fusion industry research - ag outlook

7/31/2019 Fusion Industry Research - Ag Outlook

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Fusion Analytics Research Partners LLC 2012 FusionAnalytics P 212-661-2022

Executive Summary o the Call

Corn prices have surged over 35 % in last ew weeks

WASDE report yesterday very bullish, corn expectations worsen

Amount o corn rated good dropped to 40 %, lowest in many years (69 % 2011)

USDA brought corn yield orecast down more than expected rom 166 to 146 b/a

We see a urther drop next month, but not by the same amount

Year end carry-out stocks declined to 1.2 mm bu, though not as low as 2009

At $7.50 corn, talk may begin about demand destruction

Political chatter about ood costs could threaten ethanol subsidies

Fertilizer use should continue to increase with yield concerns

And N, P and K prices should rm urther

Fertilizer stocks correlate with grain pricing -> could be vulnerable in any weak tape

Soybean yields down sharply as well, and prices rising

Longer term core ertilizer holding should be AGU

July 12th 2012

Industry Note: Ag Outlook

Fundamentally Driven

Technically Conrmed

Since we became bullish on the corn market, corn utures are up sharply by over 35 %. Yesterdays USDA report oncorn yields was indeed surprisingly bullish or corn prices. In act, while the government has historically lagged thecurve, yield orecasts dropped much more than expected, based on the worst drought condition since 1988 in theMidwest. But while yield orecasts may continue to decline, this is the major drop we had been expecting, and wethink the news likely doesnt get much worse than this. Which also suggests corn prices may be getting toppy here.So we would suggest some prot taking on the commodity, and selectively lightening up on ertilizer stocks, de-pending on the tone o the tape. For the longer term, we suggest AGU and DD as core holdings.

Overview

Reasons or the Call

Rather than reiterate the lousy weather conditions, it is clear that a drought has come to pass and the corn crop looks to be theworst in 25 years. While the USDA usually lags in its orecasts, this time they could not ignore the weather and dropped yieldorecasts much more than expected. However, at these sharply higher corn prices, they suggest demand may be impacted,

and that ending corn stocks will be lower, though not by the same amount and a stocks-to-use ratio o 9 % would not be asbad as three years ago. So while there is likely to be incremental bullish news rom here, the second derivative call is that thetrade is likely to tire here.

While the ertilizer stocks are vulnerable to corn pricing, we think soybean prices have more upside, which should help. We be-lieve earnings and the outlook rom managements should be surprisingly strong. Having said that, the high trade correlation,and any mid-earnings cautious tape action could lead to some proit taking in CF, MOS and POT, though we think the morediversiied AGU has more staying power. DD, which is also seeds and chemicals, hasnt really gotten credit on the upside yetor what we think is a stellar ag story. DuPont also beneits disproportionately rom soy and chemicals, more than MON, whichis later season and helps the 3Q as well.

Ag. Outlook - Corn Has Worked


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July 12th 2012


Technically Conrmed

Tecrium Corn Fund (CORN) - Daily Chart

Ater our bullish call on CORN near $ 38.00, and as seen in the chart above, CORN has reversed on massive volume atprior resistance near $ 48.00 (red line) This massive volume sell-of, ater a near parabolic short-term move, suggests

CORN has topped or the time being. Initial supports below the market lie near $ 43.00, then $ 40.00. The intensityo the volume on the sell-of would suggest the lower target is very likely to be achieved.


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July 12th 2012


Technically Conrmed

July 2012 Soybean Futures - Daily Chart

The recent breakout above $ 1,500 (green line) is very bullish. Short-term, prices maybe need to pull back to the $1,600 - $1,550 range, to digest the recent upward prices explosion, however pullbacks in Soybeans look like a buying

opportunity.


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Technically Driven

Fundamentally Conrmed

fusion industry research - ag outlook

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