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1
Fields of Uncertainty
Prepared by Stephen P. NicholsonVice President – RaboReasearch Food & AgribusinessGrain and Oilseed AnalystFebruary 2019
2
Table of Contents
Sections
I A Macro Look
II Corn
III Soybeans
IV Vegetable Oil
V Wheat
5
I. A Macro Look
4
China and the United States Are Talking?!
• Current State of Affairs• 90 day “cooling off” period ends March 1• It appears higher tariffs will be delayed while
talks are ongoing.• China has purchased U.S. soybeans & has
promised to purchase more—YTD: 2.6 MMT versus 24.3 MMT in 2017/18
• U.S. agriculture remains the biggest loser• This will not be solved by March 1.
• U.S. soybeans have been hit the hardest.• U.S. soybeans have become more competitive
in the world market• The supply chain now becomes more
expensive and less efficient.• Other U.S. agricultural products are subject to
Chinese tariffs, e.g. wheat, hay, dairy• U.S. believes they have a strong negotiating
position against China. • “China has more to lose in a trade war than
the U.S.”• Likewise, the Chinese perspective is they have the
upper hand and they are settled in for the long haul.
• The issues surrounding intellectual property, copyright, trademark, following WTO rules etc. are being addressed—these issues are the root of longstanding many trade issues with China.
5
Global Economic Growth Has Been Dialed BackTrade tensions, market volatility, pullback on QE by Central Banks & increasing rates are likely to slow economic growth further.
Source: IMF, October 2018, Rabobank 2019
SE Asia includes Indonesia, Malaysia, Philippines, Thailand & Vietnam
* Projections
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
World Major Advanced Economies China India SE Asia
Percent
7
Weekly U.S. Dollar IndexExpectations U.S. dollar to weaken in 2019, but…
5-yr average = 93.59
8
Major AG Export Competitor’s Currencies Value vs. USD is CrucialDepreciation against USD due to negative changes in their economies—not favorable to U.S. agricultural exports
0
10
20
30
40
50
60
70
80
90
2.00
2.25
2.50
2.75
3.00
3.25
3.50
3.75
4.00
4.25
1/4
/20
16
2/4
/20
16
3/4
/20
16
4/4
/20
16
5/4
/20
16
6/4
/20
16
7/4
/20
16
8/4
/20
16
9/4
/20
16
10
/4/2
016
11
/4/2
016
12
/4/2
016
1/4
/20
17
2/4
/20
17
3/4
/20
17
4/4
/20
17
5/4
/20
17
6/4
/20
17
7/4
/20
17
8/4
/20
17
9/4
/20
17
10
/4/2
017
11
/4/2
017
12
/4/2
017
1/4
/20
18
2/4
/20
18
3/4
/20
18
4/4
/20
18
5/4
/20
18
6/4
/20
18
7/4
/20
18
8/4
/20
18
9/4
/20
18
10
/4/2
018
11
/4/2
018
12
/4/2
018
1/4
/20
19
2/4
/20
19
BRL/USD (Y1) ARS/USD (Y2) RUB/USD (Y2)
Source: Pacific Exchange Rate Service, Rabobank 2019
11
Flattening Yield Curve is a Strong Indicator of Coming Recession
Source: FRED Economic Data, Federal Reserve Bank of St. Louis, Rabobank 2019
• In the past five recessions, the average time period between the yield curve inverting and the coming recession is 19.6 months.
