Market Outlook & Price Projections: Corn, Wheat, Soy Complex & Palm Oil October 7 th, 2016 Patrick Sparks Global Risk Management, Inc. psparks@grmcorp.com 651-209-9503 www.grmcorp.com 1 Commodity trading is not suitable for all investors. There is an inherent risk of loss associated with trading commodity futures and options on futures contracts, even when used for hedging purposes. Only risk capital should be used when investing in the markets. Past performance is not indicative of future results
Production, MMT Ending Stocks, MMT Production, MMT Ending Stocks, MMT Production, MMT Ending Stocks, MMT 1,200 1,000 800 600 400 World Corn Production Ending Stocks 250 200 150 100 World Corn: Record ending stocks Production outstripping demand this year 200 50 0 10/11 11/12 12/13 13/14 14/15 15/16 16/17 0 760 740 720 700 680 660 640 620 600 350 300 250 200 150 100 50 0 2 World Wheat Production Ending Stocks 10/11 11/12 12/13 13/14 14/15 15/16 16/17 World Soybeans Production Ending Stocks 10/11 11/12 12/13 13/14 14/15 15/16 16/17 300 250 200 150 100 50 0 90 80 70 60 50 40 30 20 10 0 World Wheat: Record ending stocks 4 straight years of record production World Soybeans: Ending stocks to fall slightly, 2 nd year in a row Record production 4/5 years Consumption growth has averaged 5% over last 5 years
2016/17 U.S. Grain and Soy Export Sales: the cure for low prices is.low prices Total Export Commitments vs. Last Year Corn: +87% vs. USDA forecasting +14% Wheat: +27% vs. USDA forecasting +23% Soybeans: +30% vs. USDA forecasting +2% 3
U.S. Weather - % of Normal Precipitation (30 days): heavy rainfall over the last 30 days has slowed harvest in some areas 4 Chart: HPRCC
5 CORN UPDATE
Corn Price Situation to Date: U.S. droughts in 2010 and 2011 Back to back record production in 2013 & 2014 rebuilds ending stocks from extremely tight levels 2012, U.S. experiences worst drought since the Dust Bowl Projected record yield in 2016 pushes prices to 7 year low 6
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Yiled (bushels per acre) U.S. Corn Yields: only twice in the last 53 years (4%) have we seen 5 straight above trend yields U.S. Corn Yields vs. 15-Year Trend (1987-2016) 180 170 160 150 140 130 120 110 100 90 Yield 15-Year Trend = Record Yield - 8/30 years (26%) = Record yield - 1/30 years (3%) = Consecutive record yields - 8/30 years (26%) = 5% below trend yield 80 7
Million Bushels U.S. Corn Ending Stocks: highest in 29 years 2,500 U.S. Corn Ending Stocks 2,000 1,500 1,000 500 0 8
Million Bushels U.S. Corn Demand Outlook: 6,500 Exports Feed Use Ethanol 5,500 4,500 3,500 Ethanol demand has plateaued 2,500 1,500 500 Exports picking up but strong production of other World exporters will keep competition high Feed projected to improve but limited by animal numbers and an abundance of feed alternatives Ethanol after avg. annual growth of 26% from 06 11, that rate is just 1% over the last 5 years 9
Production (MMT) Exports (MMT) South American Corn Supply: current corn/soybean price relationships suggest increased corn area this year Argentina Production Brazil Production Combined Exports 120 100 80 60 40 20 0 60 50 40 30 20 10 0 10
% Difference from Yearly Avg. Seasonality: under normal conditions, corn prices are pressured into the fall as the new crop harvest makes its way to the market 6% Corn Seasonal (10 Year) 4% 2% 0% -2% -4% -6% -8% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 11
12 Corn Price Seasonal: even in fundamentally bearish years, corn prices tend to rally into the first half of the next year from the harvest lows
Percent Change from Prior December Corn Price Seasonal: volatility in all years is biased to upside in Jan-June. July forward bias shifts depending on whether a Bull or Bear year. 40% Corn Seasonal: Nearby Monthly Average vs. Previous Dec (1988-2015) Bear Years Bull Years 2016 30% 20% BULL 10% 0% -10% 2016 BEAR -20% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 13
$/bushel ES/U% Forward Corn Prices: current ES/U % estimates relative to historical relationships show that corn could potentially trade lower from current levels CBOT Corn: Average Crop Year Price (Nearby Prices) Price Ending Stocks/Use $8.00 20% $7.00 $6.00 $5.00 $4.00 18% 16% 14% 12% 10% $3.00 $2.00 $1.00 $3.59 $3.95 8% 6% 4% 2% $- 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Strip 2017 Strip 0% 14 Note: based on Sep Aug crop year,
Corn Price Forward Outlook: Short term price range $3.50 - $3.00 (CZ16), current market = $3.40 Long term hazards (bullish scenario) Lower U.S. corn acres in 2017 Seasonal price strength Long term opportunities (bearish scenario) Brazil/Argentina production/export increases China policy de-stocking, export potential 15
16 WHITE CORN UPDATE
