and more… - ilsoyadvisor
TRANSCRIPT
Andmore…
Andmore…
• Trade war impact
• Size of the crops
• USDA data vacuum slowly fills
• Acreage questions
• Price forecast
• Input buying
• Weather
• Net farm income estimates
• Farm financial trends
Plenty Of Issues To Talk About
But There’s A Bigger Issue!
Andmore… 3
The 2nd Demand Boom Is Dead
-$150
-$100
-$50
$0
$50
$100
$150
$200
$250
$300U
.S.
ave
rage
Actual Profit/Loss Per Acre
Corn Soybeans
Andmore… 4
Ethanol Is Over
Andmore… 5
China Bean Boom On Life Support
Andmore…
Six Years In A Row
60.0
80.0
100.0
120.0
140.0
160.0
180.0
200.0
1972 1977 1982 1987 1992 1997 2002 2007 2012 2017
bushels per acre
Corn Yield Vs Trend
Yield Trend
Andmore…
Six In A Row A Record
20
25
30
35
40
45
50
55
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
20
16
20
18
bu
sh
els
per
acre
Soybean yield vs trend
Yield Trend
Andmore… 8
Smaller Corn Crop
U.S. 2018 Corn Production
Farm
Futures
Average
Trade
Guess
Range Of
Guesses
USDA
November
Harvested (millions) 81,413 81,680 80,850-82,100 81,767
Yield 177.2 177.9 176.7-179.9 178.9
Production (billions) 14,423 14,532 14,343-14,760 14,626
Source: USDA, Reuters, Farm Futures
Andmore… 9
Lower Yields, Less Acres
U.S. 2018 Soybean Production
Farm
Futures
Average
Trade
Guess
Range Of
Guesses
USDA
November
Harvested (millions) 87,364 88,187 87,364-88,509 88,345
Yield 51.6 51.8 51-52.4 52.1
Production (billions) 4,505 4,572 4,490-4,620 4,600
Source: USDA, Reuters, Farm Futures
Andmore… 10
Carryout Trend Mixed
U.S. 2018-2019 Ending Stocks
million bushels
Farm
Futures
Average
Trade
Guess
Range Of
Guesses
USDA
December
Corn 1,684 1,708 1,621-1,787 1,781
Soybeans 880 926 800-1,015 955
Wheat 1,028 989 950-1,028 974
Source: USDA, Reuters, Farm Futures
Andmore… 11
Ready For A Move Friday
Andmore… 12
U.S. Shipments To China Should Be Booming
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
SHARE OF CHINESE SOYBEAN IMPORTS, 2014-2016
Argentina Brazil United States
Andmore…
1,183
364
735
960
562
15 -
200
400
600
800
1,000
1,200
1,400
China Brazil U.S.
Source: USDA, ABOIVE, China Customs Bureau
HOW TARIFFS UPENDED SOYBEAN EXPORTSSEPTEMBER-DECEMBER CHINESE IMPORTS, MILLION BUSHELS
2017 2018
13
Winners And Losers
+48 mi bu
Andmore…
SPAIN, 9%
ARGENTINA, 8%
MEXICO, 8%
CHINA, 8%
JAPAN, 4%
OTHER, 26%
LEADING SOYBEAN EXPORT INSPECTIONS
YEAR TO DATE JANUARY 31, 2019
China Usually 57% to 62%
Andmore…
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
S O N D J F M A M J J A
Th
ou
san
d B
us
hels
WEEKLY SOYBEAN EXPORT INSPECTIONS
2017-18 2018-19 5-Yr. Avg.
Long Way To Go
Andmore…
Exports A Problem Before Tariffs
4.0
6.0
8.0
10.0
12.0
14.0
16.0
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
GDP %Imports% Change
Chinese soybean import growth vs GDP Growth
Imports GDP
Andmore… 17
Year Of The Pig?