It has ranged between 10-33 months
• The current expansion is over 9 years old and is second only in length to the Mar 1991-Mar 2001 time period
15
Major U.S. Row Crop Planted AcresFirst indication of 2019 U.S. Winter Wheat Plantings showed a 1.245 mln acre decline to 31.29 mlnIn Feb. estimates USDA is Corn planted acres @ 92.0 mln, soybeans @ 85.0 mln & wheat @ 47.0 mln
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
44
48
52
56
60
64
68
72
76
80
84
88
92
96
100
Corn Soybeans All Wheat
Million Acres
* Rabobank projections
Source: USDA, Economic Research Service, Rabobank 2019
Million Acres
16
Global Grain Supply (corn, soybeans and wheat) at Record LevelsCurrent projections indicate the third largest global stocks on record
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
Corn Wheat Soybeans Total Supply (Y2)
1,000 Metric Tons
Source: USDA/FAS, Rabobank 2019
1,000 Metric Tons
5
II. Corn
19
Corn--Bulls and Bears
Bullish Factors
• Strong U.S. exports
• U.S. & global corn stocks & stocks-to-
use ratio declining
• Farmers are holding corn
• Growing livestock numbers
• Solid ethanol exports
• Funds adding to long corn position
Bearish Factors
• Little growth in demand side of balance
sheet
• Farmers are holding corn—large stocks in
country
• Basis levels remain wide—more than
adequate available corn supplies
• Upward revision in Chinese corn stocks
• RFS remains flat & ethanol production
declining in near term
• Flat to declining gasoline use
Swing Factors• Argentine and Brazilian corn crop in 2019
• U.S. Dollar
• U.S. trade policy
• Profitability in domestic livestock sector
• Spread of African Swine Fever
• China export promises
20
U.S. Corn Balance Sheet (million bushels, unless otherwise noted)
2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18
USDA
2018/19*
Rabo
2019/20*
Planted Acres (mln) 88.2 91.9 97.3 95.4 90.6 88.0 94.0 90.2 89.1 92.3
Harvested Acres (mln) 81.4 84.0 87.4 87.5 83.1 80.8 86.7 82.7 81.7 84.8
Yield (bu./acre) 152.6 146.8 123.1 158.1 171.0 168.4 174.6 176.6 176.4 177.7
Supply
Beginning Stocks (9/1) 1,709 1,127 989 819 1,232 1,731 1,737 2,293 2,141 1,778
Production 12,425 12,314 10,755 13,829 14,216 13,602 15,148 14,609 14,420 15,066
Imports 28 29 160 36 32 68 57 36 40 44
Total Supply 14,161 13,471 11,904 14,686 15,479 15,402 16,942 16,939 16,601 16,888
Disappearance
Feed 4,770 4,512 4,309 5,001 5,280 5,114 5,470 5,304 5,375 5,683
Food, Seed & Industrial 6,434 6,424 6,044 6,532 6,601 6,648 6,885 7,056 7,040 6,917
Ethanol of Fuel 5,019 5,000 4,641 5,124 5,200 5,224 5,432 5,605 5,575 5,259
Exports 1,831 1,539 730 1,921 1,867 1,901 2,294 2,438 2,450 2,462
Total Disappearance 13,033 12,482 11,083 13,454 13,748 13,664 14,649 14,798 14,865 15,062
Ending Stocks 1,128 989 821 1,232 1,731 1,737 2,293 2,141 1,736 1,826
Stocks-to-Use Ratio (%) 8.5% 7.7% 7.2% 8.7% 12.6% 12.7% 15.7% 14.5% 11.7% 12.1%
Average Farm Price ($/bu.) $5.18 $6.22 $6.89 $4.46 $3.70 $3.61 $3.36 $3.36 $3.60 $3.60
* Projections
21
National Average Farm Received Prices70% probability that prices will be under $4.00 per bushel
Source: Rabobank 2018
22
Corn Price Curve Shows Trade’s Stock-to-Use ExpectationsCZ19 fairly trading based on the fundamentals
• December 2019 futures
(CZ19) trading just around
$4.00 per bushel which
corresponds to
approximately a 12%
Stocks-to Use Ratio.
• Assuming planted corn
acres of 92 million and a
yield, 176.5 bushels per
acre and flat demand
results in a 10.6% stocks-
to-use ratio.
• Assuming the above, CZ19
should be trading around
$4.00 which is where the
market it trading.
• With a carry market, that
CZ19 @ $4.00 will erode
assuming normal weather.
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
$9.00
0% 5% 10% 15% 20%
USD
/Bu
STU
Time adjusted December Corn Futures
Source: Rabobank 2018
23
Dec Corn Futures (CZ19) is Range Bound
Source: DTN
24
Gulf CIF Corn BasisPickup in U.S. exports have supported CIF values, but more volatile this year and going forward…basis is where the opportunities are going to be.
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
$0.80
2015 2016 2017 2018 2019
$ per Bushel
Source: DTN
26
Funds Have Been Adding to Net Long Position
27
U.S. Corn Yield Most Persistent Trend in Agriculture2019 trend yield (1960-2017) is 171.7bu./acreIn 2019, will corn yield return to trend after five years of being above trend?
