ANGIE SETZER

VICE PRESIDENT OF GRAIN

CITIZENS LLC

CHARLOTTE, MI

Marketing for Profit, Not Bragging Rights:

Knowing What You’re Up Against in Today’s Complicated

Market Structure

My market watching

face at first.

MY MARKET WATCHING FACE NOW.

CURRENT MARKET THEME: BEARS IN

CONTROL

WHAT HAS CHANGED?

Global Grain Supplies Continue to Increase:

Wheat ending stocks projected 227.30 mmt (8.35 billion bushels) vs 175.64 in 12/13 crop year. A 1.9 billion bushel increase.

Corn ending stocks projected 211.91 mmt (8.3 billion bushels) vs 138.15 mmt in 12/13 crop yr. A 2.9 billion bushel increase.

Soybean ending stocks projected 82.86 mmt (3 billion bushels) vs 56.83 in 12/13 crop year. A 956 million bushel increase.

THE CHINA EFFECT: Traders look at the overall global picture, but ignore

skewed supply numbers:

Of the global increases mentioned China is holding:

87.07 mmt (3.2 billion bushels) or 38% of the world’s wheat

114.44 mmt (4.5 billion bushel) or 54% of the world’s corn

16.58 mmt (609 million bushel) or 20% of the world’s soys

Major quality issues reported. Some believe up to half of the country’s corn could be spoiled, perhaps even beyond use

Issues with purchase reporting. Reports indicate that government purchases could have been reported multiple to skew overall ownership

Potential production reduction due to drought and other conditions have not been factored in by the USDA yet.

GEOPOLITICAL UNCERTAINTY:

Argentina Elections

• What will Macri’s win mean? Removal of export tax potentially moving grain into the pipeline.

Adjustments to currency could have influence—however the new president has an uphill battle.

Uncertainty regarding Russian tensions • How will this influence production and export potential going forward?

Middle Eastern Tensions

Deflationary concerns and worries over global economic

strength • Continued strength in the dollar is not supportive to our export outlook at this point

Things we haven’t even thought of yet…

OUR NEW CHALLENGE: TURNING THE

TITANIC

CORN: • The USDA took their carryout expectations up again in

November, now 29 million bushels higher than last year’s final ending stock figure—they overestimated carryout by

277 mbu last November, due to an overestimation of production, underestimated demand.

• Export pace remains tepid at best-down 23% from last year currently, with the USDA only expecting a 4% decline

• Only 13% of the total demand picture

• Has the potential to pick up during the second half of the marketing year, especially if we see a reduction in South American plantings or availability

• Feed demand and ethanol usage both expected lower due to increased milo and wheat supply availability • Feed demand expected 15 mbu lower-questionable at best due to

growing herds, however cheaper and more available by-products will have an impact

• Ethanol production setting new records. Milo will offset some, but a reduction of 64 mbu from last year is too large

CORN:

Story of the year: “haves versus have nots”

When looking at production numbers combined with September 1st stock numbers Eastern Corn Belt states of Illinois, Indiana, Michigan and Ohio are down 474 million bushels from a year ago

Western Belt States of Iowa, Minnesota, South Dakota and Nebraska are up 712 million bushels from a year ago

Outliers this year are Kentucky (up 11 mbu), Kansas (up 34 mbu), North Dakota (down 31 mbu) and Missouri (down 108 mbu)

This year’s challenge will be getting those without ample corn supplies to get bushels

moving into the pipeline

SOYBEANS: • Carryout projections remain adequate with hefty South

American supplies projected to hit the global pipeline. • Goldilocks conditions in Brazil could limit production. Too wet in

the South, too dry in the North with forecasts pointing to a continuation of the dry pattern

• Less than 100 mmt of production will have to be confirmed before a long term rally can take place

• Clearer Macri election impacts will also have to be monitored closely-Argentina holding 37% of the world’s soybeans

• Could see potential for demand increases in the short-term for old crop • Export sales are behind last year, but shipments are ahead of USDA

expectations (down 4% with USDA projecting a 7% decline). Buyers have become more hand to mouth and for good reason.

• Soyoil exports sales are up 53% from a year ago, with shipments up 71%, the USDA is expecting a 13% decline.

• Increased crush to produce soyoil is good for soybean demand, not so great when it comes to increasing soymeal supply

SOYBEANS:

Haves vs have nots not as prevalent

Know your market structure and who you’re selling

to, processor market will rely heavily on continued

strong soyoil demand as meal sales are sluggish and

crush margins are struggling to remain in the black.

Production with September 1st stocks shows the

following changes from a year ago:

Michigan +16 mbu, Wisconsin +12 mbu, South Dakota +9.5

mbu, Illinois +21.7 mbu, Iowa +67.3 mbu, Minnesota as the

big winner at +84.2 mbu

Drops seen in Indiana -11 mbu, North Dakota -9 mbu, and

Missouri -53 mbu

Ohio production combined with stocks left supplies basically

unchanged

WHEAT:

• Large global supplies and a strong dollar are acting as a wet blanket to export buying interest—exports down 24% year over year

• Much more locally driven—different varieties have different market set ups

• Poor quality Soft Red Wheat crop due to heavy rainfall before and during harvest causing issues with local basis, high discounts and a skewed market structure

• Decent fall conditions have many expecting potential production increases, but all will hinge on winter conditions. El Nino will have the final say.