Copyright China Photos/Getty Images
Andmore… 18
Price Discount Starting To Widen
Andmore… 19
Dryness In Brazil
Andmore…
2.090
1.943
1.856
1.900
1.700 1.750 1.800 1.850 1.900 1.950 2.000 2.050 2.100 2.150
Tariffs never happened, Chinese
growth was strong
China buys, stronger use
China buys, weaker use
USDA forecast
billion bushels
So
urc
e: U
SD
A, *
Fa
rm F
utu
res
WILL TRADE WAR CEASE-FIRE HELP?2018 U.S. SOYBEAN EXPORTS UNDER FOUR SCENARIOS
“Truce” May Not Help Much
Andmore…
Excess Production
2,000
2,500
3,000
3,500
4,000
4,500
5,000
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
mill
ion
bu
sh
els
Soybean Supply Vs. Demand
Production Demand
Andmore…
Rising World Production
0
50000
100000
150000
200000
250000
300000
350000
1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016
10
00
s m
etr
ic to
ns
Total Production
U.S. Agentina Brazil
Andmore…
Historically Large World Supplies
0%
5%
10%
15%
20%
25%
30%
35%sto
cks to
use
World soybean stocks to use
Andmore…
650
675
700
725
750
775
800
800
850
900
950
1,000
1,050
1,100
8/3 9/3 10/3 11/3 12/3 1/3 2/3 3/3 4/3 5/3 6/3 7/3
July Soybean Futures Seasonal Trends
Bull market year July 2019 Normal year
Bearish Fundamentals, Bullish Trend
Andmore… 25
Corn Market Waits For USDA
Andmore…
4000
6000
8000
10000
12000
14000
16000
71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19
mil
lio
n b
ush
els
Corn Supply Vs. Demand
TOTAL USE TOTAL PRODUCTION
Usage Could Top Production In 2018
Andmore…
700000
800000
900000
1000000
1100000
1200000
1300000
1400000
1500000
1000s
metr
ic t
on
s
World coarse grain production vs demand
Production Total Domestic Consumption
World Supply Smaller
Andmore…
Tight Historically
0
20
40
60
80
100
120
Source: USDA
World coarse grain days of supplywithout china
Andmore…
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
S O N D J F M A M J J A
Th
ou
sa
nd
Bu
sh
elsWeekly Corn Export Inspections
5-Yr. Avg. 2018-19 2017-18
Corn Window Opens
Andmore…
As Good As It Gets
0
500
1000
1500
2000
2500
3000
70 73 76 79 82 85 88 91 94 97 00 03 06 09 12 15 18
mil
lio
n b
ush
els
U.S. Corn Exports
Andmore…
Slow Growth
0
1000
2000
3000
4000
5000
6000
7000m
illi
on
bu
sh
els
U.S. Corn Feed Usage
Andmore…
No Growth?
0
1000
2000
3000
4000
5000
6000
7000
8000
70 73 76 79 82 85 88 91 94 97 00 03 06 09 12 15 18
mil
lio
n b
ush
els
U.S. Corn Food/Industrial Usage
Andmore…
Lowest Price Since RFS Boom
Andmore…
-$0.50
-$0.40
-$0.30
-$0.20
-$0.10
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
Average Corn Belt Ethanol Plant Margins
34
Lousy Margins
Andmore…
September Lows Held
270
275
280
285
290
295
300
340
350
360
370
380
390
400
410
420
Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul
JULY CORN BULL VS BEAR YEARS
Bull Market Years July 2019 Normal Year
Andmore… 36
2019 Debate Begins
Crop Acreage Change*
Corn 90.3 million 1.3%
Soybeans 84.6 million -5.5%
Soft Red Winter Wheat 5.6 million -7.1%
Hard Red Winter Wheat 22.8 million -0.6%
White Winter Wheat 3.2 million -9.2%
All Winter Wheat 31.6 million -2.7%
Spring Wheat 12.5 million -5.3%
Durum 2.5 million 19.8%
All Wheat 46.6 million -2.5%
Sorghum 5.1 million -12.1%
Cotton 14.6 million 4.1%
* vs USDA August 2018 estimates
Andmore… 37
Market Trades USDA’s “Baseline”
82.5
89.1
92
76
78
80
82
84
86
88
90
92
94
2018 2019
USDA's Forecast For 2019 Acreagemillions
Corn
Soybeans
Andmore…
Futures Start To Favor Soybeans A Little
Andmore…
Yield 174
Production 14,432
Use, total 14,710
Ending stocks 1,475
Ave. cash price $3.94
Top Third $4.33
to $4.48
2019 Corn Supply and
Demand Estimates
Potential For Rallies
Andmore…
Yield 50.3
Production 4,210
Exports 1,994
Use, total 4,147
Ending stocks 876
Ave. cash price $8.38
Top Thard
$9.73 to
$10.11
2019 Soybeans Supply and
Demand Estimates
November Close To Top Third
Andmore…
Corn Loses Less
-$150
-$100
-$50
$0
$50
$100
$150
$200
$250
$300
Source: USDA, *Farm Futures Projections
Average U.S. Profit/Loss Per AcreAssumes average cash prices and costs, 2019 trend yield
Corn
Soybeans
Wheat
Andmore…
$3.90 $3.94 $3.94 $3.94
$8.75 $8.38 $8.13 $7.97
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
$10
USDA End to tariffs Tariffs stay on Tariffs stay,
China cuts
usage
How 2019 Cash Prices Could Vary
42
Tariff Deal Matters
Andmore…
$7
$19
$32
$40
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
USDA End to tariffs Tariffs stay on Tariffs stay, China
cuts usage
CORN PROFIT PER ACRE VS SOYBEANS
43
Profit Potential A Factor
Andmore… 44
Soybeans Limit Downside
Andmore…
What About Weather?