-38
-33
-28
-23
-18
-13
-8
-3
2
7
12
17
22
27
32
37
42
40
50
60
70
80
90
100
110
120
130
140
150
160
170
180
190
Change (Y2) Yield (Y1)
Bushels per Acre Bushels per Acre
28
U.S. Corn Export Inspections 2018/19 exports are +54% versus the year ago, but once Argentine and Brazilian crops are harvested this spring/summer U.S. exports are expected to slow
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
55,000
60,000
65,000
70,000
75,000
80,000
85,000
Week #
2014/15 2015/16 2016/17 2017/18 2018/19
1,000 Bushels
Source: USDA/AMS, Rabobank 2019
29
Weekly Corn Usage for Ethanol Production2018/19 ethanol production & corn usage are down -1.3% versus last year
92
94
96
98
100
102
104
106
108
110
112
114
116
118
120
2014/15 2015/16 2016/17 2017/18 2018/19
107.2 mln bu. per week to meet USDA projections,
Currently averaging 109.8 bu. per week.
Million bushels
Source: Energy Information Agency , Rabobank 2019
• Gasoline supplied is down 4.5% versus a year ago.
• Ethanol as % of gasoline supplied is 11.4% YTD Average
32
U.S. Ethanol Exports continue to be strongYTD 2018 U.S. ethanol exports for Jan-Nov are 30% ahead of last year
-
100
200
300
400
500
600
700
800
900
1,000
1,100
1,200
1,300
1,400
1,500
1,600Million Gallons
In 2018, Top 5 Export Customers: Brazil, Canada, India, Netherlands and South Korea
Source: USDA/FAS, Rabobank 2010
*2018 is through Nov.
35
Global Corn Export Competition continues to growU.S. corn exports remain flat, as competitors’ exports grow
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
United States Argentina Brazil Russia Ukraine
1,000 Metric Tons
Source: USDA/FAS, Rabobank 2019
36
Global Corn Stocks Down for 2nd Consecutive YearStill 4th highest stocks and a stock-to-use ratio in upper quartile
10%
15%
20%
25%
30%
35%
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
Ending Stocks Stock-to-Use Ratio (Y2)
1,000 Metric Tons
Source: USDA/FAS, Rabobank 2019
37
Major Revision in Chinese Corn StocksDoubling of previous stocks data—Chinese data has corn stocks higher yet.
0
50,000
100,000
150,000
200,000
250,000
Corn Other
1,000 Metric Tons
Note: Other category includes barley, sorghum, millet, oats
Source: USDA-FAS, Rabobank 2019
38
Chinese Corn Import Increasing Slightly……stocks revision points to less imports required—total imports flat
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
22,000
24,000
26,000
28,000
Barley Corn Oats Rye Sorghum
1,000 Metric Tons
Note: Other include barley, sorghum, millet, oats
Source: USDA-FAS, Rabobank 2018
40
US Corn Ending Stocks Remain Healthy
$0.00
$0.75
$1.50
$2.25
$3.00
$3.75
$4.50
$5.25
$6.00
$6.75
$7.50
$8.25
0
250
500
750
1,000
1,250
1,500
1,750
2,000
2,250
2,500
2,750
Ending Stocks Average Farm Price
* Rabobank Projection
Million bushels $ per bushel
5
III. Soybeans
42
Soybeans--Bulls and Bears
Bullish Factors
• Hog and poultry numbers
• Strong crush margins
• Demand for products, i.e. meal
• Biodiesel production
• Strong soybean meal export
• Increased EU soybean imports
Bearish Factors
• Trade Tensions with China
• Record U.S. soybean stocks
• Record global soybean stocks
• Return of South America in 2019
Swing Factors
• Trade policies—moving from multi-lateral to tariff-based
• Chinese promises & purchases of U.S. soybeans
• Strength of U.S. Dollar
• Brazilian soybean crop
43
U.S. Soybean Balance Sheet (million bushels)
2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18
USDA
2018/19*
Rabo
2019/20*
Planted Acres (mln) 75.0 77.2 76.8 83.3 82.7 83.5 90.2 89.2 85.0
Harvested Acres (mln 73.8 76.1 76.3 82.6 81.7 82.7 89.5 88.1 84.1
Yield (bu./acre) 41.9 40.0 44.0 47.5 48.0 51.9 49.3 51.6 51.2
Supply