• Fungicide pays!

WHAT IS EACH VARIETY OF

WHEAT USED FOR?

Soft White Wheat is mostly grown in either the Pacific Northwest or Michigan.

Soft White Wheat is used in flat breads, cakes, biscuits, pastries, crackers, Asian-style noodles and snack foods.

Hard Red Winter is used in pan breads, Asian noodles, hard rolls, flat breads and general-purpose flour.

Hard Red Spring is used in pan breads, hearth breads, rolls, croissants, bagels, hamburger buns, pizza crust and used for blending.

Durum is used in pasta, couscous and some Mediterranean breads.

Soft Red Winter is used in pastries, cakes, cookies, crackers, pretzels, flat breads.

Hard White wheat is used in Asian noodles, whole wheat or high extraction flour applications, pan breads and flat breads.

SO, WHAT DOES IT ALL MEAN?

WHAT TO DO:

• Use realistic target orders • Know what we’re up against in the futures market as well as what your local market structure

looks like.

• Keep in mind a 10% rally in a bear market is phenomenal performance. 35-40 cents in corn, 80-90 cents in beans and 45-50 cents in wheat are values you should be selling into.

• Scale sell into rallies, using different contract types that fit your operation • Keeping the 10% rally in mind, figure on what levels you would like to start selling. I generally

look to start with 10-20 cent rallies in corn, 20-25 cent rallies in beans and make incremental sales at those same levels from there

• Know your target margin and be prepared to make sales when the opportunity presents itself • Having solid target orders in place will remove the emotion from your marketing. Do not fall into

the “cancel when close” trap unless something significant has changed fundamentally

• Have a plan, hope is not a marketing strategy • Know your cash flow needs and have sales in place accordingly. When looking at new crop know

what you’re capable of holding on the farm or what you will have to move off the combine and make those sales first

• Relax, do not force something that isn’t there.

• When making decisions understand the cost of peace of mind. Once a sale is made, log it, learn from it and move on.

WAYS TO SELL CASH GRAIN:

• Cash Sale: Lock in cash price, move on with your

life. Can deliver immediately, or wait until an

agreed upon time.

• Basis Sale: Lock in your basis leaving futures

risk open.

• Hedge to Arrive: Lock in futures, wait for basis

improvement.

• Delayed Price Contract

• Other contracts with a variety of names meant to

make you feel cutting edge and liberated in your

marketing decisions.

CASH GRAIN SALE:

• Locks in both basis and futures.

• Pro: You know what your final cash price is

and when you’re moving your grain.

• Con: You’ve sold your grain. Without a

secondary strategy you will not catch any

market moves in basis or futures (This is

not always a bad thing)

BASIS SALE:

• Basis Sale: Locks in your basis only leaving you

open to futures movements. Allows for cash grain

movement without having to lock in a solid price.

• Pro: Allows you to capture any upside gains in

the future market. Lets you move grain when you

want to move it, not necessarily when the futures

are where you want them to be. Allows for some

cash flow too, depending on your end user.

• Con: Leaves you open to futures risk and possible

negative equity. Locks in basis, any further basis

gains will not be captured on the grain sold.

AN HTA:

• Allows you to lock in a futures price for future

grain movement. Many times for a small fee.

• Pro: Allows you to capture futures opportunities

when the basis may not be optimal. Also gives

you the freedom to establish a basis, delivery

point and delivery period at a later date.

• Con: Open to basis risks. Cannot deliver grain

until basis is agreed upon

DELAYED PRICE CONTRACTS, PRICE

LATER AGREEMENTS:

DELAYED PRICE CONTRACTS, PRICE

LATER AGREEMENTS:

• Delayed Price: For a monthly charge you wait for both basis and futures to improve until a potential cash sale opportunity presents itself.

• Pro: You can ship the grain and wait on potential pricing opportunities down the road. Sometimes free DP presents itself allowing for shipments in a time where cash grain movement is scarce.

• Con: Most times by the time potential pricing opportunities present themselves any gains are eaten up by the cost of storage. You lose your control over the grain-less likely to see strong push in bids.

HOW TO CHOOSE THE RIGHT CONTRACT

FOR YOUR NEEDS:

• Keep. It. Simple.

• If you don’t know, ask. There is no such thing as

a stupid question.

• Follow your gut. If it doesn’t feel right, do not

dive in head first.

• Spread your risk: Use multiple contract types,

end users, information sources etc.

• Know your local market and its structure, be

aware of what you’re up against when it comes to

local movement

IN THE END: THIS IS THE

GREATEST INDUSTRY ON EARTH

Thank you!!