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Murphy Brown Grower Market Outlook 2/4/15

Advance Trading Bloomington ,IL

Commodity Correlation Matrix

2009: Argentina crop experiences major drought

US Dollar Index

CORN

How big was the 2014 crop?

2009: Argentina crop experiences major drought

CORN

Planted Acres (myn a) Harvested Acres Abandonment Yield Beginning Stocks Production Imports Total Supply & Impts Feed/Residual Food, Seed, Industrial Ethanol for Fuel Domestic Use, Total Exports Total Use

Corn Balance Sheet: Supply & Demand

1/14/2015 USDA 2 2012/13 97.3

87.4

-10.2% 123.1

989 10,755 160

11,904

4,315 6,038 4,641 10,353 730

11,083

USDA 2 2013/14 95.4

87.5

-8.3% 158.1

821 13,829 36

14,686

5,036 6,501 5,134 11,537 1,917

13,454 USDA Jan

2014/15 90.6

83.1

-8.3% 171.0

1,232 14,216 25

15,472

5,275 6,570 5,175 11,845 1,750

13,595 Poor

90.6

83.1

-8.3% 171.0

1,232 14,216 25

15,473

5,228 6,544 5,114 11,772 1,500

13,272 2014/15 Trend

90.6

83.1

-8.3% 171.0

1,232 14,216 25

15,473

5,278 6,618 5,214 11,896 1,725

13,622 High

90.6

83.1

-8.3% 171.0

1,232 14,216 25

15,473

5,328 6,744 5,314 12,072 1,750

13,822 2015/16 Trend

88.5

81.3

-8.1% 167.2

1,851 13,593 30

15,475

5,336 6,565 5,175 11,901 1,800

13,701

Ending Stocks U.S. Stocks/Use Ratio Expected CZ Range Expected Avg Farm PriceRange 821 7.4% 1,232 9.2% 1,877 13.8% 2,201 16.6% 1,851 13.6% 1,651 11.9% 1,774 12.9% NA $6.89

2 USDA Jan NA $4.46

$3.35-$3.95

$3.25-$5.75

$3.26

$3.25-$5.75 $3.25-$5.75 $3.25-$5.75

$3.46

$3.66

$3.25

Report changes: Yield dn 0.3bpa

Production dn 191

35% 30% 25% World and US Corn - Stocks to Use Ratio

30% 28% 32% 25% 25% 28% 25% 30% 29% 33% 32% 29% 24%

20%

20%

15% 10%

14% 11% 17% 10% 15% 19% 18% 19% 16% 20% 11% 16% 19% 20% 17% 19% 17% 15% 12% 13% 14% 9% 18% 13% 16% 9% 18% 18% 19% 20% 8% 7% 9% 14% 5%

5% 0% World Stocks to Use US Stocks to Use

Corn Demand: Exports

CORN

87.4

-10.2% 123.1

989 10,755 160

11,904

4,315 6,038 4,641 10,353 730

11,083

USDA 2 2013/14 95.4

87.5

-8.3% 158.1

821 13,829 36

14,686

5,036 6,501 5,134 11,537 1,917

13,454 USDA Jan

2014/15 -8.3% 171.0

1,232 25 5,275 6,570 5,175 1,750

Poor

90.6

83.1

-8.3% 171.0

1,232 14,216 25

15,473

5,228 6,544 5,114 11,772 1,500

13,272 2014/15 Trend

-8.3% 171.0

1,232 25 5,278 6,618 5,214 1,725

High

-8.3% 171.0

1,232 14,216 25

15,473

5,328 6,744 5,314 12,072 1,750

13,822 2015/16 Trend

88.5

81.3

-8.1% 167.2

1,851 13,593

15,475

5,336 6,565 5,175 11,901 1,800

13,701

Ending Stocks U.S. Stocks/Use Ratio Expected CZ Range Expected Avg Farm PriceRange 821 7.4% 1,232 9.2% 1,877 13.8% 2,201 16.6% 1,851 13.6% 1,651 11.9% 1,774 12.9% NA $6.89

