murphy brown grower market outlook 2/4/15 advance trading bloomington,il

Murphy Brown Grower Market Outlook

2/4/15

Advance TradingBloomington ,IL

2009: Argentina crop experiences major drought

Commodity Correlation Matrix

US Dollar Index

How big was the 2014 crop?

1/14/2015 USDA2 USDA2USDA Jan 2014/15 2015/16

CORN 2012/13 2013/14 2014/15 Poor Trend High Trend

Planted Acres (myn a) 97.3 95.4 90.6 90.6 90.6 90.6 88.5 Harvested Acres 87.4 87.5 83.1 83.1 83.1 83.1 81.3 Abandonment -10.2% -8.3% -8.3% -8.3% -8.3% -8.3% -8.1%Yield 123.1 158.1 171.0 171.0 171.0 171.0 167.2Beginning Stocks 989 821 1,232 1,232 1,232 1,232 1,851 Production 10,755 13,829 14,216 14,216 14,216 14,216 13,593 Imports 160 36 25 25 25 25 30 Total Supply & Impts 11,904 14,686 15,472 15,473 15,473 15,473 15,475 Feed/Residual 4,315 5,036 5,275 5,228 5,278 5,328 5,336 Food, Seed, Industrial 6,038 6,501 6,570 6,544 6,618 6,744 6,565

Ethanol for Fuel 4,641 5,134 5,175 5,114 5,214 5,314 5,175 Domestic Use, Total 10,353 11,537 11,845 11,772 11,896 12,072 11,901 Exports 730 1,917 1,750 1,500 1,725 1,750 1,800 Total Use 11,083 13,454 13,595 13,272 13,622 13,822 13,701

Ending Stocks 821 1,232 1,877 2,201 1,851 1,651 1,774 U.S. Stocks/Use Ratio 7.4% 9.2% 13.8% 16.6% 13.6% 11.9% 12.9%

Expected CZ Range NA NA $3.25-$5.75 $3.25-$5.75 $3.25-$5.75 $3.25-$5.75Expected Avg Farm PriceRange $6.89 $4.46 $3.35-$3.95 $3.26 $3.46 $3.66 $3.25

2 USDA Jan

Corn Balance Sheet: Supply & Demand

Report changes:Yield dn 0.3bpaProduction dn 191

30%28%

30% 29%

33% 32%

15%17%

19%18%

16%18% 18%

19% 20%20%

19%18%

20%17%

12%13%

14% 13%

9% 8% 7%9%

World and US Corn - Stocks to Use Ratio

World Stocks to Use US Stocks to Use

Corn Demand: Exports

2 USDA Jan

20012002

20032004

20052006

20072008

20092010

20112012

20132014

312 284 322 333 329 380433

304 317 355259

129 119 159

97 90 7687

164214

231 223 227

208 208142

221 308

YTD Corn Exports Shipped by Destination 359mbu total

UNK W Hemi Africa PRC Oth Asia FSU EUR

Source: USDA Export Sales Week: 18

01 02 03 04 05 06 07 08 09 10 11 12 1314-F

131 120187

121 134223

104160 193

168 136

196 134164

2413644

70 11585

Unshipped Corn Sales by Destination

UNK W Hemi Africa PRC Oth Asia FSU EUR

Week: 18

Source: USDA Export Sales

Corn Demand: Feed

2 USDA Jan

Corn Demand: Ethanol

2 USDA Jan

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140

707996

1,168 1,3231,603

5,019 5,0004,641

5,134 5,175

UCorn Demand: Ethanol

USDA forecast looks low, exports?

Year-to-date paceRunning at 5,290

Ethanol Margins…

Corn Balance Sheet: Supply & Demand

What does 2015 look like?

2012/13: Carryout: 821 mbuAvg Farm Price: $6.89

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

SOYBEANS

35% 32%

World Stocks to Use US Stocks to UseSource: USDA

World & U.S. Soybeans Stocks to Use Ratio

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%)

34.133.3

34.134.2

38.938.9

42.243.142.9

44.043.5

U.S. Soybean Yields

Vs Trend Actual

Certainly an above trend yield year!

$10.00

$12.00

$14.00

$16.00

Prod Chge Use Chge Avg Frm Prx

Production to outpace use for 3rd straight year

“Bearish price statement”

Can S. American ship it?

World Soybean Production, Use and US Price

Record Soybean Production Projected in South America for 14/15

Source: USDA

- 500,000

1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 4,000,000 4,500,000 5,000,000 5,500,000 6,000,000 6,500,000

28%30% 31%

30%32% 32%

36% 35%37%

41%42%

48% 48%46% 47%

49%53%

51% 51%

54% 53% 53%

USDA: South American Soybean Production

Argentina Uruguay Paraguay Brazil Bolivia USA SAM Share of World

Protein Consumption in China has Expanded Rapidly

Source: USDA

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000China Meal Consumption

Meal, Rapeseed Meal, Soybean Meal, Sunflowerseed

China demand drives soybean market!!

