Soybeans face make or break moment Futures need a two-fer to avoid losses By Bryce Knorr, senior grain market analyst

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1 Soybeans face make or break moment Futures need a two-fer to avoid losses By Bryce Knorr, senior grain market analyst A year ago USDA shocked the market by cutting its forecast of soybean production, helping trigger a rally that gave growers a shot at selling their record yields for a profit. But it may take even more dramatic news from the agency Jan. 12 to avoid a market that keeps falling into February. Weather in South America is also at a turning point that could be the difference. The seasonal chart for soybeans shows what a crucial time this is. In years of good production futures normally head south for the next month or so. In bullish years the move is higher. Last year was the outlier, as prices rallied despite what was a still good crop. USDA could pull another surprise about yields this year if our Farm Futures survey is on the money. We found average yields down a half bushel per acre from USDA s last estimate in November, down to 49 bpa. But the impact on production was limited by an increase in acres. Output fell to billion bushels, only 21 below the November projection from the government. Moreover, it s tough to be bullish on demand. My forecast for ending stocks is just a bushel lower than November at 444 million. Crush could be stronger than forecast due to reduced production in Argentina, the world s largest exporter of soy products. But exports are off to a very slow start. USDA cut its forecast of sales in December and may make another reduction this month. Harvest is underway in the center-west of Brazil, where production again looks big. Dry conditions in Argentina will cut the harvest there but gains to the north should offset some of these losses. And Brazil is still selling some of its huge crop from a year ago, providing unneeded competition for the U.S. Cash prices out of the Gulf are lower than Brazil, but better quality from South America is apparently keeping its beans competitive. Old crop prices normally recover after the February break, but growers should be focusing on new crop now. I ve recommended being mostly out of 2016 production after getting multiple chances to sell for a profit. The average U.S. cost of production for 2017 was around $9.15 a bushel, which was available in the cash market despite weak basis. Growers still needing to make sales should look at carry of five cents a month in the futures market and determine what it does to their bottom line. Implied volatility in the options market is trading at historically very cheap levels, making this another alternative. Soybean production costs per bushel on paper are starting the year looking higher. November futures normally follow the trend seen in old crop, breaking into February. But anything over $10 is a place to start making some sales, to lock in a base going forward. Soybeans should continue to attract plenty of acres in 2018 due to lower costs and better prospects for profits or limiting losses. Chinese demand overall remains good but the U.S. has more competition than ever for that market. A resurgent vegetable oil market could help provide support into spring but normally can go only so far in sparking rallies. Most of the bean s value comes from meal. Exports are better but not enough to make a significant difference on prices right now. Any rally in soybeans could trigger short-covering, giving the market additional lift. Funds are big sellers, despite all the talk about commodities gaining favor again in Soybeans show strong inverse correlations to both stocks and crude oil, the markets that are on fire.

2 Soybean Supply & Demand USDA Area Planted 83,433 90,207 90,639 87,681 Harvested 82,736 89,471 89,899 87,313 Yield Beginning stocks Production 4,296 4,425 4,404 4,193 Imports Supplies, total 4,515 4,752 4,729 4,653 Crushings 1,899 1,940 1,979 1,876 Exports 2,174 2,225 2,161 2,272 Seed Residual Use, total 4,214 4,306 4,284 4,271 Ending stocks Ave. cash price $9.47 $9.30 $9.23 $9.99 Ave. nearby fut. $9.71 $10.16 (To-Date) $9.83 Stocks to use 7.1% 10.3% 10.4% 8.9% Top Third of Price Range $9.63 to $10.42 Bryce $10.21 to $11.04

3 80 SOYBEAN PRICE REACTIONS AFTER DEC. 1 STOCKS REPORT SOUTHERN IOWA CASH PRICE PER BUSHEL Day after Week after SOURCE: USDA

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8 Weekly Export Inspections in million bushels For week of 12/28/17 This Week Last Week Average Trade Guess This Week Last Year Rate Needed to Meet USDA Forecast Year-to- Date Total This Year Year-to- Date Total Last Year WHEAT CORN SOYBEANS ,041 1,213 Source: USDA, Reuters

9 Thousand Bushels Weekly Soybean Export Inspections 120, , ,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 S O N D J F M A M J J A Yr. Avg. SOYBEAN EXPORT INSPECTIONS WEEK ENDING DEC. 28, 2017 Million bushels Mexico, 2.6 Netherlands, 2.9 Japan, 3.3 China, 24.8

