BUSINESS AND MARKETING TOOLS FOR PROFITABLE FARMING. Summer Crossroads: Volatility and Opportunity. Bryce Knorr Farm Futures Magazine

Transcription

1 Summer Crossroads: Volatility and Opportunity Bryce Knorr Farm Futures Magazine

2 Don t Bury The Lead Why were soybeans up more than 50 cents despite higher acres? 2014 crop likely smaller Acreage up in the air The report changed everything; the report changed nothing. We could still see beans with an 8 or a 9 or beans with an 11 or 12 handle.

3 Stocks/Use Ratios Favor Rebounds December Corn May s/u below 13% 9 times since 1995 Mar/May highs > fall highs 8 times Fall high $4.39 = Min rally: $ November Soybeans May s/u below 15% 14 times since 1995 Jun/Nov highs > fall highs 14 times Fall high $ = Min rally $10.85 BUSINESS AND MARKETING TOOLS FOR PROFITABLE FARMING

4 Key Trends From Drought to Floods Acreage Questions/Yield Uncertainty El Nino Is Back Large Global Supplies Competition Strong Chinese Bubble Wither Wall Street?

5 Prospects Improve $300 Average U.S. Profit/Loss Per Acre Assumes average cash prices and costs with current yield for 2015 $250 $200 $150 $100 $50 $0 $50 $100 Corn Soybeans Wheat $150 Source: USDA, *Farm Futures Projections

6 Wet Month

7 Remnants of Bill

8 Widespread Last Week

9 Rain Shifts South

10 Cool, Wet July

11 Cool In Western Midwest

12 World Weather - Europe

13 Former Soviet Union

14 China

15 Long-Term Worries

16 El Nino?

17 Australia

18 Corn Questions How many acres? Potential for yields Large old crop leftover stocks Bird flu impact Ethanol s future Export competition

19 Average: Range: to Projected U.S. Corn Yields /20 6/3 6/17 7/1 7/15 7/29 8/12 8/26 9/9 9/23 10/7 10/21 11/4 National Model Last year State Model

20 Big Drop

21 Good Potential

22 Production Outpaces Demand Corn Supply Vs. Demand million bushels TOTAL USE TOTAL PRODUCTION

23 Feed Slowly Improves U.S. Corn Feed Usage million bushels

24 Bird Flu Impact

25 Ethanol Production Levels Off thousand barrels Monthly U.S. ethanol production and stocks 35,000 30,000 25,000 20,000 15,000 10,000 5, Source: USEIA Production Stocks

26 But RFS Isn t Dead Yet thousand barrels Stocks Weekly Ethanol Production and Stocks Production /4/10 6/4/11 6/4/12 6/4/13 6/4/14 6/4/15 Ending stocks Daily Production thousand barrels

27 Too Good Ethanol plants achieve record efficiency gallons produced from each bushel of corn, crop year Source: USDA, EIA

28 Prices Try To Recover

29 DDGSs Should Bounce Back

30 Margins Ease $6.50 $6.00 $5.50 $5.00 $4.50 $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 $0.50 Illinois Ethanol Margins

31 Slow Start Total Next Year's Corn Sales (Year to Date)

32 Long-Term Trend Loses Market Share U.S. Share Of World Corn Exports 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

33 Plenty Of Competition Spot Corn Delivered To Japan Gulf Brazil Argentina Ukraine $8.00 $7.50 $7.00 $6.50 $6.00 $5.50 $5.00 $4.50 $4.00 9/1/ /1/ /1/ /1/2013 1/1/2014 2/1/2014 3/1/2014 4/1/2014 5/1/2014 6/1/2014 7/1/2014 8/1/2014 9/1/ /1/ /1/ /1/2014 1/1/2015 2/1/2015 3/1/2015 4/1/2015 5/1/2015 6/1/2015

34 China Buys Total Sorghum Sales & Shipments (Year to Date) % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Total Commitments % of USDA Forecast

35 Good Start 90 New Crop Sorghum Sales (Year to Date)

36 Corn Supply & Demand USDA Bearish Bullish Area Case Case Bearish Bullish Planted 95,365 90,597 89,199 89,434 89,434 88,449 88,449 Harvested 87,668 83,136 81,699 82,057 82,057 80,755 80,755 Yield Beginning stocks 821 1,234 1,876 1,234 1,234 1,831 1,778 Production 13,829 14,216 13,630 14,216 14,216 13,605 13,220 Imports Supply, total 14,687 15,475 15,531 15,477 15,469 15,453 15,015 Feed and residual 5,034 5,250 5,300 5,303 5,303 5,416 5,186 Food, seed and ind. 6,501 6,522 6,560 6,522 6,522 6,560 6,522 Domestic, total 11,535 11,772 11,860 11,825 11,825 11,976 11,708 Exports 1,917 1,825 1,900 1,825 1,878 1,854 1,830 Use, total 13,452 13,597 13,760 13,650 13,703 13,830 13,538 Ending stocks 1,234 1,876 1,771 1,831 1,778 1,581 1,487 Ave. cash price $4.46 $3.65 $3.50 $3.76 $3.91 $3.74 $3.69 to $4.45 to $4.61 Stocks to use 9.2% 13.8% 12.9% 13.4% 13.0% 11.4% 11.0% Ave. nearby futures $4.45 $3.71 $4.16 $4.24 $4.16 $4.11 to $4.94 to $5.01 Top Third of Price Range* *Achieved Bryce's Forecast $4.36 to $4.75* $4.44 to $4.84* $4.98 to $5.41 $4.99 to $5.42 Tighter 2014 Stocks, Less 2015 Corn = Rally Potential