Copyright Scott Olson / Staff, Getty Images
Andmore…
No La Nina In Sight
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
DJF 2019 JFM 2019 FMA 2019 MAM 2019 AMJ 2019 MJJ 2019 JJA 2019 JAS 2019 ASO 2019Source: NOAA
ODDS 'LA NINA' WILL DEVELOP
Andmore…
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
DJF 2019 JFM 2019 FMA 2019 MAM 2019 AMJ 2019 MJJ 2019 JJA 2019 JAS 2019 ASO 2019
Source: NOAA
ODDS 'EL NINO' WILL EMERGE
Weak, Short-lived El Nino Expected
Andmore…
Neutral = 177.2 BPA Corn, 51.2 Soybeans in 2019
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
DIFFERENCE FROM TREND YIELD
IN "NEUTRAL" YEARS
Corn Soybeans
Andmore…
-10%
-5%
0%
5%
10%
15%
20%
DIFFERENCE FROM SOYBEAN TREND YIELD
IN YEARS WITH EL NINO BY FALL
Late Rains Help Soybeans More
Andmore…
SEC. 1107. AGRICULTURE RISK COVERAGE.
Section 1117 of the Agricultural Act of 2014 (7 U.S.C. 9017) is amended—
“(5) TREND-ADJUSTED YIELD.—The Secretary shall calculate and use a trend-adjusted yield factor to adjust the yield determined under paragraph (2)(A) and subsection (b)(1)(A), taking into consideration, but not exceeding, the trend-adjusted yield factor that is used to increase yield history under the endorsement under the Federal Crop Insurance Act (7 U.S.C. 1501 et seq.) for that crop and county.”; and…
“(5) effective for the 2019 through 2023 crop years, in the case of county coverage, assign an actual or benchmark county yield for each planted acre for the crop year for the covered commodity—
“(A) for a county for which county data collected by the Risk Management Agency are sufficient for the Secretary to offer a county-wide insurance product, using the actual average county yield determined by the Risk Management Agency…
50
What We Know …
Andmore…
“(1) ELECTION TO UPDATE.—At the sole discretion of the owner of a farm, the owner of a farm shall have a 1-time opportunity to update, on a covered-commodity-by-covered-commodity basis, the payment yield that would otherwise be used in calculating any price loss coverage payment for each covered commodity on the farm for which the election is made.“(2) METHOD OF UPDATING YIELDS FOR COVERED COMMODITIES.—If the owner of a farm elects to update yields under paragraph (1), the payment yield for a covered commodity on the farm, for the purpose of calculating price loss coverage payments only, shall be equal to the product obtained by multiplying—“(A) 90 percent;“(B) the average of the yield per planted acre for the crop of covered commodities on the farm for the 2013 through 2017 crop years, as determined by the Secretary, excluding any crop year in which the acreage planted to the covered commodity was zero; and“(C) subject to paragraph (3), the ratio obtained by dividing—“(i) the average of the 2008 through 2012 national average yield per planted acre for the covered commodity, as determined by the Secretary; by“(ii) the average of the 2013 through 2017 national average yield per planted acre for the covered commodity, as determined by the Secretary.“(3) LIMITATION.—In no case shall the ratio obtained under paragraph (2)(C) be less than 90 percent or greater than 100 percent.“(4) USE OF COUNTY AVERAGE YIELD.—For the purposes of determining the average yield per planted acre under paragraph (2)(B), if the yield per planted acre for a crop of a covered commodity for a farm for any of the crop years described in that subparagraph was less than 75 percent of the average of county yields for those crop years for that commodity, the Secretary shall assign a yield for that crop year equal to 75 percent of the average of the 2013 through 2017 county yield for the covered commodity.“(6) TIME FOR ELECTION.—An election under this subsection shall be made at a time and manner so as to be in effect beginning with the 2020 crop year, as determined by the Secretary.”.
