Grain Market Outlook

Teagasc Tillage Forum

07th Sep 2017

James Nolan

R&H Hall

• Fundamentals

– S&Ds

• Driver of rally this summer

– Weather

– Funds

– Currency

• What is fair value??

• What to watch for this season.

Irish Grain Production (‘000t). Barley has had the largest decline due to lower w. barley area, but production still inline with 10yr average.

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 F%chgyoy

Wheat 794 1,020 840 806 684 950 627 595 905 599 519 666 682 644 615 -4

Barley 1198 1,330 1,060 1,137 1,130 1,250 1,104 1,050 1,388 1,083 1,563 1,597 1,709 1,379 1,299 -6

Oats 155 150 113 145 157 177 127 122 151 145 142 137 192 178 181 2

Total 2,147 2,500 2,013 2,088 1,971 2,377 1,858 1,767 2,444 1,827 2,225 2,400 2,582 2,200 2,095 -5

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Global Barley mmt – the tightest of all grains

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World Barley Carryout (mmt) World Barley Production (mmt)

World Barley Use (mmt)

EU Barley (mmt). The tightest of all EU grains, with only 3weeks stock carried next year. Exports have started the season slowly and 7mmt export may be a struggle.

EU Barley

07-08 08-09 09-10 10-11 11-12 12-13 F 13-14 14-15 15-16 16-17 17-18

Carry-in 6 5 10 14 7 4 2 3 2 5 4

Production 58 66 62 54 52 55 60 61 62 60 59

Imports 0.3 0.2 0.7 0.3 0.4 0.1 0.1 0.3 0.3 0.5 0.4

Available 64 71 73 68 59 59 61 64 65 65 63

Domestic 55 57 57 57 51 51 53 51 51 55 54

Export 4 4 2 5 4 7 5 11 9 5 7

Total 58 61 59 61 55 58 58 62 60 61 60

Carryout 5.3 10.0 13.9 6.7 4.1 1.5 2.9 2 5 4 3

Stock/Use 0.10 0.17 0.24 0.12 0.08 0.03 0.05 0.04 0.09 0.07 0.06

Global Corn mmt – Corn Stocks declining with reductions in Ukraine/USA/Canada.

Ending Stocks

Prod. & Consumption

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World Corn Production (mmt)

World Corn Use (mmt)

Corn Exporters v Global Corn Consumption

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US Corn Exports (mmt) Argentine Corn Exports (mmt) Brazil Corn Exports (mmt) FSU-12 Corn Exports (mmt) World Corn Use (mmt)

Brazil exports increasing 20% yoy after last years drought

US Ethanol demand has driven corn price higher. But with stagnating demand prices have been declining with production from emerging exporters

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US Corn Use for Ethanol (million bushel) US Corn Price (US$/bushel)

Million bu Cbot corn price c/bu

World Wheat Production

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World Wheat Production (mmt) World Wheat Total Use (mmt)

Production is in decline after last years record crop.

% Change in Global Wheat Production

EU, 3

USA, -25

Argentina, 0

Turkey, 13

China, 1

Canada, -16

Australia, -33

Russia, 7

India, 10

Iran, -3

Pakistan, 2

Kazakhstan, -7

Ukraine, -1 Others, 1

World Wheat Stocks will decline excluding China (+15mmt), with declines in EU/USA

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Global Wheat Stocks (-China) Global Wheat StocksGlobal Stock/Usage Global Stock/Usage (-China)

Global Wheat - China (mmt)

EU Wheat Stocks to fall for third year.