2 USDA Jan NA $4.46

$3.35-$3.95

$3.25-$5.75

$3.26

$3.25-$5.75 $3.25-$5.75 $3.25-$5.75

$3.46

$3.66

$3.25

1000 900 800 700 600 500 400 300 200 100 0 Source: USDA Export Sales 164 93 312 214 52 284 231 97 322 YTD Corn Exports Shipped by Destination 359mbu total 223 90 333 227 76 329 309 87 380 292 131 433 208 23 304 208 35 317 142 55 355 191 13 259 Week: 18 88 0 129 221 5 308 119 24 159

UNK W Hemi Africa PRC Oth Asia FSU EUR

400 300 200 100 0 800 700 600 500 Source: USDA Export Sales 36 50 17 131 44 62 4 120 77 59 36 187 Unshipped Corn Sales by Destination 58 72 23 121 31 56 15 134 61 149 31 223 90 230 49 357 20 170 8 104 70 196 13 160 115 134 23 193

UNK W Hemi Africa PRC Oth Asia

85 164 3 130

FSU

74 87 0 71

Week: 18

171 235 7 168

EUR

199 241 3 136

Corn Demand: Feed

CORN

87.4

-10.2% 123.1

989 10,755 160

11,904

4,315 6,038 4,641 10,353 730

11,083

USDA 2 2013/14 95.4

87.5

-8.3% 158.1

821 13,829 36

14,686

5,036 6,501 5,134 11,537 1,917

13,454 USDA Jan

2014/15 -8.3% 171.0

1,232 25 5,275 6,570 5,175 1,750

Poor

90.6

83.1

-8.3% 171.0

1,232 14,216 25

15,473

5,228 6,544 5,114 11,772 1,500

13,272 2014/15 Trend

-8.3% 171.0

1,232 25 5,278 6,618 5,214 1,725

High

-8.3% 171.0

1,232 14,216 25

15,473

5,328 6,744 5,314 12,072 1,750

13,822 2015/16 Trend

88.5

81.3

-8.1% 167.2

1,851 13,593

15,475

5,336 6,565 5,175 11,901 1,800

13,701

Ending Stocks U.S. Stocks/Use Ratio Expected CZ Range Expected Avg Farm PriceRange 821 7.4% 1,232 9.2% 1,877 13.8% 2,201 16.6% 1,851 13.6% 1,651 11.9% 1,774 12.9% NA $6.89

2 USDA Jan NA $4.46

$3.35-$3.95

$3.25-$5.75

$3.26

$3.25-$5.75 $3.25-$5.75 $3.25-$5.75

$3.46

$3.66

$3.25

Corn Demand: Ethanol

CORN

87.4

-10.2% 123.1

989 10,755 160

11,904

4,315 6,038 4,641 10,353 730

11,083

USDA 2 2013/14 95.4

87.5

-8.3% 158.1

821 13,829 36

14,686

5,036 6,501 5,134 11,537 1,917

13,454 USDA Jan

2014/15 -8.3% 171.0

1,232 25 5,275 6,570 5,175 1,750

Poor

90.6

83.1

-8.3% 171.0

1,232 14,216 25

15,473

5,228 6,544 5,114 11,772 1,500

13,272 2014/15 Trend

-8.3% 171.0

1,232 25 5,278 6,618 5,214 1,725

High

-8.3% 171.0

1,232 14,216 25

15,473

5,328 6,744 5,314 12,072 1,750

13,822 2015/16 Trend

88.5

81.3

-8.1% 167.2

1,851 13,593

15,475

5,336 6,565 5,175 11,901 1,800

13,701

Ending Stocks U.S. Stocks/Use Ratio Expected CZ Range Expected Avg Farm PriceRange 821 7.4% 1,232 9.2% 1,877 13.8% 2,201 16.6% 1,851 13.6% 1,651 11.9% 1,774 12.9% NA $6.89

2 USDA Jan NA $4.46

$3.35-$3.95

$3.25-$5.75

$3.26

$3.25-$5.75 $3.25-$5.75 $3.25-$5.75

$3.46

$3.66

$3.25

6000 5000

Corn Demand: Ethanol

USDA forecast looks low, exports?

