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Commodity Market Update

September 2019

Patrick SparksGlobal Risk Management, Incpsparks@grmcorp.com651-209-9503

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2019 Commodity Market Headlines

Continued large global supplies of grains & oilseeds

Huge/record South American production

U.S. spring flooding, planting delays

U.S. and China Trade War

African Swine Fever

Global economic concern

Currency Volatility

Speculative fund positioning

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The Spring of 2019 was Historically Wet

Chart: NOAA

Total Precipitation Percentiles Mar – May 2019(1895 – 2019)

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89.189.8

91.7 91.7 90.089.2

84.6

80.0 80.076.7

65.0

70.0

75.0

80.0

85.0

90.0

95.0

2018/19 Final March Intentions June WASDE July WASDE August WASDE

USDA U.S. Planted Acreage Estimates (million acres)

Corn Soybeans

Historically slow planting pace

Trade dismisses USDA, awaits re-survey results

The Great Acreage Debate of 2019

Record bearish production surprise

Trade War deters soybean acres

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New Crop (19/20) Commitments

U.S. Corn sales of 5.5 MMT vs. 10.4 MMT last year, -47% (USDA -2%)

U.S. Wheat sales of 11.1 MMT vs. 9.0 MMT last year, +23% (USDA +4%)

U.S. Soybean sales of 5.6 MMT vs. 13.2 MMT last year, -58% (USDA +4%)

U.S. Corn, Wheat and Soybean Demand

Demand Headwinds into 2020 Flatlined ethanol demand Trade War deal before 2020 unlikely ASF continues to spread Big wheat crops in the EU and FSU High 19/20 SAM corn/bean crop potential $USD strength

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CORN MARKET

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0

500

1000

1500

2000

2500

Million Bu

shels

U.S. Corn Ending StocksUSDA WASDE Report

Data Source: USDA

U.S. Corn Supply: projected ending stocks above 2 billion are below last year but still historically large

General range of forecasts earlier this summer

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U.S. Corn Yields Slightly Below Trend

70

90

110

130

150

170

190

89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

Yield (bushe

ls/acre)

U.S. Corn Yields (1989‐2019)

= RecordYield= Trend Line Yield= 5% Below Trend

8/31 Years (26%) = Record Yield2/31 Years (6%) = Consecutive Record Yields5/31 Years (16%) = 5%+ Below Trend

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Frost Watch - A Race to MaturityDate of Median 1st 28 F Freeze

Late planting has put plant development well behind average Biggest risks are in the Dakotas and the Eastern Corn Belt NOAA’s current September forecast does not have a major freeze

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0

20,000

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Major Corn Exporters: production & exportsBrazil Prod. Argentina Prod. Ukraine Prod. Combined Exports

Data Source: USDA

Global Corn Exports: record crops for all 3 of the U.S.’s major export competitors

U.S. (Gulf) $160Brazil $155Argentina $143Ukraine $182

FOB Export Values, spot ($USD/MT)

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‐50

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1‐Sep 1‐Oct 1‐Nov 1‐Dec 1‐Jan 1‐Feb 1‐Mar 1‐Apr 1‐May 1‐Jun 1‐Jul 1‐Aug

Cents/Bu

shel

Decatur, Illinois Corn Basis

14/15 15/16 16/17 17/18 18/19

Data Source: Reuters

Cash Corn Prices: the threat of shorter crops in the East has rallied corn basis to new highs

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Weekly Corn Prices: continuing to fall post August USDA report shock

Delayed planting

USDA surprise

Demand destruction

Chart: DTN

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Corn Market Forward OutlookBearish Scenario (▼)• USDA’s production forecast validated at harvest• Demand struggles continue• Higher acres/good early S. American conditions

Bullish Scenario (▲)• Major freeze, surprising acreage revision• Tight fisted farmer• Major ethanol mandate change

Outlook: barring a major harvest surprise, look for prices to shed some of the remaining risk premium they have left as we get closer to harvest• Further demand cuts could partially offset yield/acreage reductions• Cash corn prices will stay firm, especially in the ECB