51
Should You Update Yields?
Andmore… 52
Updating Not A Slam-Dunk Decision
Andmore… 53
Most Should Gain
Andmore… 54
Will The Process Be Like Crop Insurance?
Andmore…
Year Yield Price Revenue Guarantee
2014 149 $5.29 $790 $679
2015 149 $5.29 $790 $679
2016 155 $4.79 $741 $637
2017 163 $3.92 $638 $548
2018 168 $3.56 $597 $514
2019-Old 171 $3.52 $601 $517
2019-New 179 $3.52 $632 $543
Falling ARC Corn Protection 2014-2018
Andmore…
Trend Yield Adjustment: +1.68 BPA
RMA Vs NASS Yield: * 2% BPA
Revenue Guarantee: + 5%
56
Increased ARC Protection Could Add Up For Corn
Andmore… 57
More Could Update Soybeans
Andmore… 58
Will ARC Be More Fair?
Andmore… 59
Higher Yielding Counties May Benefit
Andmore…
Soybean ARC Could Improve Under New Bill
Year Yield Price Revenue Guarantee
2014 43 $12.27 $530 $455
2015 43 $12.27 $530 $455
2016 45 $11.87 $528 $454
2017 47 $10.86 $505 $434
2018 48 $9.62 $464 $399
2019-Old 50 $9.24 $458 $394
2019-New 51 $9.24 $467 $402
Andmore…
Trend Yield Adjustment: +.4 BPA
RMA Vs NASS Yield: * 2% BPA
Revenue Guarantee: + 2%
61
Soybeans Gain Less From New ARC
Andmore… 62
PLC Vs ARC Corn Advantage (Disadvantage) Profit/Loss Per Acre
Andmore… 63
PLC Depends On Your Outlook
Profit/Loss Per Acre
Andmore… 64
Will CBOT Plan Work?
-$1.00
-$0.90
-$0.80
-$0.70
-$0.60
-$0.50
-$0.40
-$0.30
-$0.20
-$0.10
$0.00
Corn Basis Could Strengthenaverage harvest basis
Corn
Soybeans
2016 2017 2018 2019 2016 2017 2018 2019
Andmore…
(60)
(50)
(40)
(30)
(20)
(10)
0
10
9/1 11/1 1/1 3/1 5/1 7/1
Central Illinois Corn Basis
Average 2018-2019 2017-2018
65
Corn Basis Flat Since Dec Roll
Andmore…
(100)
(80)
(60)
(40)
(20)
0
20
9/1 11/1 1/1 3/1 5/1 7/1
Central Illinois Soybean Basis
Average 2017-2018 2018-2019
66
Storing For Carry
Andmore…
$150
$250
$350
$450
$550
$650
$750
AmmoniaRetail Gulf
$600 And Rising For Spring
Andmore…
523 511 492
569
465
$-
$100
$200
$300
$400
$500
$600
$700
$800
$900p
er t
on
Source: USDA, Farm Futures
Farmgate AmmoniaApril price 2007-2018
68
Rent A Barge!
Andmore…
$150$200$250$300$350$400$450$500$550
UreaRetail Gulf
Chinese Sales Ended Urea Rally
Andmore…
366 336 360
390 356 350 351
$-
$100
$200
$300
$400
$500
$600
$700p
er
ton
Source: USDA, Farm Futures
Farmgate Urea2007-2018 April price
70
Should Get Cheaper
Andmore…
$250
$300
$350
$400
$450
$500
$550
DAPRetail Gulf
Affected By N
Andmore…
463 432 479
513 451
$-
$100
$200
$300
$400
$500
$600
$700
$800
$900p
er
ton
Source: USDA, Farm Futures
Farmgate DAP 2007-2018 April price
72
DAP Should Get Cheaper
Andmore…
$210
$260
$310
$360
$410
$460
$510
$560
Potash
Retail Midwest Terminal
Steady Prices At Higher Levels
Andmore…
362 321 340
379 404
$-
$100
$200
$300
$400
$500
$600
$700
$800
$900p
er
ton
Source: USDA, Farm Futures
Farmgate Potash2006-2018 April price
74
$360 To $400
Andmore…
80
100
120
140
160
180
200
220
240
260
7/1 8/1 9/1 10/1 11/1 12/1 1/1 2/1 3/1 4/1 5/1 6/1
GROUP 3 DIESEL SEASONAL
Average 2017-2018 2018-2019
Winter Lows In
Andmore…
$0.45
$0.50
$0.55
$0.60
$0.65
$0.70
per
gal
lon
Source: CME Group
CME Swaps Curve Conway Kansas wholesale price
What Polar Vortex?
