October 2, 2015

QUARTERLY GRAIN STOCKS CORN Quarterly grain stocks were reported at 1,731 mbu, slightly below average expectations coming in. 34% of those bushels were on farm (593 mbu), which is up 28% from last year’s farm stocks. Off-farm stocks were also higher than a year ago (+48%) at 1,140 mbu. The numbers issued here will serve as the ending stocks number in the upcoming S&D report on October 9th and also serve as the starting point for the 15/16 crop. Implied feed usage during the 4th quarter was up 29% from the previous year, matching the 3rd quarter’s performance. Overall usage during the 4th quarter was 2,723 mbu – a new record. Our Take – Neutral. The market had a muted reaction as the numbers came in quite close to pre-report ideas. Strong feed demand in the 3rd and 4th quarters is encouraging and should produce strong feed demand in the 1st quarter of 15/16. This is a reflection of higher on feed numbers for both cattle (+2%) and hogs (+9%) in addition to a higher broiler hatch (+2%) during the 4th quarter. SOYBEANS Soybean stocks were reported at 191 mbu, below pre-report thoughts of 205 mbu, but within the range of expectations. Implied usage during the 4th quarter was up 39% from a year earlier at 436 mbu. The reduction in ending stocks is reflective of excellent soybean demand during the 14/15 crop year as well as the overestimation of last year’s soybean crop size. 14/15 production was revised downward by 42 mbu to 3,930 mbu. Harvested acres fell -470k to 82.6 mln acres and the yield was dropped by 0.3 bpa to 47.5 bpa. This goes to show that the USDA isn’t exempt from altering the crop size following the final production numbers in January each year. Our Take – Neutral. The trade unanimously expected the size of last year’s crop to be lowered; to what extent was the question. The stocks number came in below expectations, which is friendly on the surface. However, the numbers are hardly a game

Grain Stocks Report

USDA

Avg Estimate

(mbu) Estimate Range Last Year

% Change vs LY

Corn 1,731 1,739 1,647 – 1,850 1,232 +40.5% Soybeans 191 205 165 – 250 92 +100.1%

Wheat 2,089 2,149 1,987 – 2,285 1,907 +9.6%

changer as the 15/16 crop looks to be getting bigger and carryout levels look to remain well above 400 mbu. WHEAT The wheat trade was surprised by friendly data on Wednesday morning as the size of the 15/16 crop was reduced by 84 mbu in the Small Grains Report. Wheat stocks came in below market expectations as well at 2,089 mbu. Despite the decrease, all wheat stocks are up 10% from where they were a year ago. That increase is contained off-farm as those stocks are up 21% from a year earlier while on-farm stocks are down 9%. Disappearance for wheat during the last quarter is up just 1 percent from last year’s figures. Our Take – Neutral to Slightly Friendly. Although the numbers were supportive wheat continues to be bogged down by healthy world supplies and competition from foreign markets. The outlook remains burdensome, though slightly less so than what we thought a week ago.

CORN

ASCENDING TRIANGLE December corn hovered in the upper end of its recent range, unable to break through overhead resistance at $3.95’0 this week. The 20 and 40 DMA’s acted as support on the charts, sitting at $3.84’0. For the technical analysts in the crowd, the December chart is forming an ascending triangle, with $3.95’0 serving as stiff resistance. This is a continuation pattern where the daily lows continue to increase, but new highs are unable to be made. Eventually, the resistance is broken and a small wave of buying propels the charts higher – theoretically. Should we break through $3.95’0, the next target will be the August 10th high at $4.02’0. On the week, December corn added 0’2 cents to settle at $3.89’2. HARVEST PROGRESS Corn harvest progress was reported at 18% complete as of last Sunday night vs market ideas of 21% and the 5 year average of 23%. Progress is slower in the west relative to the east, as wet weather has been a factor in NE, SD, and western IA. Key states and their deviation from average with respect to corn harvested: NE (-6), IA (-9), SD (-6), KS (-4), MN (-7), IL (-4), IN (-4), OH (-3), and MO (-2). Corn crop conditions remained unchanged for the 5th week in a row at 68% good/excellent. ETHANOL Weekly ethanol production was up 5k barrels/day versus a week ago at 943k barrels. Stocks declined by 5 mln gallons and sit very close to stocks levels of a year ago. Higher sugar prices across the globe are creating some complications for Brazilian ethanol, a positive development for the US ethanol sector. There is some speculation in China around the closing of inefficient ethanol plants there. Thoughts are that the Chinese can import ethanol from Brazil or the US cheaper than what they can produce it for. Corn prices are considerably higher in China, which is a big reason for the complication. Another supportive feature to the ethanol picture is strong gasoline demand in the US. Bottomline,

