i. a macro look · u.s. ethanol exports continue to be strong ytd 2018 u.s. ethanol exports for...

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

http://fred.stlouisfed.org/graph/?g=n4nP

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


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


*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


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


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


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


45

U.S. Soybean Price Curve (Average for Q4 futures)

Soybean futures are trading where fundamentals suggest they should be


$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


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.


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


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


-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.


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


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


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


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


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


Average Farm Price ($/bu.) $7.24 $7.77 $6.87 $5.99 $4.89 $3.89 $4.72 $5.15 $5.45


83

All-Wheat Price Probabilities (Average Price Received by Farmer)All-wheat prices will be in $5.00-$5.20 area

Dollars Per Bushel


$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



Yield (bu./acre) 42.1 36.4 40.6 36.6 33.7 35.8 49.5 42.5 39.1

Supply


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


Total Disappearance 1,005 853 990 872 692 685 943 765 757

Ending Stocks 387 317 343 237 294 446 589 580 490



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*



Yield (bu./acre) 45.1 35.2 43.9 45.8 46.3 46.0 46.3 39.8 47.3

Supply


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


Total Disappearance 641 465 533 564 580 570 595 516 588

Ending Stocks 185 151 165 169 212 272 235 191 262



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


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


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


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


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


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


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)

[email protected]

102

Banking & Securities Disclosure

This document has been prepared exclusively for your benefit and does not carry any right of publication or disclosure other than to Coöperatieve Rabobank U.A. (“Rabobank”), registered in Amsterdam. Neither

this document nor any of its contents may be distributed, reproduced or used for any other purpose without the prior written consent of Rabobank. The information in this document reflects prevailing market

conditions and our judgement as of this date, all of which may be subject to change. This document is based on public information. The information and opinions contained in this document have been compiled

or derived from sources believed to be reliable, without independent verification. The information and opinions contained in this document are indicative and for discussion purposes only. No rights may be

derived from any potential offers, transactions, commercial ideas et cetera contained in this document. This document does not constitute an offer or invitation. This document shall not form the basis of or

cannot be relied upon in connection with any contract or commitment whatsoever. The information in this document is not intended and may not be understood as an advice (including without limitation an

advice within the meaning of article 1:1 and article 4:23 of the Dutch Financial Supervision Act). This document is governed by Dutch law. The competent court in Amsterdam, The Netherlands has exclusive

jurisdiction to settle any dispute which may arise out of or in connection with this document and/or any discussions or negotiations based on it. This report has been published in line with Rabobank’s long-term

commitment to international food and agribusiness. It is one of a series of publications undertaken by the global department of Food & Agribusiness Research and Advisory.

©2016 - All Rights Reserved.

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