Beginning Stocks (9/1) 215 169 141 92 191 197 302 439 886
Production 3,094 3,042 3,358 3,927 3,926 4,296 4,412 4,544 4,305
Imports 16 41 72 33 24 22 22 20 34
Total Supply 3,325 3,252 3,570 4,052 4,141 4,516 4,735 5,002 5,225
Disappearance
Crush 1,703 1,689 1,734 1,873 1,886 1,901 2,055 2,090 2,092
Exports 1,365 1,317 1,638 1,842 1,942 2,166 2,129 1,875 2,366
Seed, Feed & Residual 88 105 107 146 115 147 113 127 131
Total Disappearance 3,155 3,111 3,478 3,862 3,943 4,213 4,297 4,092 4,589
Ending Stocks 169 141 92 191 197 302 438 910 636
Stocks-to-Use Ratio (%) 5.3% 4.5% 2.6% 4.9% 5.0% 7.2% 10.2% 22.2% 13.9%
Average Farm Price
($/bu.)$12.50 $14.40 $13.00 $10.10 $8.95 $9.47 $9.33 $8.60 $8.90
* Projections
44
National Average Farm Received Prices70% probability that prices will be under $10.00 per bushel
Source: Rabobank 2018
45
U.S. Soybean Price Curve (Average for Q4 futures)
Soybean futures are trading where fundamentals suggest they should be
Source: Rabobank 2018
$8.00
$9.00
$10.00
$11.00
$12.00
$13.00
$14.00
$15.00
$16.00
$17.00
$18.00
2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
$ p
er B
ush
el
Stocks-to-Use Ratio
2007/08 2008/09 2009/102010/11 2011/12 2012/132013/14 2014/15 2015/162016/17 2017/18 2007/08-2016/17
A 14% stocks-to-use ratio the price curve is around $9.00
Currently new crop soybeans at a $0.50-$0.60 per bu. Premium—selling opportunity
46
Nov Soybean Futures (SX19)Upside resistance in $9.70 area
Source: DTN
47
Gulf CIF Soybean Basis BidBasis values has rebounded from harvest lows, but have little upside potential with tariffs still in place
-$0.20
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
2015 2016 2017 2018 2019
$ per Bushel
48
Portland-PNW Soybean Basis BidAppreciating basis bid an indicator of Asian buying, but still below previous years
$0.40
$0.50
$0.60
$0.70
$0.80
$0.90
$1.00
$1.10
$1.20
$1.30
$1.40
$1.50
2015 2016 2017 2018 2019
$ per Bushel
52
U.S. Soybean Export Inspections2018/19 export pace is down 35.0% versus last crop yearSouth American countries are importing U.S. soybeans, but will stop soon.
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
110,000
120,000
130,000
Week #
2013/14 2014/15 2015/16 2016/17 2017/18 39,212
1,000 Bushels
Source: USDA/AMS, Rabobank 2019
55
Brazil and U.S. Soybean Export Trend is Diverging
Source: USDA, Rabobank 2019
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
Argentina Brazil United States
1,000 Metric Tons
56
Brazil Has Taken Export Market Share Away from the U.S. U.S. (33%) continues to lose market share to Brazil (52%)—trade tensions is likely to increase Brazil’s market share more rapidly, but there will be a limit.
Source: USDA, Rabobank 2019
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Argentina Brazil Canada Paraguay United States
Percent
58
Record Global Soybean Stocks and Stocks-to-Use RatioThis is all despite a lower than expected Brazilian crop of 117 MMT
Source: USDA, Rabobank 2019
0.000
0.050
0.100
0.150
0.200
0.250
0.300
0.350
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
Argentina Brazil United States Stocks-to-Use Ratio
1,000 Metric Tons
59
U.S. Soybean Crush—Topping 2.0 bln bushels
0.95
1.05
1.15
1.25
1.35
1.45
1.55
1.65
1.75
1.85
1.95
2.05
2.15Billion bushels
* Rabobank Projection
Crop Year beginning with Sept. 1
60
U.S. Crush Margins Are StrongStrong crush margins will keep soybean demand up and crushers crushing
70
80
90
100
110
120
130
140
150
160
170
180
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
Crush Margin (Y1) Crush (Y2)
$ per bushel Million bushels
Source: NOPA, Rabobank 2018
61
Global Soybean Meal Domestic Consumption Continues to IncreaseAfrican Swine Fever may change this trajectory—seeing slow down in growth