4 591 5 019 5 000 4 641

Year-to-date pace Running at 5,290

5 134 5 175 4000 3000 2000 1000 707 996 1 168 1 323 1 603 2 119 3 049 3 709 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Ethanol Margins…

Corn Balance Sheet: Supply & Demand

What does 2015 look like?

2012/13: Carryout: 821 mbu Avg Farm Price: $6.89

2013/14: Carryout: 1,232 mbu Avg Farm Price: $4.46

SOYBEANS

World & U.S. Soybeans Stocks to Use Ratio 35% 30% 25% 20% 15% 10% 5% 0% Could see an almost unprecedented build in the world stocks “cushion” this year?

US from 3% to 11% World from 24% to 32% (prev hi 28%)

Source: USDA

World Stocks to Use US Stocks to Use

32% 11%

50,0 U.S. Soybean Yields Certainly an above trend yield year!

45,0 40,0 35,0 30,0 26,5 30,1 31,5 26,2 28,1 34,1 33,3 33,9 27,0 32,3 34,134,2 37,6 32,6 41,4 35,3 37,6 38,938,9 36,6 38,1 39,6 38,0 33,9 42,2 43,142,9 41,7 39,7 44,0 43,5 42,0 40,0 44,0 Vs Trend Actual Trend 25,0 47,8 8,0 6,0 4,0 2,0 0,0 -2,0 -4,0 -6,0 -8,0

60 50 40 30 20 10 0 -10 -20 -30 World Soybean Production, Use and US Price Production to outpace use for 3 rd straight year “Bearish price statement” Can S. American ship it?

Prod Chge Use Chge Avg Frm Prx $16,00 $14,00 $12,00 $10,00 $8,00 $6,00 $4,00 $2,00 $0,00

Record Soybean Production Projected in South America for 14/15 6 500 6 000 5 500 5 000 4 500 4 000 3 500 3 000 2 500 2 000 1 500 1 000 500 -

USDA: South American Soybean Production

28% 30% 31% 34% 30% 32% 32% 36% 35% 37% 41% 42% 48% 48% 46% 47% 49% 53% 45% 51% 51% 48% 54% 53% 53% 60% 50% 40% 30% 20% 10% 0% Source: USDA

Argentina Uruguay Paraguay Brazil Bolivia USA SAM Share of World

80 000 70 000 60 000 50 000 40 000 30 000 20 000 10 000 0 Protein Consumption in China has Expanded Rapidly China Meal Consumption

Meal, Rapeseed Meal, Soybean Meal, Sunflowerseed

China demand drives soybean market!!

Source: USDA

Soybean Demand: Exports

1/14/2015

SOYBEAN

Planted Acres Harvested Acres Abandonment Yield Beginning Stocks Production Imports Total Supply & Impts Seed/Residual Crush Domestic Use, Total Exports Total Use SAM Production MMT (5) U.S. Ending Stocks World Ending Stocks MMT U.S. Stocks/Use Ratio Expected SX Range Expected Avg Farm Price/Range USDA 2 2012/13 -1.4% 169 41 105 146 141 57 4.5% NA $14.40

2 USDA Jan USDA 2013/14 -0.7% 2 141 72 97

USDA Jan

2014/15 83.7

83.1

-0.7% 155 92 67 2.7% NA $13.00

11.2% $9.45-$10.95

Poor

83.7

83.1

-0.7% 47.8

92 3,972 15

4,079

110 1,760 1,870 1,770

3,640

165 440 91 12.1% $8.25-12.75

$8.81

2014/15 Trend

83.7

83.1

-0.7%

High

83.7

83.1

-0.7% 10.0% 8.4% $8.25-$12.75 $8.25-$12.75

$9.31

$9.81

2015/16 Trend

88.1

-1.0% 16.9% $9.20-$12.75

$8.77

Yield raised 0.3 bpa Exports raised 10mbu Carryout unchanged

YTD Soybean Exports Shipped by Destination Source: USDA Export Sales 1 200

70% of shipments to China so far

1 000

WEEK:

18 800 600 400 102 212 249 200 70 69 77 64 70 74 55 69 57 122 96 110 0 02 03 04

Total Known/Unknown

Source: USDA Export Sales 764 650 211 178 55 58 55 43 05

E Europe

06 63 78 64 83 220 54 62 61 72 07

Far East

474 543 320 408 45 43 53 64 61 78 52 58 57 86 48 48 08 09

Oth Asia/Africa

10 51 45 11

W Hemi

545 54 92 50 73 50 92 41 78 71 95 45 108 12 13

Mainland China

14-F

Soybean Demand: Crush

1/14/2015

SOYBEAN

76.1

-1.4% 40.0

169 3,042 41

3,252

105 1,689 1,794 1,317

3,111

146 141 57 4.5% NA $14.40

2 USDA Jan USDA 2

USDA Jan

2013/14 2014/15 76.8

76.3

-0.7% 44.0

141 3,358 72

3,570

97 1,734 1,831 1,647

3,478

155 83.7

83.1

-0.7% 92 67 2.7% NA $13.00

11.2% $9.45-$10.95

Poor

83.7

83.1

-0.7% 47.8

92 3,972 15

4,079

1,760 1,870 1,770

3,640

91 12.1% $8.25-12.75

$8.81

2014/15 Trend

83.7

83.1

-0.7%

High

83.7

83.1

-0.7% 10.0% 8.4% $8.25-$12.75 $8.25-$12.75

$9.31

$9.81

2015/16 Trend

88.1

-1.0% 16.9% $9.20-$12.75

$8.77

1850 1800 1750 1700 1650 1600 1550 1500 1450 1400 1350 1700 1615 1530 1696

Soybean Demand: Crush

1739 1808 1803 1662 1752

Both SBM exports and domestic use increasing crush

1780 1734 1703 1689 1648 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Soybean Balance Sheet: Supply & Demand Source: : USDA, Advance Trading, Inc.

Source: : USDA, Advance Trading, Inc.

Soybean Balance Sheet: Supply & Demand

WHEAT

World & U.S. Wheat Stocks to Use Ratio World and US Wheat Stocks to Use Ratio 60% 50% 40% 30% 20% 39% 40% 36% 26% 25% 20% 27% 28% 23% 21% 26% 24% 20% 24% 19% 16% 37% 36% 31% 29% 31% 30% 30% 29% 10% 0% 48% 29% 23% 19% 27% 24% 22% 21% 22% 18% 17% 13% 21% 36% 33% 33% 30% 25% 25% 23% 21% 24% 21% 22% World Stocks to Use US Stocks to Use Source: USDA

Source: USDA

2 0 6 4 16 14 12 10 8 U.S. SRW Wheat Planted Acreage Set to Decline Further in 2015 U.S. SRW Planted Acreage: 1985-2015

Source: USDA

45 40 35 30 25 20 U.S. HRW Planted Acreage Forecast at a 6-Year High in 2015 U.S. HRW Planted Acreage: 1985-2015

Soft Red Wheat Balance Sheet: Supply & Demand

All Wheat Balance Sheet: Supply & Demand

Marketing

$150 $140 $130 $120 $110 $100 $90 $80 $70 $60 $50 $40 $30 Source: ERS - Farm Income and Wealth Statistics

Net Farm Income and Net Cash Income

Net Farm Net Cash

Corn Price Volatility

CORN Year 2015* 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 High

$4.10 $5.20 $7.49 $8.44 $8.00 $6.30 $4.50 $7.63 $4.57 $3.92 $2.63 $3.35 $2.62 $2.85 $2.30

Source: CME Group Low

$3.90 $3.18 $4.10 $5.51 $5.70 $3.25 $3.00 $2.90 $3.09 $2.04 $1.86 $1.91 $2.05 $1.91 $1.84

Change

$0.20 $2.01 $3.39 $2.93 $2.30 $3.05 $1.50 $4.73 $1.48 $1.88 $0.77 $1.44 $0.57 $0.94 $0.46