December Corn Futures

despite energy sector complications across the globe, ethanol does have some supportive items working for it too. 2016 CORN New crop corn struggled to break through resistance at $4.15 this past week, awaiting more information from the 2015 harvest and the implications it will have on longer term price direction. There is a decent number among the trade who are friendly the corn market longer term. We would probably side with the bulls, but with an asterisk. *The downside on corn may be limited as we approach harvest, but the upside feels the same way. Questions around export demand are for real and acreage expansion seems likely in South American and even the US. Given $8/bu beans and $4/bu corn, which of the two commodities would you plant? Just keep in mind that the market adjusts as more information is figured in. Best of practice would be to take some risk off the table when profitable sales exist. We like $4.25 futures off the Dec ’16 board as a place to start for the 2016 crop. On the week, Dec ’16 corn lost a penny and finished at $4.10’0. BASIS Basis values were fairly steady this past week, with some small premiums still evident for quick ship corn. Bean harvest is in full swing and will likely command some attention over the next 5-7 days, so the small premiums may exist a while longer yet. Producers with hedged positions who plan to store should consider rolling to March futures at 11-12 cents/bu. Lock in those carries and put that money in your pocket! RECOMMENDATIONS Watch the charts and look for an opportunity to sell at $3.95’0 December if you need to make “catch up” sales. If we can break through we will set our sights on $4.02’0. We would encourage producers to begin thinking about next year’s crop as well. HTA’s are great contracts and simple to use. Orders ranging from $4.15 to $4.25 are common right now. Producers looking for a little bit more are utilizing our Triplex contract and fetching $4.40 futures near these levels. No matter the strategy, we like the idea of early sales when profits are available. GRAIN ADVISER PROGRAM IS BACK CVA’s Grain Adviser Program (GAP) just closed the books on year one of the program. Corn finished with a futures price of $4.02, providing producers the opportunity to deliver out of the field or store it on farm. Soybeans had a final board price of $9.56, well above the current market! Sign up has started for next year’s program and will run through December 15th. CVA will utilize a third party to market your bushels, giving you a futures price at the end of the pricing period. We are also happy to communicate that we will offer the GAP on OLD CROP bushels as well. So if you have some grain stored at home, consider placing a portion of those bushels on CVA’s Grain Adviser Program!

Dec ’16 Corn Futures

SOYBEANS

TEASER The soybean market had some volatility to it this week, showcasing a 34 cent range from high to low. Wednesday’s stocks report was friendly, but the trade quickly refocused on good yield reports across the US and rising global carryouts. The $9 mark was breached following the report, the first time since August 21st. Prices didn’t stick around that level for long, selling off on Thursday and Friday before recovering somewhat to end the week. Soybeans remain confined to their recent sideways channel, though some are wondering if we will make new harvest lows in the coming weeks. Don’t forget, the USDA will provide updated balance sheets next Friday Oct 9th. On the week, November soybeans lost 15’0 cents to settle at $8.74’2. CROP PROGRESS / CONDITION Soybean harvest was active in the ECB last week as those states enjoyed ideal harvesting weather. National harvest progress was reported at 21% vs the 5 year average of 16% and ideas of 18% coming in. Key states and their deviation from average in terms of soybeans harvested: NE (-1), IA (-6), SD (+3), KS (-1), MN (+14), IL (+12), IN (+6), OH (+12), and MO (+4). EXPORTS Soybean export sales were excellent this week at 92.1 mbu. The top end of market expectations called for 62.5 mbu – a reflection of the “frame” contracts signed by the Chinese delegation a week earlier. The sales volumes were a welcome sight, though the pace lags that of a year ago by 28% (759 mbu vs 1,056 mbu). China’s portion of total 15/16 sales is 40%, with their individual total half of what it was a year ago at this time! Expect more of the Chinese “frame” bushels to show up in next week’s report. Export inspections were disappointing this week, with 19.5 mbu reported. The trade was expecting a number in the mid 20’s, as seasonal shipments pick up pace. Total inspections for 15/16 sit at 52 mbu vs 55 mbu a year ago. HOMEWORK We have been hearing generally good yield reports across the territory as soybean harvest has intensified this past week. One item we would encourage producers to think about is adjusting your breakeven once yields are known. Consider the following example and apply it to your own operation: If it takes you $650/acre to raise a soybean crop and you budgeted 60 bu/acre for your original yields, then your budgeted breakeven was $10.83/bu ($650 / 60 = $10.83/bu). That same $650/acre