Source: USDA/FAS, Rabobank 2018
-5,000
-3,000
-1,000
1,000
3,000
5,000
7,000
9,000
11,000
13,000
15,000
17,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
220,000
240,000
260,000
Year-over-Year Change (Y2) Domestic Consumption (Y1)
1,000 Metric Tons
62
Record U.S. Soybean Ending Stocks
$4.00
$5.00
$6.00
$7.00
$8.00
$9.00
$10.00
$11.00
$12.00
$13.00
$14.00
$15.00
0
100
200
300
400
500
600
700
800
900
1000
1100
Ending Stocks (Y1) Price (Y2)
Million Bushels $/bushel
*Rabobank Projection
5
IV. Vegetable Oils
64
Vegetable Oil--Bulls and Bears
Bullish Factor
• Strong biodiesel production—crop year-
to-date +5.0% vs last crop year
• Global vegetable oil stocks and stocks-to-
use down
• Funds investing in soybean oil
• Strong U.S. soybean oil exports
• Increasing global biodiesel blends
Bearish Factors
• Record Malaysian palm oil stocks
• Building U.S. soybean oil stocks
• Increasing available of competitive
vegetable oils, e.g. canola oil
• Strong crush have keep supplies plentiful
• Increasing supplies out of Argentina in
2019
Swing Factors
• Crude oil prices
• 2019 Argentine soybean and product production
• Global and domestic soybean meal demand
• Palm oil plantations replanting in next several years
65
U.S. Soybean Oil Balance Sheet (million pounds)
2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18
USDA
2018/19
Supply
Beginning Stocks (10/1) 2,676 2,591 1,657 1,167 1,857 1,689 1,713 1,992
Production 19,740 19,820 20,130 21,399 21,950 22,123 23,767 24,455
Total Supply 22,565 22,606 21,952 22,830 24,094 24,131 25,815 26,747
Disappearance
Domestic Use 18,510 18,787 18,908 18,959 20,162 19,862 21,376 22,400
Biodiesel 4,874 4,689 5,010 5,039 5,670 6,200 7,134 8,000
Exports 1,464 2,163 1,877 2,014 2,243 2,556 2,447 2,250
Total Disappearance 19,974 20,949 20,785 20,973 22,405 22,418 23,823 24,650
Ending Stocks 2,591 1,657 1,167 1,857 1,689 1,713 1,992 2,097
Stocks-to-Use Ratio (%) 12.9% 7.9% 5.6% 8.9% 7.5% 7.6% 8.4% 8.5%
Price-Decatur (cents/lb.)
51.90 47.13 38.23 31.60 29.86 32.48 30.04 28.50-
33.50
Crush (mln bushels) 1,703 1,680 1,725 1,903 1,890 1,906 2,079 2,090
Yield (lbs. per bu.) 11.59 11.80 11.67 11.24 11.61 11.61 11.43 11.70
66
Weekly Soybean Oil Futures (cents per pound)Futures run up against upside resistance around $0.31
67
20
25
30
35
40
45
50
55
60
65Cents Per Pound
Nearby CBOT Futures Price Forecast for Soybean Oil 2019 futures are expected to remain in narrow trading range
68
Nearby CBOT Futures Price Forecast for Soybean Oil (cents per pound)
Year Jan-Feb-Mar Apr-May-Jun Jul-Aug-Sep Oct-Nov-Dec
2011 $52.73-$59.96 $54.25-$60.41 $49.77-$58.68 $48.11-$53.70
2012 $50.05-$55.82 $47.76-$57.45 $51.11-$57.78 $46.52-$52.47
2013 $48.46-$53.57 $45.88-$50.61 $40.76-$47.57 $38.54-$42.12
2014 $36.80-$44.70 $37.76-$43.74 $31.34-$39.04 $31.12-$34.95
2015 $29.32-$33.71 $30.39-$35.29 $25.38-$33.60 $26.74-$31.96
2016 $29.04-$34.37 $30.74$-35.14 $29.28-$34.41 $32.33-$38.11
2017 $31.35-$36.07 $30.86-$33.44 $32.01-$35.60 $32.12-$35.44
2018 $31.28-$33.75 $27.72-$32.73 $26.88-$29.12 $26.95-$28.82
2019 $26.88-$31.50 $29.25-$31.00 $29.00-$32.00 $28.50-$30.50
*Shaded area indicates Projection
69
U.S. Vegetable Oil Prices
20
25
30
35
40
45
50
55
60
65
70
75
80
85
90
95
Soybean OilDecatur, IL
Cottonseed OilMiss. PSBY
Peanut Oil Corn Oil Sunflowerseed Oil Midwest
Canola OilMidwest
Cents per Lb.
Source: Sosland Publishing, Rabobank 2019
70
U.S. Soybean Oil Basis---Central IllinoisBasis values have been supported by higher freights costs
-$0.0300
-$0.0250
-$0.0200
-$0.0150
-$0.0100
-$0.0050
$0.0000
$0.0050
$0.0100
$0.0150
Week
2015 2016 2017 2018 2019 5-Year Avg.
$ per lb.