Andmore…
8%
82%
10%0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
200-225 225-250 (Current) 250-275Source: CME Group
ODDS OF FEDERAL FUNDS RATES THROUGH DEC 2019
Fed’s Could Hit “Pause” Button
Andmore…
0.00
0.50
1.00
1.50
2.00
2.50
3.00
per centINTEREST RATE ON TREASURY SECURITIES AT VARIOUS MATURITY
TREASURY YIELD CURVE
2/1/17
2/1/18
2/1/19
78
Yield Curve Starts To Invert
Andmore…
0
1
2
3
4
5
6
7
8
9
10
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
per cent
Source: Federal Reserve
INTEREST RATE SPREAD ON TREASURIES
3 Mo 10 Yr
This Is Why The Yield Curve Matters
Andmore…
0
5
10
15
20
25
0
20
40
60
80
100
120
140
160
Dollar Follows Rates Long-Term
Dollar Prime
Dollar Fairly Valued
Andmore… 81
Interest Rates Bite
0%
5%
10%
15%
20%
25%
30%
35%
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Source: USDA
Debt Service vs Gross Sales
Andmore…
Worries Ease
28%
34% 34%
38%41%
44%
39%43%
48% 47%43% 43%
45%43% 44%
50.3%
44%
0%
10%
20%
30%
40%
50%
60%
Nov-12 Aug-13 Dec-13 Aug-14 Jan-15 Mar-15 15-Aug 16-Jan 16-Mar Aug-16 Jan-17 Mar-17 Aug-17 Jan-18 18-Mar 18-Aug Jan-19
I WORRY ABOUT WHETHER I’LL BE ABLE
TO PAY BACK THE DEBT I OWE% agreeing
Andmore…
$57.4
$70.0$78.0
$62.2
$77.1
$113.6
$96.5
$123.8
$92.4
$81.4
$61.5
$75.4 $75.9
$63.1
$0
$20
$40
$60
$80
$100
$120
$140
Source: USDA ERS, *Farm Futures
Net Farm Incomebillions of dollars
MFP Raised Income
Andmore… 84
Income Down?
32%
51%
17%
0%
10%
20%
30%
40%
50%
60%
Lower Same Higher
HOW GROWERS VIEW 2019 INCOME VS 2018
Andmore…
More Farms “Vulnerable”
Marginal
Income
Marginal
Solvency Vulnerable
Nov-12 3.2% 9.5% 1.1%
Aug-13 2.3% 6.2% 0.5%
Dec-13 2.9% 8.8% 1.2%
Aug-14 3.0% 9.4% 1.0%
Jan-15 4.5% 10.3% 1.3%
Mar-15 4.4% 10.5% 1.8%
Aug-15 6.3% 8.4% 1.3%
Jan-16 10.3% 11.9% 2.3%
Mar-16 11.5% 13.1% 3.7%
Aug-16 13.1% 19.6% 4.4%
Jan-17 11.5% 19.7% 3.5%
Mar-17 12.9% 12.8% 3.9%
Aug-17 11.6% 11.1% 3.1%
Jan-18 11.7% 10.8% 3.6%
Mar-18 14.6% 13.1% 4.2%
Aug-18 12.7% 16.1% 3.7%
Jan-19 16.5% 16.2% 5.5%
Financial Stress Indicators
Andmore…
Not A Debt Crisis
0
5
10
15
20
25
1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017
p
e
r
c
e
n
t
Source: USDA ERS
Debt to Assets Ratio
Andmore… 87
Profit Crisis
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Source: USDA ERS
Profit Margin
Questions?