White Corn Market Highlights: Huge increase in U.S. white corn acres this year Good growing conditions keeps U.S. yield estimates high Record U.S. production should replenish stocks Record U.S. exports are projected for the coming year White corn premiums weakening once we get into harvest Mexico production looks solid but demand stays elevated 17
'000 Acres U.S. White Corn Planted Acres: big increase in acres this year as high premiums encouraged a 24% YOY gain in plantings 1,000 900 800 700 932 926 780 861 716 U.S. White Corn Planted Acres 822 743 693 729 703 732 722 729 733 909 600 607 596 500 400 300 200 100 0 18
U.S. All White Corn - Planted Acres % GMO 2008 3% 2009 35% 2010 48% 2011 55% 2012 60% 2013 64% 2014 67% 2015 68% 2016 72% Widespread acceptance of GMO by end users, producers and importers 19
Million Bushels U.S. White Corn Ending Stocks: build substantially from last years ultra tight levels. The large acreage base this year provides some cushion for yield adversity this year 18 U.S. White Corn Ending Stocks 16 15.43 14.17 14.85 14 12 10 13.48 10.58 Imported Mexican corn 10.15 12.87 10.34 8 7.86 6.64 6 4 5.30 4.42 5.29 4.89 3.88 2 1.19 1.10 0 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 20
Million Bushels U.S. White Corn Exports: tight World stocks of white corn increased imports from 2 nd tier U.S. customers 80 Cumulative U.S. White Corn Exports Million Bushels 70 60 50 40 30 20 10 0 5 Year Range 13/14 14/15 15/16 21
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Bushels/Acre RSA Yield: lowest yield since 2007 and one of the worst ever relative to trend 90.0 RSA Yield 80.0 79.2 70.0 68.5 68.6 72.5 68.0 65.6 60.0 61.3 59.7 55.1 52.1 52.1 50.0 40.0 46.0 44.5 44.2 45.0 41.8 41.8 42.3 40.5 39.1 Trending higher due to better cultivars, farming practices, GMO adaptation 48.6 30.0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 23
GRM Mission Trip to South Africa with USGC- May 16 Purpose Government policy GMO restrictions Food safety vs. food crisis dilemma Cultural norms yellow corn is for animals Socioeconomic status splits U.S. market outlook shocks RSA government Won t Argentina just grow WC for us Trait approval process DAFF expediting the process given the situation August update/future implications Slow but promising 24
2016 - Global White Corn Summary Mexico Adequate rainfall allowed for normal development of the crop in most parts of Mexico Strong global white corn demand will keep bringing buyers to Mexico to support their needs United States Massive acreage increase this year, favorable growing conditions throughout the summer support a strong yield South Africa Record prices for both white and yellow corn early in 2016, Becomes a net importer Large increases in planted acres is expected for the coming year in response to the high prices Overall U.S. ending stocks tightened to uncomfortable levels this year but stocks look to replenish U.S. premiums to yellow corn are falling as we get into new crop With a return to normal weather, South Africa should go back to being a net exporter U.S. exports are projected to be a record for the coming year 25
26 WHEAT UPDATE
KC Wheat Price Situation to Date: High corn prices. Poor Russian Production 4 straight years of record World wheat production puts World wheat stocks at record levels 2012, U.S. experiences worst drought since dust bowl 27
Ending Stocks (mil. bushels) Production (mil. bushels) U.S. Wheat Supply: no shortage of wheat in the marketplace U.S. All Wheat Ending Stocks 1,200 Ending Stocks Production 2,900 1,000 2,700 800 600 400 2,500 2,300 2,100 1,900 200 1,700 0 1,500 28
U.S. Wheat Exports: lowest market share in modern history in the 15/16 crop year 50% U.S. % Share of Global Wheat Exports (1973-2015) 45% 40% 35% 30% 25% 20% 15% 10% 29
World Wheat Exports: Russia is set to take over as the World s top exporter for the first time in history this year 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% World Share of Wheat Exports (1972-2016) Australia Canada European Union Black Sea United States 30
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 MMT Russian Wheat Exports: has gone from one of the World s largest importers of wheat to one of the largest exporters 30 25 20 Russia Net Wheat Imports/Exports Net Exporter 15 10 5 0-5 -10-15 Net Importer 31
1920 1923 1926 1929 1932 1935 1938 1941 1944 1947 1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 Million Acres U.S. Wheat Acreage: 2017 acres may possibly be the lowest in nearly a century! 90 U.S. All Wheat Planted Acres 85 80 75 70 65 60 55 50 45 32
$/bushel KC Wheat Basis: plenty of low protein wheat available KC HRW 13 Pro +/- HRW Ordinary 33 Chart: The LaSalle Group
Chicago Wheat Seasonal: In years similar to 2016/17, when ESU is greater than 30% and increasing from the previous year, there tends to be limited rallies into the following crop year 34