Soybean Demand: Exports

Source: : USDA, Advance Trading, Inc.Source: : USDA, Advance Trading, Inc.

SOYBEAN 2012/13 2013/14 2014/15 Poor Trend High Trend

Planted Acres 77.2 76.8 83.7 83.7 83.7 83.7 89.0 Harvested Acres 76.1 76.3 83.1 83.1 83.1 83.1 88.1Abandonment -1.4% -0.7% -0.7% -0.7% -0.7% -0.7% -1.0%Yield 40.0 44.0 47.8 47.8 47.8 47.8 45.4 Beginning Stocks 169 141 92 92 92 92 370 Production 3,042 3,358 3,969 3,972 3,972 3,973 3,998 Imports 41 72 15 15 15 15 15 Total Supply & Impts 3,252 3,570 4,076 4,079 4,079 4,080 4,383 Seed/Residual 105 97 116 110 120 130 125 Crush 1,689 1,734 1,780 1,760 1,785 1,795 1,825 Domestic Use, Total 1,794 1,831 1,896 1,870 1,905 1,925 1,950 Exports 1,317 1,647 1,770 1,770 1,805 1,840 1,800 Total Use 3,111 3,478 3,666 3,640 3,710 3,765 3,750 SAM Production MMT (5) 146 155 165 165 165 165 165 U.S. Ending Stocks 141 92 410 440 370 316 633 World Ending Stocks MMT 57 67 91 91 91 91 90 U.S. Stocks/Use Ratio 4.5% 2.7% 11.2% 12.1% 10.0% 8.4% 16.9%Expected SX Range NA NA $8.25-12.75 $8.25-$12.75 $8.25-$12.75 $9.20-$12.75

Expected Avg Farm Price/Range $14.40 $13.00 $9.45-$10.95 $8.81 $9.31 $9.81 $8.77

2 USDA Jan

Yield raised 0.3 bpaExports raised 10mbuCarryout unchanged

02 03 04 05 06 07 08 09 10 11 12 13 14-F0

122 96 110 43 83 72 64 58 48 15

73 78 108

77 74 57

55 64 61 53 52 48

35 50 41

69 70 69

58 78 62 43 78 86

92 92 95

70 64 55

45 61 57

54 50 71

102 212 249

211 220 320

474 543

545 650

YTD Soybean Exports Shipped by Destination Source: USDA Export Sales

Total Known/Unknown E Europe Far East Oth Asia/Africa W Hemi Mainland China

Source: USDA Export Sales

18WEEK:

70% of shipments to China so far

Soybean Demand: Crush1/14/2015 USDA2 USDA2

USDA Jan 2014/15 2015/16

SOYBEAN 2012/13 2013/14 2014/15 Poor Trend High Trend

Planted Acres 77.2 76.8 83.7 83.7 83.7 83.7 89.0 Harvested Acres 76.1 76.3 83.1 83.1 83.1 83.1 88.1Abandonment -1.4% -0.7% -0.7% -0.7% -0.7% -0.7% -1.0%Yield 40.0 44.0 47.8 47.8 47.8 47.8 45.4 Beginning Stocks 169 141 92 92 92 92 370 Production 3,042 3,358 3,969 3,972 3,972 3,973 3,998 Imports 41 72 15 15 15 15 15 Total Supply & Impts 3,252 3,570 4,076 4,079 4,079 4,080 4,383 Seed/Residual 105 97 116 110 120 130 125 Crush 1,689 1,734 1,780 1,760 1,785 1,795 1,825 Domestic Use, Total 1,794 1,831 1,896 1,870 1,905 1,925 1,950 Exports 1,317 1,647 1,770 1,770 1,805 1,840 1,800 Total Use 3,111 3,478 3,666 3,640 3,710 3,765 3,750 SAM Production MMT (5) 146 155 165 165 165 165 165 U.S. Ending Stocks 141 92 410 440 370 316 633 World Ending Stocks MMT 57 67 91 91 91 91 90 U.S. Stocks/Use Ratio 4.5% 2.7% 11.2% 12.1% 10.0% 8.4% 16.9%Expected SX Range NA NA $8.25-12.75 $8.25-$12.75 $8.25-$12.75 $9.20-$12.75

Expected Avg Farm Price/Range $14.40 $13.00 $9.45-$10.95 $8.81 $9.31 $9.81 $8.77

2 USDA Jan

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20141350

1808 1803

1703 1689

USoybean Demand: Crush

Both SBM exports and domesticuse increasing crush

Soybean Balance Sheet: Supply & Demand

Source: : USDA, Advance Trading, Inc.

Soybean Balance Sheet: Supply & Demand

Source: : USDA, Advance Trading, Inc.