37 Investors Back?

38 Money Flow Bearish total contracts Tracking the funds net position, ag contracts 1,600,000 1,400,000 1,200,000 1,000, , , , ,000 - (200,000) (400,000) Source: CFTC Hedge Funds Index Funds

39 Top Of Corn Range Net open interest in corn (futures and options) 3,000,000 2,500,000 net contracts 2,000,000 1,500,000 1,000, ,000 - Source: CFTC

40 Fuel For Fire Commitment of Traders - Corn net position in contracts /06 1/07 1/08 1/09 1/10 1/11 1/12 1/13 1/14 1/15 Source: CFTC $9.00 $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 nearby futures Index funds Hedge funds Futures

41 Need Move Above $4.40 December Corn Bull vs Bear Years /1 1/1 3/1 5/1 7/1 9/1 11/1 200 Bull Market Dec-15 Year-after bull Normal Year

42 Breakout

43 Look Familiar? Summer Rally: 6/16-7/6

44 June 93 Was Wet

45 July 93 Even Wetter

46 Midway Through Average Rally December Corn Futures Seasonal Trend Start Date +1 Week +2 Weeks +3 Weeks +4 Weeks +5 Weeks +6 Weeks 6/29 7/6 7/13 7/20 7/27 8/3 8/10 Ave. Gain/Loss (2.5) (2.8) (8.1) (6.6) (7.2) (6.9) % Up 16/41 15/41 12/41 12/41 13/41 14/41 % Down 25/41 26/41 28/41 29/41 28/41 27/41 Ave. Gain - Up year Ave Loss - Down Year (13.2) (20.0) (26.5) (27.9) (32.4) (35.1) Biggest Gain Biggest Loss (76.3) (130.5) (188.5) (159.3) (252.8) (222.0) 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.

47 Soybean Questions How big was 2014 crop? How much prevent plant? Wet feet? When will China buy? Time for vegetable oil? More South American expansion?

48 5.1 Million Acres Left

49 Kansas/Missouri Slow

50 Average: 46 bpa Range 45.6 to 46.4 Projected U.S. Soybean Yields /1 6/15 6/29 7/13 7/27 8/10 8/24 9/7 9/21 10/5 10/19 State Model State model -- last year U.S. Model

51 Yield Potential Iowa/Nebraska Good

52 More Slippage

53 New Crop Stocks Build Soybean Supply Vs. Demand 4,500 4,000 million bushels 3,500 3,000 2,500 2, Production Demand

54 Crush Strong $3.00 CBOT Crush Margin $2.50 $2.00 $1.50 $1.00 $0.50 $- 1/3/2012 1/3/2013 1/3/2014 1/3/2015

55 Record Exports 1,000 MT Soymeal Export Commitments 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000, Year Average

56 Weak Peso Bullish

57 Oil Gains Percentage Of Crush Margin From Soybean Oil 55% 50% 45% 40% 35% 30% 25% 20%

58 Palm Oil Led

59 U.S. Exports At Record Pace Million Bushels Total Soybean Sales & Shipments (Year to Date) 104% 102% 100% 98% 96% 94% 92% 90% 88% Total Commitments % of USDA Forecast

60 New Crop Demand Million Bushels Next Year's Soybean Sales (Year to Date)

61 But Market Share Falls Percentage of World Export Market 1000s metric tons 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% U.S. Agentina Brazil

62 Expansion Continues Total Production 300, s metric tons 250, , , ,000 50, U.S. Agentina Brazil

63 Real Still Weak

64 Best Of Both Worlds

65 World Demand Grows MMT 350,000 World soybean demand 300, , , , ,000 50,000 -

66 China Controls 2/3 s Of World Soybean Trade MMT 90,000 Chinese soybean imports 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 -

67 Economy Fuels Imports MMT 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 - Chinese soybean imports vs GDP GDP $25,000 $20,000 $15,000 $10,000 $5,000 $0 Imports GDP

68 When Growth Sputters MMT 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 Chinese soybean imports vs GDP Growth GDP % Imports GDP

69 Chinese Bubble?

70 Crush Margins Weak China Crush Margin Chinese Soybeans Imported U.S. Soybeans 1, , , , , /16/2012 3/16/2013 3/16/2014 3/16/2015

71 30% White Knight U.S. Soybeans Stocks/Use 25% 20% stocks/use 15% 10% 5% 0%

72 World Supplies Still Relatively Big World soybean stocks to use 35% 30% 25% e s u20% to s k c 15% to s 10% 5% 0%

73 Crucial Time November Soybean Futures Seasonal Trends 850 1,050 Averages , /6 1/6 2/6 3/6 4/6 5/6 6/6 7/6 8/6 9/6 10/6 11/6 800 Non-Bull Years Year-after bull Bull Years Nov. 2015

