Summer Crossroads: Volatility and Opportunity Bryce Knorr Farm Futures Magazine
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.
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: $4.5775 November Soybeans May s/u below 15% 14 times since 1995 Jun/Nov highs > fall highs 14 times Fall high $10.375 = Min rally $10.85 BUSINESS AND MARKETING TOOLS FOR PROFITABLE FARMING
Key Trends From Drought to Floods Acreage Questions/Yield Uncertainty El Nino Is Back Large Global Supplies Competition Strong Chinese Bubble Wither Wall Street?
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
Wet Month
Remnants of Bill
Widespread Last Week
Rain Shifts South
Cool, Wet July
Cool In Western Midwest
World Weather - Europe
Former Soviet Union
China
Long-Term Worries
El Nino?
Australia
Corn Questions How many acres? Potential for yields Large old crop leftover stocks Bird flu impact Ethanol s future Export competition
Average: 168.4 Range: 167.4 to 169.4 176.0 Projected U.S. Corn Yields 174.0 172.0 170.0 168.0 166.0 164.0 5/20 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
Big Drop
Good Potential
Production Outpaces Demand Corn Supply Vs. Demand 14000 12000 million bushels 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 TOTAL USE TOTAL PRODUCTION
Feed Slowly Improves U.S. Corn Feed Usage million bushels 7000 6000 5000 4000 3000 2000 1000 0 70 73 76 79 82 85 88 91 94 97 00 03 06 09 12 15
Bird Flu Impact
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 5,000-2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: USEIA Production Stocks
But RFS Isn t Dead Yet thousand barrels Stocks 24000 23000 22000 21000 20000 19000 18000 17000 16000 15000 14000 Weekly Ethanol Production and Stocks Production 1050 1000 950 900 850 800 750 700 650 600 6/4/10 6/4/11 6/4/12 6/4/13 6/4/14 6/4/15 Ending stocks Daily Production thousand barrels
Too Good 2.85 2.8 2.75 2.7 2.65 2.6 2.55 2.5 Ethanol plants achieve record efficiency gallons produced from each bushel of corn, crop year Source: USDA, EIA
Prices Try To Recover
DDGSs Should Bounce Back
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
Slow Start 300.0 Total Next Year's Corn Sales (Year to Date) 250.0 200.0 150.0 100.0 50.0 0.0
Long-Term Trend Loses Market Share U.S. Share Of World Corn Exports 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
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 9/1/2013 10/1/2013 11/1/2013 12/1/2013 1/1/2014 2/1/2014 3/1/2014 4/1/2014 5/1/2014 6/1/2014 7/1/2014 8/1/2014 9/1/2014 10/1/2014 11/1/2014 12/1/2014 1/1/2015 2/1/2015 3/1/2015 4/1/2015 5/1/2015 6/1/2015
China Buys Total Sorghum Sales & Shipments (Year to Date) 350 300 250 200 150 100 50 0 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Total Commitments % of USDA Forecast
Good Start 90 New Crop Sorghum Sales (Year to Date) 80 70 60 50 40 30 20 10 0
Corn Supply & Demand USDA 2013 2014 2015 2014 2014 2015 2015 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 157.7 171.0 166.8 173.2 173.2 168.5 163.7 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 36 25 25 28 20 18 18 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
Investors Back?
Money Flow Bearish total contracts Tracking the funds net position, ag contracts 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 - (200,000) (400,000) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: CFTC Hedge Funds Index Funds
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 1,000,000 500,000 - Source: CFTC
Fuel For Fire Commitment of Traders - Corn net position in contracts 600000 500000 400000 300000 200000 100000 0-100000 -200000-300000 1/06 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
Need Move Above $4.40 December Corn Bull vs Bear Years 495 320 445 395 300 280 260 345 295 240 220 245 11/1 1/1 3/1 5/1 7/1 9/1 11/1 200 Bull Market Dec-15 Year-after bull Normal Year
Breakout
Look Familiar? Summer Rally: 6/16-7/6
June 93 Was Wet
July 93 Even Wetter
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 14.1 27.1 34.2 45.1 47.1 47.5 Ave Loss - Down Year (13.2) (20.0) (26.5) (27.9) (32.4) (35.1) Biggest Gain 36.0 109.8 113.5 130.8 126.0 117.8 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 1974-2014. 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.
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?
