from the previous year. Exports of U.S. soybean oil in MY 2010 11 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 2010 11 (in the form of methyl ester) is projected to be 2.9 billion lbs., up 45%. Page 10

Table 4. U.S. Soybean Supply Demand Balance Sheet: MY 2007 08 through MY 2010 11 Item 2007 08 2008 09 2009 10 2010 11 Planted Area (million acres) 64.7 75.7 77.5 77.7 Harvested Area (million acres) 64.1 74.7 76.4 76.8 Yield per harvested acre (bushels/acre) 41.7 39.7 44.0 44.4 million bushels Beginning Stocks 574 205 138 151 Production 2,677 2,967 3,359 3,408 Imports 10 13 15 10 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 89 90 90 88 Residual 5 16 21 32 Total Use 3,056 3,047 3,361 3,305 Ending Stocks 205 138 151 265 % 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 2004 05 through MY 2010 11 Period: U.S. soybean exports have trended higher from MY 2005 06 to MY 2010 11 increasing from 940 mb up to 1.520 bb (Figure 5). Projected U.S. soybean crush of 1.665 bb in MY 2010 11 is nearly equal to the lower end of the range of 1.662 bb to 1.808 bb since MY 2004 05. Projected MY 2010 11 ending stocks of 265 mb are the largest since MY 2007 08, but lower than in MY 2005 06 and MY 2006 07. Figure 5. U.S. Soybean Use and Ending Stocks: MY 2004 05 through MY 2010 11 2,100 1,750 1,696 1,739 1,808 1,803 1,662 1,752 1,665 1,498 1,520 Million Bushels 1,400 1,050 700 1,097 940 449 1,116 574 1,159 1,279 350 256 205 138 151 265 0 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 Marketing Years Domestic Crush Exports Seed & Residual Ending Stocks Page 11

Market Implications for U.S. Soybeans: The ongoing strength of U.S. and World soybean prices during MY 2010 11 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 220.8 mmt in MY 2008 09 to 238.4 mmt to 252.47 mmt in MY 2010 11) trends upward with growth in World soybean exports (from 77.3 mmt in MY 2008 09 to 92.8 mmt to 95 mmt in MY 2010 11). In MY 2008 09 China accounted for 41.1 mmt (53%) of World soybean imports, followed by 50.5 mmt (58%) in MY 2009 10, and a projected level of 55 mmt (59%) in MY 2010 11. Projected World soybean ending stocks in MY 2010 11 of 61.42 mmt are greater than ending stocks levels of 60.44 mmt in MY 2009 10 and 43.98 mmt in the tight supply year or MY 2008 09. This may indicate a relatively small margin for error (17.44 mmt or 6.8% of projected MY 2010 11 World soybean production) between ending stocks projections for the current marketing year, and those in the most recent short crop year in MY 2008 09. Given current USDA WASDE projections for MY 2010 11 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 2010 11). 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 2010 11. 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 2010 11, 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