74 Better Soybean Odds November Soybean Futures Seasonal Trends Start Date +1 Week +2 Weeks +3 Weeks +4 Weeks +5 Weeks 6/29 7/7 7/14 7/21 7/25 8/1 Ave. Gain/Loss (1.9) (0.5) (4.8) (13.2) (8.3) % Up 51% 46% 44% 41% 44% % Down 49% 54% 56% 59% 56% Ave. Gain - Up year Ave Loss - Down Year (36.9) (44.9) (58.6) (67.7) (73.5) Biggest Gain Biggest Loss (102.5) (141.8) (156.5) (221.0) (194.5) 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.

75 Funds Flip Long Commitment of Traders - Soybeans net position in contracts /06 1/07 1/08 1/09 1/10 1/11 1/12 1/13 1/14 1/15 Source: CFTC $20.00 $18.00 $16.00 $14.00 $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 $0.00 nearby futures Index funds Hedge funds Futures

76 Upside Potential

77 Rally: 6/4 7/19 26% = $11.35 Now

78 Soybean Supply & Demand USDA Bryce Bullish Area Current Case Bullish Bearish Planted 76,840 83,701 84,635 83,701 83,236 83,760 84,635 Harvested 76,253 83,061 83,700 83,061 82,126 82,613 83,610 Yield Beginning stocks Production 3,359 3,969 3,850 3,969 3,869 3,771 3,880 Imports Supplies, total 3,570 4,091 4,211 4,093 3,993 4,035 4,256 Crushings 1,734 1,815 1,830 1,817 1,810 1,805 1,805 Exports 1,647 1,810 1,775 1,823 1,852 1,759 1,798 Seed Residual (0) Use, total 3,478 3,761 3,736 3,749 3,759 3,744 3,787 Ending stocks Ave. cash price $13.00 $10.05 $9.00 $9.90 $11.13 $10.52 $8.76 Ave. nearby fut. $13.33 $10.66 $11.89 $11.27 $9.37 (To-Date) $9.86 Stocks to use 2.6% 8.8% 12.7% 9.2% 6.2% 7.8% 12.4% Bean Stocks Estimates Vary Top Third of Price Range* * fulfilled $10.66 to $11.56* $11.89 to $12.89* $12.22 to $13.17 $10.17 to $10.97*

79 Wheat Holds Up 52 U.S. Winter Wheat Yields /19 11/19 12/19 1/19 2/19 3/19 4/19 5/19 6/19 Last Year State-by-State yields National Yield Model

80 Soft Red/White Wheat Slump

81 Above Average Projected U.S. Spring Wheat Yields /18 6/1 6/15 6/29 7/13 7/27 8/10 8/24 9/7 U.S. Model Previous year State Model

82 Too Much Wheat World Wheat Supply and Demand 750, , s metric tons 650, , , , , , Production Consumption

83 World Wheat Stocks Adequate Total World Wheat Ending Stocks 250, , , ,000 50,

84 Market Changed 30% 25% Dramatic change in U.S. wheat exports since record year of 1992 percentage of total exports % 15% 10% 5% 0% Source: USDA

85 Bullish Shift But Below Fall Highs Chicago December Futures /6 3/6 5/6 7/6 9/6 11/ Bull Non-Bull Year-After Bull Dec. 2015

86 Losses Will Be Needed Around World To Make A Difference Wheat Supply & Demand Table USDA Bryce Area Current Small Big Planted 56,156 56,822 56,079 56,822 56,079 56,079 Harvested 45,157 46,476 48,000 46,476 47,502 47,502 Yield Beginning stocks Production 2,135 2,026 2,121 2,024 2,112 2,203 Imports Supply, total 3,022 2,764 2,973 2,759 2,994 3,085 Food Seed Feed and residual Domestic, total 1,254 1,197 1,234 1,158 1,211 1,223 Exports 1, Use, total 2,431 2,052 2,159 2,009 2,199 2,211 Ending stocks Average price $6.87 $6.00 $4.90 $5.66 $5.17 $4.87 Stocks to use ratio 24.3% 34.7% 37.7% 37.5% 36.2% 39.5% Ave. Nearby Futures Chicago $5.66 $5.12 $4.86 Kansas City Hard Red $4.67 $5.33 $5.10 Minneapolis $6.14 $5.35 $5.08 Top Third of Price Range Small 2015 Big Chicago* $5.66 to $6.30* $5.63 to $6.15* $5.30 to $5.74* Kansas City Hard Red* $4.67 to $5.33* $5.85 to $6.38* $5.48 to $5.96* Minneapolis* $6.14 to $6.86* $5.93 to $6.51* $5.99 to $6.44* *Achived

87 Wheat Could Follow Corn

88 Recommendations Corn 95% sold $4.60 futures 30% sold $4.46 futures Soybeans 95% sold futures 20% sold futures Wheat 100% sold 2014 $6.32 futures 50% sold 2015 $5.99 futures

89 Weekly Reviews Farm Futures Daily