5.1 Million Acres Left
Kansas/Missouri Slow
48.5 48.0 47.5 47.0 46.5 46.0 45.5 45.0 Average: 46 bpa Range 45.6 to 46.4 Projected U.S. Soybean Yields 44.5 6/1 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
Yield Potential Iowa/Nebraska Good
More Slippage
New Crop Stocks Build Soybean Supply Vs. Demand 4,500 4,000 million bushels 3,500 3,000 2,500 2,000 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Production Demand
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
Record Exports 1,000 MT Soymeal Export Commitments 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 2014 2015 2013 2014 5 Year Average
Weak Peso Bullish
Oil Gains Percentage Of Crush Margin From Soybean Oil 55% 50% 45% 40% 35% 30% 25% 20% 1990 1993 1996 1999 2002 2005 2008 2011 2014
Palm Oil Led
U.S. Exports At Record Pace Million Bushels 2000 1800 1600 1400 1200 1000 800 600 400 200 0 Total Soybean Sales & Shipments (Year to Date) 104% 102% 100% 98% 96% 94% 92% 90% 88% Total Commitments % of USDA Forecast
New Crop Demand Million Bushels 500 450 400 350 300 250 200 150 100 50 0 Next Year's Soybean Sales (Year to Date)
But Market Share Falls Percentage of World Export Market 1000s metric tons 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 U.S. Agentina Brazil
Expansion Continues Total Production 300,000 1000s metric tons 250,000 200,000 150,000 100,000 50,000 0 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 U.S. Agentina Brazil
Real Still Weak
Best Of Both Worlds
World Demand Grows MMT 350,000 World soybean demand 300,000 250,000 200,000 150,000 100,000 50,000 -
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 -
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 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 GDP $25,000 $20,000 $15,000 $10,000 $5,000 $0 Imports GDP
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 % 16 14 12 10 8 6 4 2-1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 0 Imports GDP
Chinese Bubble?
Crush Margins Weak China Crush Margin Chinese Soybeans Imported U.S. Soybeans 1,500.00 1,000.00 500.00 0.00-500.00-1,000.00-1,500.00-2,000.00 3/16/2012 3/16/2013 3/16/2014 3/16/2015
30% White Knight U.S. Soybeans Stocks/Use 25% 20% stocks/use 15% 10% 5% 0%
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% 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014
Crucial Time November Soybean Futures Seasonal Trends 850 1,050 Averages 750 650 1,000 950 900 850 550 12/6 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
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 31.4 50.8 63.8 63.9 75.0 Ave Loss - Down Year (36.9) (44.9) (58.6) (67.7) (73.5) Biggest Gain 114.5 117.0 240.3 204.5 306.0 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 1974-2014. 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.
Funds Flip Long Commitment of Traders - Soybeans net position in contracts 250000 200000 150000 100000 50000 0-50000 -100000-150000 1/06 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
Upside Potential
Rally: 6/4 7/19 26% = $11.35 Now
Soybean Supply & Demand USDA Bryce 2013 2014 2015 2014 2014 2015 2015 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 44.0 47.8 46.0 47.8 47.1 45.6 46.4 Beginning stocks 141 92 330 92 92 233 345 Production 3,359 3,969 3,850 3,969 3,869 3,771 3,880 Imports 72 30 30 30 31 31 31 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 99 98 92 101 98 105 105 Residual 0 38 38 7 (0) 76 80 Use, total 3,478 3,761 3,736 3,749 3,759 3,744 3,787 Ending stocks 92 330 475 345 233 291 469 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*
Wheat Holds Up 52 U.S. Winter Wheat Yields 50 48 46 44 42 40 38 10/19 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
Soft Red/White Wheat Slump
Above Average Projected U.S. Spring Wheat Yields 50.0 49.0 48.0 47.0 46.0 45.0 44.0 43.0 42.0 5/18 6/1 6/15 6/29 7/13 7/27 8/10 8/24 9/7 U.S. Model Previous year State Model
Too Much Wheat World Wheat Supply and Demand 750,000 700,000 1000s metric tons 650,000 600,000 550,000 500,000 450,000 400,000 1980 1985 1990 1995 2000 2005 2010 2015 Production Consumption
World Wheat Stocks Adequate Total World Wheat Ending Stocks 250,000 200,000 150,000 100,000 50,000 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Market Changed 30% 25% Dramatic change in U.S. wheat exports since record year of 1992 percentage of total exports 1992 2014 20% 15% 10% 5% 0% Source: USDA
Bullish Shift But Below Fall Highs Chicago December Futures 540 515 490 465 440 415 390 365 340 315 290 1/6 3/6 5/6 7/6 9/6 11/6 650 630 610 590 570 550 530 510 490 470 450 2 0 1 5 Bull Non-Bull Year-After Bull Dec. 2015
Losses Will Be Needed Around World To Make A Difference Wheat Supply & Demand Table USDA Bryce 2013 2014 2015 2014 2015 2015 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 47.3 43.6 44.2 43.6 44.6 46.5 Beginning stocks 718 590 712 590 753 753 Production 2,135 2,026 2,121 2,024 2,112 2,203 Imports 169 148 140 145 129 129 Supply, total 3,022 2,764 2,973 2,759 2,994 3,085 Food 954 960 967 960 970 961 Seed 77 77 72 75 71 71 Feed and residual 223 160 195 123 171 191 Domestic, total 1,254 1,197 1,234 1,158 1,211 1,223 Exports 1,176 855 925 851 987 987 Use, total 2,431 2,052 2,159 2,009 2,199 2,211 Ending stocks 590 712 814 753 795 874 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 2014 2015 2015 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 2014 2015 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
Wheat Could Follow Corn
Recommendations Corn 95% sold 2014 @ $4.60 futures 30% sold 2015 @ $4.46 futures Soybeans 95% sold 2014 @ 11.19 futures 20% sold 2015 @ 10.154 futures Wheat 100% sold 2014 SRW @ $6.32 futures 50% sold 2015 SRW @ $5.99 futures
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