$/Bushel Wheat/Corn Price Relationships: wheat prices are strongly influenced by corn prices $9.50 KC Wheat Average Crop Year Price vs. U.S. All Wheat Ending Stocks to Use % (2007-2015) $8.50 $7.50 2007 2012 2010 Supported by corn high corn prices $6.50 2013 2008 2011 $5.50 2014 2009 $4.50 Current 2016 2015 $3.50 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% Ending Stocks / Use % 35
$/bushel ES/U% Forward Kansas City Wheat Prices: current ES/U% estimates indicate wheat prices could trade lower from current values Kansas City Wheat: Average Crop Year Price (Nearby Prices) $10.00 $9.00 $8.00 Price Ending Stocks/Use 60% 50% $7.00 $6.00 $5.00 40% 30% $4.00 $3.00 $2.00 $1.00 $0.00 $4.29 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Strip $4.93 2017 Strip 20% 10% 0% 36 Note: based on Jun May crop year, prices as of 10-5-16 close
Wheat Price Forward Outlook: Short term price range $4.25 - $3.75 (KWZ16), current market = $4.06 Long term hazards (bullish scenario) Lower wheat acres highly likely Near record short speculative fund position Current wheat/corn ratio implies cheap wheat Long term opportunities (bearish scenario) Exports unlikely to solve wheat supply glut, need major crop problem Abundance of cheep feed supplies 37
38 SOY COMPLEX UPDATE
Soybean Price Situation to Date: 2012, U.S. experiences worst drought since dust bowl 3 rd straight record crop in South America in 2015 and back to back record U.S. crops Record tight U.S. stocks and strong demand 39
Yiled (bushels per acre) U.S. Soybean Yields: 2016 was the 4 th straight record soybean yield U.S. Soybean Yields vs. 15-Year Trend (1987-2016) Yield 15-Year Trend 55 50 45 = Record Yield - 11/30 years (37%) = Record yield - 6/30 years (20%) = Consecutive record yields - 8/30 years (26%) = 5% below trend yield 40 35 30 25 40
Imports (MMT) Chinese Soy Demand: China buys over 60% of World soybean exports and consumes almost a third of World soybean production Chinese Soybean Imports Imports Avg. 5 Year YOY Growth 90 80 70 60 50 40 30 20 10 0 35% 30% 25% 20% 15% 10% 5% 0% 41
Production (MMT) South American vs. U.S. Production: in 2002, South America took over the U.S. in production size Soybean Production South America United States 190 170 150 130 110 90 70 50 42
Soybean Oil Price Situation to Date: Soybean oil use for Biodiesel increased 78% over the prior year Record demand for soybean meal and good soybean production increases soybean crush, soyoil supplies Tight soyoil stocks and El Nino strikes palm oil areas 43
Million Pounds U.S. Soybean Oil Ending Stocks: projected to tighten this year as record demand pulls on inventories 4000 U.S. Soybean Oil Ending Stocks USDA WASDE Report 3500 3000 2500 2000 1500 1000 500 0 44
02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 Million Pounds U.S. Biodiesel Demand Growth: continues to grow due to government mandated use 7,000 US Soybean Biodiesel Use 6,000 5,500 5,950 5,000 4,874 4,689 5,010 5,037 4,000 3,000 2,763 2,981 2,737 2,000 2,021 1,681 1,000 0 39 125 300 400 45
Yield (lbs/bu.) U.S. Soybean Oil Yields: with a wet finish to this years soybean crop, oil yields are expected to take a significant step back this year 12.0 11.9 11.8 NOPA Soyoil Yield (2009-2015) 2010/11 2011/12 2012/13 2013/14 2014/15 7-Yr Avg 2015/16 11.7 11.6 11.5 11.4 11.3 11.2 11.1 11.0 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep 46 Data: NOPA
% Difference from Yearly Avg. Seasonality: strong rallies are normally seen in the first half of the year with pressure into soybean harvest 8% Soybean Oil Seasonal (10 Year) 6% 4% 2% 0% -2% -4% -6% -8% -10% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 47
$/cwt. Forward Soybean Oil Prices: prices are at the lower end of the 10 year range $60.0 $50.0 CBOT Soyoil: Average Crop Year Price (Nearby Prices) $55.31 $54.00 $52.57 $48.25 $40.0 $38.83 $38.63 $32.15 $34.63 $31.41 $31.20 $33.79 $34.06 $30.0 $27.96 $20.0 $17.20 $21.31 $22.09 $23.82 $10.0 $- 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Strip 2017 Strip 48 Note: based on Oct Sep crop year,
Soybean Oil Price Forward Outlook: Short term price range $34.50 - $31.50 (BOZ16), current price = $33.34 Long term hazards (bullish scenario) Lower soybean oil yields ahead Biodiesel consumption strong Weak soybean meal demand Long term opportunities (bearish scenario) U.S./South America soybean production increasing Palm oil production set to rebound from El Nino 49
50 PALM OIL UPDATE
Supply: the weakness in production in August may signal a more significant hangover from El Nino dryness than initially anticipated as production usually peaks into Sep/Oct. 51 Chart: LaSalle
Supply: the resurgence in export demand and the slow seasonal growth in palm oil production has created an uncomfortably tight situation with ending stocks now at their lowest in 6 years. 52 Chart: LaSalle
Palm Oil Prices: dwindling stocks shot the market up to 4 year highs but the rally has stalled out as the market is choosing to focus on stocks rebounding on weaker demand moving forward 53
54 THANK YOU!