Source: Trade News Service, Rabobank 2019
71
Canola Oil Basis and Premium to Soybean OilCanola oil basis values are attractive
-14.0
-12.0
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
Canola Basis SBO-Canola Spread
Cents per Lb.
Source: Sosland Publishing, Rabobank 2019
72
9%
10%
11%
12%
13%
14%
15%
16%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
198
0/8
1
198
1/8
2
198
2/8
3
198
3/8
4
198
4/8
5
198
5/8
6
198
6/8
7
198
7/8
8
198
8/8
9
198
9/9
0
199
0/9
1
199
1/9
2
199
2/9
3
199
3/9
4
199
4/9
5
199
5/9
6
199
6/9
7
199
7/9
8
199
8/9
9
199
9/0
0
200
0/0
1
2001/0
2
200
2/0
3
200
3/0
4
200
4/0
5
200
5/0
6
200
6/2
07
2007/0
8
200
8/0
9
200
9/1
0
201
0/1
1
201
1/1
2
201
2/1
3
2013/1
4
201
4/1
5
201
5/1
6
201
6/1
7
201
7/1
8
201
8/1
9
Oil, Olive Oil, Palm Oil, Rapeseed Oil, Soybean
Lauric Misc Stocks-to-Use (Y2)
1,000 Metric Tons
Global Veg. Oil Stocks Increasing—Demand Remains Strong
Source: USDA-FAS, Rabobank 2019
73
Malaysia Palm Oil Production Remains HighOver next 2-3 years significant numbers of palm tree will need replacing
Source: MPOB, Rabobank 2019
1,000 Metric Tons
1,000
1,100
1,200
1,300
1,400
1,500
1,600
1,700
1,800
1,900
2,000
2,100
2,200
Ja
n
Fe
b
Ma
r
Apr
Ma
y
Ju
n
Ju
l
Aug
Sep
Oct
Nov
Dec
2016 2017 2018 2019 5-Year
74
Malaysia Palm Oil Stocks—Reaching Record Levels
* Source: MPOB, Rabobank 2019
1,000 Metric Tons
1,400
1,600
1,800
2,000
2,200
2,400
2,600
2,800
3,000
3,200
3,400
Ja
n
Fe
b
Ma
r
Apr
Ma
y
Ju
n
Ju
l
Aug
Sep
Oct
Nov
Dec
2015 2016 2017 2018 2019 5-Year
75
Funds’ Net Position and Nearby Soybean Oil Futures PriceFunds have been supportive to soybean oil futures
# of ContractsCents per pound
Source: DTN
76
Monthly B-100 ProductionYear-to-Date through Nov 2018, up 16% versus 2017
Million Gallons
Source: U.S. Energy Information Administration, Rabobank 2019
0
20
40
60
80
100
120
140
160
180
2013 2014 2015 2016 2017 2018
77
Monthly U.S. Soybean Oil ExportsYear-to-date, exports are up nearly 5%
Metric Tons
Source: USDA/FAS-GATS, Rabobank 2019
0
25,000
50,000
75,000
100,000
125,000
150,000
175,000
200,000
225,000
2015/16 2016/17 2017/18 2018/19
79
U.S. Soybean Oil Stocks vs Price
Million pounds
Source: USDA, Rabobank 2019
12.00
17.00
22.00
27.00
32.00
37.00
42.00
47.00
52.00
57.00
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Ending Stocks (Y1) Price (Y2)
Cents per Pound
5
V. Wheat
81
Wheat--Bulls and Bears
Bullish Factors
• Ongoing drought in eastern
Australia
• Lower production in Black Sea
region
• Seasonal decline in Black Sea
Region exports
• Price competitiveness of U.S. wheat
Bearish Factors
• 25% Chinese tariff on U.S. wheat
imports
• U.S. and world wheat stocks are
more than adequate
• Good moisture in the U.S. Southern
Plains
• U.S. losing market share in China,
Mexico and Caribbean
• Black Sea remains an aggressive
exporter
Swing Factors• U.S. export pace in LH of marketing year—Black Sea supplies dwindling
• 2019 Wheat Plantings—winter down 1.245 mln acres
• U.S. Dollar
• Trade Tensions
• Currency of export competitors
• U.S. Spring weather
82
U.S. All-Wheat Balance Sheet (million bushels)
2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18
USDA
2018/19
Rabo
2019/20
Planted Acres (mln) 54.3 55.3 56.2 56.8 55.0 50.1 46.1 47.8 47.8
Harvested Acres (mln) 45.7 48.8 45.3 46.4 47.3 43.8 37.6 39.6 39.9
Yield (bu./acre) 43.6 46.2 47.1 43.7 43.6 52.7 46.4 47.6 49.6