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WHITE CORN MARKET

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Global White Corn Market 3 year high in WC premiums during U.S. planting

U.S. planted area up but harvested area down

Delayed planting presents yield and quality concerns

Stable food demand, exports down 8% - 10%, and lower feed/industrial usage

Mexico Market: another solid crop due to favorable growing conditions Record demand (feed) tightens stock levels

Per capita corn consumption has declined

South Africa Market: drought conditions led to lower 19/20 crop Strong exports to neighboring countries

Supplies are high enough to meet export + feed demand

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U.S. White Corn Ending Stocks: below trend yields and only a moderate reduction to demand drops stocks to a 4 year low

7.86

13.48

15.43

10.58

14.17

6.64

1.19

10.15

5.30

14.85

12.87

4.425.29 4.89

3.88

0.37

6.58

21.94

11.57

4.20

0

5

10

15

20

25

00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19 19/20

Mill

ion

Bus

hels

U.S. White Corn Ending Stocks

Imported Mexican corn

Over produced to meet potential SAF demand

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White Corn Premiums Over Yellow Futures

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WHEAT & FLOUR MARKET

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45% 45%38%

34%

30%

14%15%

0%

10%

20%

30%

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60%

70%

80%

90%

100%

1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019

World Share of Wheat Exports (1973 ‐ 2019)Australia Canada European Union Black Sea United States Others

Data Source: USDA

Global Wheat Exports: Russia’s emergence as a major producer and exporter has cut into U.S. export share

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Chart: USDA

Record Global Wheat Production in 2019

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2020

Millions

U.S. Winter Wheat Planted Acres (1909 ‐ 2019)

Lowest Winter Wheat Acreage in over 100 Years

Data Source: USDA

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2019-20 U.S. Wheat S/D: good yields and lower exports have offset the lower acreage base

Source: USDA

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500

1,000

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2,000

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3,000

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uctio

n & Ex

ports

 (mil b

u.)

End Stocks (m

il. bu

.)U.S. All Wheat Supply & Demand

Ending Stocks Production Exports

Hard Red Spring wheat stocks are forecasted to be at a 32 year high Hard Red Winter wheat stocks down on the year but well above average

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$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

Aug‐14 Jan‐15 Jun‐15 Nov‐15 Apr‐16 Sep‐16 Feb‐17 Jul‐17 Dec‐17 May‐18 Oct‐18 Mar‐19 Aug‐19

$/Bu

shel

Kansas City Wheat Basis (13% Pro)

Data Source: Reuters

Winter Wheat Basis: supported by a lower protein crop. Adequate spring wheat supplies for blending should limit rallies

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Weekly KC Wheat Prices: hit 13+ year lows this past week

EU & Australia drought

Weak corn market

U.S. prices uncompetitive

Chart: DTN

5 straight years of record global production

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Wheat Market Forward OutlookBearish Scenario (▼)• Favorable spring wheat harvest• $USD strength, slower exports• U.S. corn stocks near current forecast• Steady to higher acres in EU/FSU

Bullish Scenario (▲)• Corn harvest issues• Lower 2020 winter wheat area• Further delays to the spring wheat harvest• S. Hemisphere growing problem

Outlook: with prices at or near decade plus lows, downside from here feels limited with the market now in “oversold territory”. With record global production expected and adequate U.S. stocks, look for forward carry to come out of the market as we move through time.• Wheat basis should stay supported with the lower protein crop• HRW will struggle to attract acreage at current price levels

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VEGETABLE OILS MARKET

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Soybean Exports to China: South America has been able to satisfy China’s soybean import needs as the Trade War drags on

Chart: Bloomberg

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1,070

755

573

449 438370 348 334 329 302 292 290 278 248 215 209 208 205 197 196 191 181 178 169 151 141 138 128 112 92

0100200300400500600700800900

1,0001,100

Million

 Bushe

ls

U.S. Soybean Ending StocksUSDA WASDE Report

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Endin

g Stok

cs (M

MT)