10 1,000 MT Soymeal Export Commitments 12,000,000 11,000,000 10,000,000 9,000,000 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000, Year Average 2,000,000 Weekly Export Sales (million bushels) AS OF WEEK ENDING 12/28/17 Wheat Corn Soybeans Old Crop Sales New Crop Sales Total Sales Prior Week Trade Estimates Rate to reach USDA Forecast Export Shipments Rate to reach USDA Forecast Commitments % of USDA est. 73% 61% 81% 5-year average for this week 75% 58% 83% Shipments % of USDA est. 52% 28% 56% 5-year average for this week 55% 27% 57% Source: USDA, Reuters

11 Million bushels Total Soybean Shipments (Year To Date) 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Total Shipments % of USDA Forecast Million Bushels Total Soybean Sales & Shipments (Year to Date) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Total Commitments % of USDA Forecast

12 Unshipped Soybean Sales Million Bushels Final exports Next Year's Soybean Sales (Year to Date) Final Exports New crop sales New crop sales 2,500 2,000 1,500 1, SOURCE: USDA.

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14 900 SEPT-NOV CHINESE SOYBEAN IMPORTS (million bushels) Argentina United States Brazil % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% SHARE OF CHINESE SOYBEAN IMPORTS Argentina Brazil United States Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb March April May June July August Sept Oct Nov Dec Jan Feb March April May June July August Septem October November

15 170,000 Monthly NOPA Crush in thousand bushels, crop year 160, , , , , , ,000 90,000 S O N D J F M A M J J A $2.50 CBOT Crush Margin $2.00 $1.50 $1.00 $0.50 $- 1/3/2014 1/3/2015 1/3/2016 1/3/2017

16 Percentage Of Crush Margin From Soybean Oil 40% 35% 30% 25% 20% 1/1/16 4/1/16 7/1/16 10/1/16 1/1/17 4/1/17 7/1/17 10/1/17 1/1/18

17 35% World soybean stocks to use 30% 25% stocks to use 20% 15% 10% 5% 0% 30% U.S. Soybeans Stocks/Use 25% 20% stocks/use 15% 10% 5% 0%

18 July Soybean Futures Seasonal Trends 1, , , , /30 8/30 9/30 10/31 11/30 12/31 1/31 2/29 3/31 4/30 5/31 6/30 Bull market year July 2017 July 2018 Normal year July Soybean Futures Seasonal Trends Start Date +1 Week +2 Weeks +3 Weeks +4 Weeks +5 Weeks +6 Weeks 1/8 1/15 1/25 2/1 2/5 2/12 2/22 Ave. Gain/Loss 0.8 (4.5) (7.7) (0.6) (2.9) 4.3 % Up 58% 53% 44% 49% 51% 53% % Down 42% 44% 56% 51% 47% 47% Ave. Gain - Up year Ave Loss - Down Year (24.4) (33.9) (33.2) (32.0) (39.4) (41.6) Biggest Gain Biggest Loss (55.5) (83.5) (100.5) (96.5) (98.5) (141.8) This table shows the typical seasonal pattern at weekly intervals from the start date, based on average daily futures prices from Gains and losses are based on the difference between the closing price on the start date and the closing price on the weekly date shown.

19 November Soybean Futures Seasonal Trends Non-Bull Years Bull Years Nov Nov. 2018

20 net position in contracts Commitment of Traders - Soybeans $12.00 $11.50 $11.00 $10.50 $10.00 $9.50 $9.00 $8.50 nearby futures $8.00 1/15 4/15 7/15 10/15 1/16 4/16 7/16 10/16 1/17 4/17 7/17 10/17 1/18 Source: CFTC Index funds Hedge funds Futures Commitment of Traders - Soybean oil net position in contracts nearby futures /15 4/15 7/15 10/15 1/16 4/16 7/16 10/16 1/17 4/17 7/17 10/17 1/18 Source: CFTC Index funds Hedge funds Futures

21 Commitment of Traders - Soybean meal $ $400 net position in contracts $350 $300 $250 nearby futures $200 1/15 4/15 7/15 10/15 1/16 4/16 7/16 10/16 1/17 4/17 7/17 10/17 1/18 Source: CFTC Index funds Hedge funds Futures

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