Supply
Beginning Stocks (6/1) 863 743 718 590 752 976 1,181 1,099 971
Production 1,993 2,253 2,135 2,026 2,062 2,309 1,741 1,884 1,980
Imports 112 123 173 151 113 118 157 140 142
Total Supply 2,968 3,118 3,026 2,768 2,927 3,402 3,077 3,123 3,093
Disappearance
Food 941 945 955 958 957 949 964 970 983
Exports 1,051 1,012 1,176 864 778 1,051 901 1,000 1,009
Seed, Feed & Residual 233 443 305 193 216 221 114 143 172
Total Disappearance 2,226 2,400 2,436 2,015 1,951 2,222 1,980 2,113 2,164
Ending Stocks 743 718 590 752 976 1,181 1,099 1,010 929
Stocks-to-Use Ratio (%) 33.3% 29.9% 24.2% 37.3% 50.0% 53.2% 55.6% 45.3% 42.9%
Average Farm Price ($/bu.) $7.24 $7.77 $6.87 $5.99 $4.89 $3.89 $4.72 $5.15 $5.45
Source: USDA, Rabobank 2019
83
All-Wheat Price Probabilities (Average Price Received by Farmer)All-wheat prices will be in $5.00-$5.20 area
Dollars Per Bushel
Source: Rabobank 2018
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50
$7.00
$7.50
$8.00
2008 2010 2012 2014 2016 2018 2020 2022 2024 2026
85
U.S. HRW Balance Sheet (million bushels)
2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18
USDA
2018/19
Planted Acres (mln) 28.2 28.5 29.6 29.7 30.5 29.2 26.6 23.4 22.9
Harvested Acres (mln) 23.9 21.5 24.6 20.4 21.9 23.2 21.9 17.6 16.9
Yield (bu./acre) 42.1 36.4 40.6 36.6 33.7 35.8 49.5 42.5 39.1
Supply
Beginning Stocks (6/1) 385 387 317 343 237 294 446 589 581
Production 1,006 783 998 747 739 830 1,082 750 662
Imports 0 0 18 19 10 6 5 7 5
Total Supply 1,392 1,170 1,333 1,109 985 1,130 1,533 1,346 1,247
Disappearance
Food 359 404 404 370 370 391 385 392 392
Exports 617 397 382 446 272 227 453 371 320
Seed, Feed & Residual 29 52 204 56 50 67 105 3 45
Total Disappearance 1,005 853 990 872 692 685 943 765 757
Ending Stocks 387 317 343 237 294 446 589 580 490
Stocks-to-Use Ratio (%) 38.5% 37.2% 34.6% 27.1% 42.5% 65.1% 62.4% 75.7% 64.7%
Average Farm Price ($/bu.) $6.49 $6.92 $7.56 $7.03 $6.02 $4.68 $3.37 $4.18 $4.65
86
Kansas City July Wheat Look Like a Buy
Source: DTN
87
U.S. HRS Balance Sheet (million bushels)
2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18
USDA
2018/19*
Planted Acres (mln) 12.8 11.6 11.7 10.9 12.2 12.6 10.9 10.5 12.7
Harvested Acres (mln) 12.5 11.3 11.5 10.7 12.0 12.3 10.6 9.7 12.4
Yield (bu./acre) 45.1 35.2 43.9 45.8 46.3 46.0 46.3 39.8 47.3
Supply
Beginning Stocks (6/1) 234 185 151 165 169 212 272 235 191
Production 564 396 503 491 556 568 491 384 587
Imports 28 35 44 77 68 62 67 88 72
Total Supply 826 616 698 733 792 842 830 707 850
Disappearance
Food 247 223 230 267 266 251 250 254 260
Exports 340 243 233 246 274 254 319 228 300
Seed, Feed & Residual 54 0 71 51 40 55 25 34 28
Total Disappearance 641 465 533 564 580 570 595 516 588
Ending Stocks 185 151 165 169 212 272 235 191 262
Stocks-to-Use Ratio (%) 28.9% 32.5% 31.0% 30.0% 36.6% 47.7% 39.5% 37.0% 44.6%
Average Farm Price ($/bu.) $6.54 $8.38 $8.27 $6.73 $5.73 $4.75 $4.60 $5.83 $5.00
88
Surprising Funds are out of Wheat Market other than HRS
Chicago Wheat
Kansas City Wheat
Minneapolis Wheat
89
HRW Portland CIF Basis BidsReflecting expected increase in export business
$0.70
$0.80
$0.90
$1.00
$1.10
$1.20
$1.30
$1.40
$1.50
$1.60
$1.70
$1.80
$1.90
2017 2018 2019
$ per Bushel
Source: DTN, Rabobank 2018
90
U.S. Wheat Export Inspectionsrunning 8.6% behind last year’s pace—trade is optimistic going forward