Crop Year

World Ending Stocks - SoybeansUSDA - Foreign Agriculture Service

**Expect an increase in 19/20 acres in South America given the currency situation of both Brazil

and Argentina

**The soybean balance sheet lost 12.5 million acres from last year and stocks

will still be the 2nd highest ever

Data Source: USDA

2 9 Chart: FAO

African Swine Fever: continuing to spread with now 149 reported outbreaks across 32 Chinese provinces and spreading

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Global Vegetable Oil Supplies: a slowdown in oilseed crush and very strong demand for biodiesel production tightens oil supplies

6.0%

7.0%

8.0%

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12.0%

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25

99/00

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Ending

 Stocks/Us

e

Ending

 Stocks (M

MT)

Ending Stocks of World Veg OilsPalm Rape/Canola Soybean Sun ES/U %

Data: USDA

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U.S. Soybean Oil Supplies: despite soybean crush running at record levels for the better part of the year, soybean oil stocks are at their lowest level since 2004

Data Source: National Oilseed Processors Association

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Assumptions:Board Crush 0.88Oil Yield 11.62

Soybean % Prod. Value

Futures 28 29 30 31 32 33 34 35 367.00 18.99 19.67 20.34 21.02 21.70 22.38 23.06 23.73 24.417.50 20.19 20.91 21.64 22.36 23.08 23.80 24.52 25.24 25.968.00 21.40 22.16 22.93 23.69 24.45 25.22 25.98 26.75 27.518.50 22.60 23.41 24.22 25.02 25.83 26.64 27.45 28.25 29.069.00 23.81 24.66 25.51 26.36 27.21 28.06 28.91 29.76 30.619.50 25.01 25.91 26.80 27.69 28.59 29.48 30.37 31.27 32.16

10.00 26.22 27.15 28.09 29.03 29.96 30.90 31.83 32.77 33.7110.50 27.42 28.40 29.38 30.36 31.34 32.32 33.30 34.28 35.2611.00 28.63 29.65 30.67 31.69 32.72 33.74 34.76 35.78 36.8111.50 29.83 30.90 31.96 33.03 34.09 35.16 36.22 37.29 38.35

Current Market SX19 8.69BOV19 28.64

Soy Complex Price Relationships: strong demand for soybean oil in biodiesel production and weakened soymeal demand as a result of ASF is supportive to soybean oil’s share of product value

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Weekly Soybean Oil Prices: struggling to trade independently of the weak soybean market

Upside has been capped by the Trade War and large palm oil supplies

Chart: DTN

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Soybean Oil Market Forward OutlookBearish Scenario (▼)• Trade War drags on well into 2020• U.S. soybean stocks remain large• Higher acres/good early S. American conditions• Crush margins stay strong

Bullish Scenario (▲)• Trade War resolution• Increases to the BioD mandate• S. American crop problem• ASF continues to spread

Outlook: soybean oil has the fundamentals to move higher, but rallies will struggle to maintain strength without the support of soybeans. Look for the July lows to hold for the short term.• Oilshare to stay supported• Possibly lower 2020 U.S. soybean acres again

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Palm Oil Supply & Demand

• Production is seasonally increasing. Q3 and Q4 is peak production• Month to month production gains versus last year continue to widen• Exports increased 7% last month and were 24% higher than 2018• Stocks are at a 1 year low, falling for a 5th straight month

Data Source: MPOB

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Weekly Palm Oil Prices: longer term cyclical trends signal that the old lows will prove as firm support levels moving forward

Bullish Market Factors• India & China demand, ASF impacts• Indonesian BioD production

exceeding expectationsBearish Market Factors• Narrowing gasoil spreads• EU phasing out of PME

Chart: DTN

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Managing your business’s risk to fluctuating commodity prices

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Best in Class Commodity Risk Management Have a Risk Policy Position limits, defined roles Alignment on risk tolerance

Develop a unified Risk Management Strategy

Avoid key decision making during peak volatility Markets are emotional

Know your risk – define your Even Position Keep purchases and sales in balance

Raw materials priced Forward sales priced

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If you have any additional questions or requests for information please contact me at psparks@grmcorp.com

Visit us at: www.grmcorp.com

Thank You!!