Corn Volatility

High Low Fourteen Year Average Volatility for Corn = 2010 - 2014 Average Volatility for Corn = $9.00

$8.00

$7.00

$6.00

$5.00

$4.00

$3.00

$2.00

$1.00

$0.00

$1.96 $2.74

Soybean Price Volatility

SOYBEANS Year High 2015* 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 Source: CME Group

$10.59 $15.37 $16.30 $17.95 $14.56 $13.94 $12.91 $16.60 $12.30 $6.93 $7.52 $10.64 $8.02 $6.25 $5.38

Low

$10.02 $9.04 $12.55 $11.50 $10.94 $9.00 $8.44 $7.77 $6.47 $5.27 $4.99 $5.01 $5.32 $4.16 $4.20

Change

$0.57 $6.33 $3.75 $6.45 $3.62 $4.94 $4.47 $8.83 $5.83 $1.66 $2.53 $5.63 $2.70 $2.09 $1.18

Soybean Volatility

High Low $20.00

$15.00

$10.00

$5.00

$0.00

Fourteen Year Average Volatility for Soybeans = $4.29 2010 - 2014 Average Volatility for Soybeans = $5.02

Wheat Price Volatility Year 2015* 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 Source: CME Group High

$6.04 $7.35 $8.00 $9.47 $8.92 $8.04 $6.76 $13.00 $10.09 $5.57 $3.69 $4.24 $4.09 $4.34 $2.95

Low

$5.62 $4.66 $5.99 $5.90 $5.72 $4.26 $4.29 $4.55 $4.12 $3.21 $2.87 $2.83 $2.73 $2.56 $2.43

Change

$0.42 $2.69 $2.01 $3.58 $3.20 $3.78 $2.47 $8.45 $5.97 $2.36 $0.82 $1.42 $1.36 $1.79 $0.52

Wheat Volatility

High Low $14.00

$12.00

$10.00

$8.00

$6.00

$4.00

$2.00

$0.00

Fourteen Year Average Volatility for Wheat = 2010 - 2014 Average Volatility for Wheat = $2.88 $2.39

The following comes from an episode of Louis CK’s TV show, Louie, as part of one of the short stand up routines he intermittently mixes into the show. Reminds us of how we manage risk sometimes…

“You try to keep your kids safe. Like, if my kids get in a car with me, I make them buckle up. I make a big deal out of it; I’m not even starting this car until you buckle your seat belts.

But if we get in a taxi, I’m like, ‘Just…it’s fine. Taxis are magic, nobody dies. Just get in, just go.”

2009: Argentina crop experiences major drought

Back to Basics…

The Economist

January 3 rd , 2015

“In The Next 40 Years, Humans Will Need To Produce More Food Than In The Last 10,000 Years Combined.”

Back to Basics…

Things can and will change… And quickly… • • • • • • GMO Ethanol regulations Livestock regulations World production World Politics and Policy Outside markets or invest money

Back to Basics…

December 23, 2014 “Half of All Children Will Be Autistic by 2025”. Stephanie Seneff, PhD Senior Research Scientist at MIT

At a conference last Thursday, in a special panel discussion about GMOs, she took the audience by surprise when she declared, “At today’s rate, by 2025, one in two children will be autistic.” She noted that the side effects of autism closely mimic those of glyphosate toxicity, and presented data showing a remarkably consistent correlation between the use of Roundup on crops (and the creation of Roundup-ready GMO crop seeds) with rising rates of autism. Children with autism have biomarkers indicative of excessive glyphosate, including zinc and iron deficiency, low serum sulfate, seizures, and mitochondrial disorder.