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Week #
2015/16 2016/17 2017/18 2018/19
1,000 Bushels
Source: USDA/AMS, Rabobank 2018
91
Calculated Gross Flour Milling Margins“It is good to be a flour miller”
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50
$7.00
$7.50
$8.00
$8.50
$9.00
$9.50
$10.00
-$3.00
-$2.50
-$2.00
-$1.50
-$1.00
-$0.50
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
Estimated Gross Margin Kansas City Wheat
Dollars per Bushel
Source: Sosland Publishing, Rabobank 2019
92
Minneapolis/Kansas City SpreadMarket has begun to think about protein demand recently
-$0.25
$0.00
$0.25
$0.50
$0.75
$1.00
$1.25
$1.50
$1.75
$2.00
$2.25
$2.50
$2.75
$3.00
2015 2016 2017 2018 2019 5-yr Avg
$ Per Bushel
Source: DTN, Rabobank 2019
93
12% Kansas City Protein Premium—Moving Against Seasonal
$0.30
$0.40
$0.50
$0.60
$0.70
$0.80
$0.90
$1.00
$1.10
$1.20
$1.30
$1.40
$1.50
$1.60
$1.70
$1.80
$1.90
$2.00
$2.10
$2.20
$2.30
2015 2016 2017 2018 2019 5-year Average
$ per Bushel
Source: Sosland Publishing, Rabobank 2019
94
U.S. Wheat Crop Protein PercentagesOverall protein percent improved in 2018, except white wheat
8.0
9.0
10.0
11.0
12.0
13.0
14.0
15.0
16.0
HRW HRS SRW White Durum
Percent Protein
Source: U.S. Wheat Associates, Rabobank 2019
95
U.S. Wheat Export Prices are Competitive in the Global Market
$170
$180
$190
$200
$210
$220
$230
$240
$250
$260
$270
$280
$290
$300
$310
$320
$330
Argentina Australia Black Sea Canada EU U.S.
Dollar per Metric Ton
Source: USDA-FAS, Rabobank 2019
96
Ukrainian Exports Down 5.5%, despite 7.3% decline in ProductionExports dropping off seasonally portend increase in U.S. exports
0
500
1,000
1,500
2,000
2,500
3,000
2017/2018 2018/2019
1,000 Metric Ton
Source: UkrAgro Consult, Rabobank 2019
97
Contracting World Wheat Stocks, But…Second highest stocks on record
20%
21%
22%
23%
24%
25%
26%
27%
28%
29%
30%
31%
32%
33%
34%
35%
36%
37%
38%
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
220,000
240,000
260,000
280,000
300,000
320,000
340,000
360,000
Ending Stocks (Y1) Stock-to-Use Ratio (Y2)
1,000 Metric Tons Percent
Source: USDA/FAS, Rabobank, 2019
98
Global Wheat Exports by Country/RegionBlack Sea forecast is down, but they are off to stronger pace than last year
Source: USDA/FAS, Rabobank, 2017
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
55,000
60,000
65,000
70,000
75,000
80,000
Argentina Australia Black Sea Region Canada European Union United States
1,000 Metric Tons
99
Global Wheat Exports Market ShareBlack Sea expanding its share of world market
Source: USDA/FAS, Rabobank, 2018
0.00
0.20
0.40
0.60
0.80
1.00
1.20
Argentina Australia Canada European Union Black Sea Region United States
Percent
100
U.S. Wheat Stocks Declining, but still Burdensome
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50
$7.00
$7.50
$8.00
0
100
200
300
400
500
600
700
800
900
1,000
1,100
1,200
1,300
1,400
Ending Stocks Average Farm Price
• Rabobank Projection
• Source: USDA/WASDE, Rabobank 2018
Million Bushels $ per Bushel
101
Contact Information
Stephen P. NicholsonRabo-AgriFinanceVice President-RaboResearch Food & Agribusiness
Senior Grains and Oilseed Analyst14767 N. Outer Road, Suite #400Chesterfield, MO 63017 U.S.A.
314-317-8278 (office)314-452-2479 (cell)
Stephen.Nicholson@raboag.com
102
Banking & Securities Disclosure
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