Source: USDA

World & U.S. Wheat Stocks to Use Ratio1

26%25%

27% 28%26%

24% 24%

29%31% 30% 30% 29%

19%22% 21%

18% 17%

25% 25%23%

21% 21% 22%

20%21%

23%20%

39% 40%

37% 36%

25%23% 24%

36%33%

World and US Wheat Stocks to Use Ratio

U.S. SRW Wheat Planted Acreage Set to Decline Further in 2015

16U.S. SRW Planted Acreage: 1985-2015

Source: USDA

45U.S. HRW Planted Acreage: 1985-2015

Source: USDA

U.S. HRW Planted Acreage Forecast at a 6-Year High in 2015

Soft Red Wheat Balance Sheet: Supply & Demand

All Wheat Balance Sheet: Supply & Demand

Marketing

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20082009

20102011

20122013

2014F$30$40$50$60$70$80$90

$100$110$120$130$140$150

Net Farm Income and Net Cash Income

Net Farm Net Cash

Source: ERS - Farm Income and Wealth Statistics

Source: CME Group

Corn Price VolatilityCORN

Year High Low Change

2015* $4.10 $3.90 $0.20 2014 $5.20 $3.18 $2.01 2013 $7.49 $4.10 $3.39 2012 $8.44 $5.51 $2.93 2011 $8.00 $5.70 $2.30 2010 $6.30 $3.25 $3.05 2009 $4.50 $3.00 $1.50 2008 $7.63 $2.90 $4.73 2007 $4.57 $3.09 $1.48 2006 $3.92 $2.04 $1.88 2005 $2.63 $1.86 $0.77 2004 $3.35 $1.91 $1.44 2003 $2.62 $2.05 $0.57 2002 $2.85 $1.91 $0.94 2001 $2.30 $1.84 $0.46

$0.00$1.00$2.00$3.00$4.00$5.00$6.00$7.00$8.00$9.00

Corn Volatility

High Low

Fourteen Year Average Volatility for Corn = $1.96 2010 - 2014 Average Volatility for Corn = $2.74

Source: CME Group

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

SOYBEANS

Year High Low Change

2015* $10.59 $10.02 $0.57 2014 $15.37 $9.04 $6.33 2013 $16.30 $12.55 $3.75 2012 $17.95 $11.50 $6.45 2011 $14.56 $10.94 $3.62 2010 $13.94 $9.00 $4.94 2009 $12.91 $8.44 $4.47 2008 $16.60 $7.77 $8.83 2007 $12.30 $6.47 $5.83 2006 $6.93 $5.27 $1.66 2005 $7.52 $4.99 $2.53 2004 $10.64 $5.01 $5.63 2003 $8.02 $5.32 $2.70 2002 $6.25 $4.16 $2.09 2001 $5.38 $4.20 $1.18

$10.00

$15.00

$20.00

Soybean Volatility

High Low

Soybean Price Volatility

Wheat Price Volatility

Source: CME Group

$10.00

$12.00

$14.00

Wheat Volatility

High Low

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

Year High Low Change2015* $6.04 $5.62 $0.42 2014 $7.35 $4.66 $2.69 2013 $8.00 $5.99 $2.01 2012 $9.47 $5.90 $3.58 2011 $8.92 $5.72 $3.20 2010 $8.04 $4.26 $3.78 2009 $6.76 $4.29 $2.47 2008 $13.00 $4.55 $8.45 2007 $10.09 $4.12 $5.97 2006 $5.57 $3.21 $2.36 2005 $3.69 $2.87 $0.82 2004 $4.24 $2.83 $1.42 2003 $4.09 $2.73 $1.36 2002 $4.34 $2.56 $1.79 2001 $2.95 $2.43 $0.52

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.”

The Economist January 3rd, 2015

“In The Next 40 Years,Humans Will Need To ProduceMore 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…

Back to Basics…December 23, 2014“Half of All Children Will Be Autistic by 2025”. Stephanie Seneff, PhDSenior 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.

Wisconsin Supreme Court Holds Manure is a Pollutant Under Farm Insurance PolicyDecember 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.

Livestock Production, Risks vs Rewards

• 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!

Back to Basics…

Example of how quickly things can change……

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

Or here?

January 27, 2015?

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…

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

Marketing Opportunities

Back to Basics…

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.

Unpriced Old crop grain on farm or in storage…

Risks/costs: Storage costs

Lower prices Quality

Opportunities: Higher prices

Back to Basics…

How do you get rid of

these cost/risks?

Back to Basics…

Sell Cash!

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…

Sell Cash!

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 – should protect against lower prices

• The market didn’t care when growers were making $400/per acre and it doesn’t care if you are losing $100-200.

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. Information relating to past performance is not necessarily indicative of future results.

Reproduction in any form without Advance's express written consent is strictly forbidden.

DISCLAIMER

murphy brown grower market outlook 2/4/15 advance trading bloomington,il

us corn stocks

corn demand

exports ytd corn exports

corn balance sheet

us dollar index corn

ratio world stocks

yield dn

bpaproduction dn

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