Nov Soybean Futures

investment with an actual yield of 75 bpa produces an actual breakeven of $8.67/bu ($650 / 75 = $8.67/bu). Yield is part of the revenue equation and can have a drastic impact on your breakeven. Don’t forget to refigure those breakevens once your harvest yields are known! You might be surprised by what you find! SOUTH AMERICAN PLANTING Brazilian producers have started planting their soybean crop, with progress estimated at 13% in the state of Parana and 0.5% in Mato Grosso. Conditions have been so-so in the early going, as hot and dry weather has limited progress in Mato Grosso, the number 1 producing soybean state in Brazil. Producers are waiting for precipitation, which the forecast is calling for, to ensure good germination of this year’s crop. Soybean acreage in South America is expected to be up 3% vs a year ago with Brazil accounting for 55% of all soy acreage. 2016 CROP New crop soybeans climbed above the $9 mark on Wednesday as well, albeit for a brief moment. The stocks chart on Page 1 communicates a lot about the prospects for next year’s price potential, with the green bar showing the expected 15/16 carryout (also the starting point for the 16/17 crop). The size of the 2015 crop seems to be growing and demand remains under scrutiny. South American producers, despite falling soy prices, have enjoyed profitable forward sales due to weakness in the Brazilian real. This has encouraged expanded soybean acreage down south and under normal growing conditions should producer another record crop in South America. Producers looking for early selling opportunities should look to utilize CVA’s Triplex contract on a retracement higher. $9.40 Triplexes aren’t too far away for 2016 beans. Call your ProEdge rep for a quote or to place an open order! BASIS Soybean basis was steady this week, entrenched in harvest values. Early premiums at processing locations have evaporated for the most part as gut slut bean harvest is upon us. Exports, despite being down considerably from a year ago, will be active over the coming months, which should help prevent any notable basis weakness. Producer selling is likely less than previous years, with price dictating much of that. Producers with hedged bushels that plan to store should consider rolling to January futures at 4’4 – 5’0 cents. RECOMMENDATIONS Complete your homework assignment with any idle time at the end of the field and report back next week. Late work will not be accepted! In all seriousness, take some time to figure out what you need to pay the bills this year. Hopefully you are enjoying some higher yields than originally thought, which should make the conversation more palatable. Once you have identified that number, build a realistic profit into that number and place an order. Thinking about these things ahead of time takes the emotion out of at-the-market sales. And the best part is, you’ll have a more consistent chance to make money with that kind of discipline.

Nov ’16 Soybean Futures

WEATHER

HARVEST WEEKEND Producers should be active in the fields this weekend as rain chances have diminished in recent days. Saturday night is showing a 20 percent chance, but otherwise the weekend appears clear. The middle of next week shows rain/thunderstorm chances pop up again, accompanied by temperatures in the 70’s. East winds of 5-10 mph will be common over the weekend which should help combat some cloudy weather and allow for steady bean harvest. Hurricane Joaquin will hammer the east coast this weekend, with high winds and heavy rainfall expected. The Midwest looks to remain mostly dry through Tuesday next week, with any accumulation expected to be less than an inch.

Risk Disclosure -The risk of loss in trading commodities can be substantial and past performance is not necessarily indicative of future results. Therefore,

you should carefully consider whether such trading is suitable for you or your organization in light of your financial condition. Any examples given are

strictly hypothetical and no representation is being made that any person will or is likely to achieve profits or losses similar to those examples. Neither the

information, nor any opinion expressed shall be construed as an offer to buy or sell any futures or options on futures contracts.

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6-10 Day Temperature