Livestock Production, Risks vs Rewards Wisconsin Supreme Court Holds Manure is a Pollutant Under Farm Insurance Policy

December 31, 2014 On December 30, 2014, the Wisconsin Supreme Court reversed a court of appeals decision in Wilson Mutual Insurance Co. v. ---, 2014 WI 136 (Wis. 2014), holding that manure that contaminates a well is a “pollutant,” and is therefore not covered under a farm’s general liability insurance policy. This is a precedent setting decision, and it will affect whether farms in Wisconsin that allegedly cause the contamination of wells with manure will be able to rely on insurance to pay for damages. Given the supreme court’s holding, farms relying on standard general liability policies may not have insurance coverage for personal and property damage claims arising from well contamination caused by manure. In Wilson Mutual Ins. Co., the ---, dairy farmers in Washington County, fertilized their fields with manure from their dairy cows according to a nutrient management plan prepared by an agronomist and approved by the county conservation office. A few months later, the Wisconsin Department of Natural Resources alleged that the farm’s manure had polluted an aquifer and neighboring wells. Thereafter, the neighboring landowners sought compensation from the Falks for damages arising out of the well contamination.

Back to Basics…

• Any strategy/risk management plan should be simple enough that it can be explained and understood in a typical conversation.

• Expect and Welcome Price Volatility! • Things can and will change… Just look again at the energy markets!

Example of how quickly things can change……

Where is (fill in “blank”) in the “cycle”? Here?

Or here?

January 27, 2015?

Back to Basics…

Why manage price if below break-even?

Good question!

•

As long as you plan on planting a crop irrespective of break-even, you have downside price risk to loan rate on unprotected production.

•

If prices go higher (price risk doesn’t occur), make certain your strategy performs well and is flexible.

Back to Basics… Marketing Opportunities

• • • • • •

Do nothing Forward Cash Sales Futures Options Structured products Let someone else do it

Back to Basics… Options Fit Farmers For Price Risk Management

Those who say options do not work either have limited experience with them or have not managed them properly.

Back to Basics… Do you want to risk a premium (fixed amount) or risk hard earned equity? Options need a second look if you aren’t using them or have a negative impression of them.

Back to Basics… The emotional or psychological part of marketing is real.

Options control Emotions.

Back to Basics…

• You have grain that has zero production risk (old crop that is already harvested). Why have you not sold it? Optimistic? • Remember the concern or “heavy feeling” in late September/early Oct when we were $3.00 futures? • Cost of storage is something. AND you still have downside risk… Exchange the cost with a long call.

Back to Basics…

Unpriced Old crop grain on farm or in storage…

Risks/costs:



Storage costs

 

Quality Lower prices How do you get rid of these cost/risks?

Opportunities:



Higher prices

Back to Basics…

Unpriced Old crop grain on farm or in storage…

Risks/costs:



Storage costs

 

Quality Lower prices

Sell Cash!

Opportunities:



Higher prices

BUT, also loose upside opportunity.

Back to Basics…

Do

NOT

want to trade one risk for another on a substantial percentage of crop.

i.e. Downside risk for upside risk

That becomes price prediction.

Back to Basics…

Unpriced Old crop grain on farm or in storage…

Risks/costs:



Storage costs

 

Quality Lower prices

Sell Cash!

Opportunities:



Higher prices

How can I retain upside price opportunities? Using a long call.

Back to Basics…

• Many are looking at new crop – hard to manage the new crop until the old crop is managed. • New crop soybeans are in the black – protect against lower prices should • The market didn’t care when growers were making $400/per acre and it doesn’t care if you are losing $100-200.

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This material is a solicitation to enter into a derivatives transaction. The information and data contained herein have been obtained from sources believed to be reliable but Advance Trading Inc. ("Advance") does not warrant their accuracy or completeness. Recommendations and opinions contained herein reflect the judgment of Advance as of the date hereof, are subject to change, and are based on certain assumptions, only some of which are noted herein. Different assumptions could yield substantially different results. You are cautioned that there is no universally accepted method for analyzing financial instruments. Advance does not guarantee any results and there is no guarantee as to the liquidity of the instruments involved in our analysis. Advance, its affiliates, and its and their officers, directors, and employees may sell or purchase, for their own account or for customers, positions in futures, options or other instruments which may be similar or different from the positions referred to herein. As a matter of policy, Advance does not give tax, accounting, regulatory or legal advice to clients. Clients therefore should consult their own advisors regarding the tax, accounting and legal implications of the recommended strategies before transactions are affected. Trading commodity futures and options involves significant risk and is not appropriate for all investors.

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