07-08 08-09 09-10 10-11 11-12 12-13 F 13-14 14-15 15-16 16-17 17-18

Carry-in 15 13 20 17 12 14 11 10 13 15.8 11.3

Production 121 152 140 137 138 134 145 157 160 145.7 149.6

Imports 6.8 7.7 5.4 4.6 7.4 5.3 4.0 6.0 6.9 5.3 6.5

Available 142 173 165 158 158 153 160 173 180 166.8 167.4

Domestic 117 128 126 123 127 119 117 125 130 128.5 127.3

Exports 12 25 22 23 17 23 32 35 35 27.0 29.5

Total 129 153 148 146 144 142 149 160 165 155.5 156.8

Carryout 13 20 17 12 14 11 10 13 16 11.3 10.6

Stock/Use 0.11 0.15 0.13 0.10 0.11 0.09 0.09 0.10 0.12 0.09 0.08

Stock to Use set to decline, Export of 29.5mmt may be a struggle.

EU Wheat Exports

EU wheat exports have started the season slowly and are 55% lower yoy. The strong euro isn’t helping.

FUNDS: Fund Wheat Position record short in Apr (22mmt) to a long (6mmt) July.

FUNDS; Corn Fund Position – Funds have been less inclined to keep selling corn at lower prices, but remain short.

US Wheat Area lowest in over 100years. Wheat Production will decline 25% yoy

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US Planted Wheat Ha (million)

Loss of Spring Wheat production has seen M’apls rally 60% in May/Jul, with Cbot up 22% and Matif up 20% in the same period.

Daily Wc1, 1MWEc1, BL2c2 23/12/2015 - 05/10/2017 (CHG)

Mineapolis

MATIF

Chicago

Line, Wc1, Trade Price(Last)

01/09/2017, 154.507

Line, 1MWEc1, Trade Price(Last)

01/09/2017, 224.872

Line, BL2c2, Trade Price(Last)

01/09/2017, 190.305

Price

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04 19 01 16 01 16 01 18 02 16 01 16 01 18 01 16 01 16 03 17 01 16 01 16 03 17 01 16 01 16 03 17 01 16 01 16 03 17 01 16 01 18 02Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017

Matif Wheat in Euro and Rouble

Daily BL2c1 25/05/2012 - 12/12/2017 (PAR)

Matif € right

Matif Ruble left

Line, BL2c1, Trade Price(Last)

04/09/2017, 154.00, 0.00, (0.00%)

Line, BL2c1, Trade Price(Last)

04/09/2017, 10,621.832

Price

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J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D2012 2013 2014 2015 2016 2017

Farmers in Russia have been getting better prices for their wheat in recent years. This is supporting the increased production of Wheat at prices considered unsustainable in Europe.

Weak FX supporting Production in South America.

Daily Cc1 08/05/2014 - 03/11/2017 (CHG)

Corn $

Corn Brazilian Real

Line, Cc1, Trade Price(Last)

01/09/2017, 133.852

Line, Cc1, Trade Price(Last)

01/09/2017, 420.416

Price

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J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O NQ2 14 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017

Seasonality Chart – MATIF WHEAT € Lows are usually seen at harvest. Expect price recover after harvest.

€130

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

Nov-12 Nov-13 Nov-14

Dec-15 Dec-16 Dec-17

Consumer paying more today for wheat.

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jul aug sep oct nov dec jan feb mar apr may jun

Prices Paid by Egypt for Wheat

2105 2016 2017

What is fair Value.

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€ 221

€ 138 € 125

€ 227

€ 189

€ 273

€ 202

€ 159 € 165

€ 156 € 160

$197

$320

$176 $187

$312

$256

$347

$271

$197

$181 $186

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

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Wheat production across top tier regional exporters

France Russia US Argentina Australia MATIF € MATIF $

Drivers of price going forward

Bullish

• Consumer paying $15 more then a year ago.

• Harvest nearing an end. • Prices finding a bottom

• Weather • Ukraine corn crop

• Autumn plantings in Black Sea

• Australia

• US wheat plantings expected to decline again.

• Quality wheats are in tight supply

• EU wheat stocks remain at a historic low

• Energy Prices finding a floor

• Politics – levies

Bearish

• Supply heavy – corn

• Currency – Weak FX in Russia/S. America

– Strong euro

• Politics – Export tax cut in Argentina

• Stagnating Demand – Less ethanol use, corn looking for feed

demand..