FCStone Grain Recap January 6, 2016

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1 CORN: CH16 made new contract lows but were unable to hold below unchanged into the close. Weekly ethanol production marginally higher this week, up 4 thbpd to 996. Ethanol stocks built again reaching thousand barrels and are at their highest level since April of Ethanol production margins are negative 5 cents/gallon for spot, breakeven for next quarter and quite negative for the balance of the year. The gross blending margins (determinate of the willingness to produce E20 to E85) are a negative 17 cents/gallon. Retail prices for E85 blends are only 10.5% under E10 blends. In order to buy in more demand for retail E85 there needs to be a 25% discount for the higher blend to justify the lower gas mileage. Crude oil hit 7 year lows today, Heating oil is trading at 11 year lows, and RBOB dropped to 7 year lows today. In the past, corn was a major determinant of ethanol prices while gasoline hung around the edges in a low correlation to the biofuel. With the widening margin in the blending margins it seems that the rubber band has been stretched far enough that the much bigger gasoline market now has garnered some influence in the value of a gallon of US ethanol as you can see in the chart below. This material should be construed as market commentary, merely observing economic, political and/or market conditions, and not intended to refer to any particular trading strategy, promotional element or quality of service provided by the FCM Division of INTL FCStone Financial Inc. The FCM Division of INTL FCStone Financial Inc. is not responsible for any redistribution of this material by third parties, or any trading decisions taken by persons not intended to view this material. Information contained herein was obtained from sources believed to be reliable, but is not guaranteed as to its accuracy. Contact designated personnel from the FCM Division of INTL FCStone Financial Inc. for specific trading advice to meet your trading preferences. These materials represent the opinions and viewpoints of the author, and do not necessarily reflect the viewpoints and trading strategies employed by the FCM Division of INTL FCStone Financial Inc.

2 Farmer selling remains light in the depressed price environment did not rally like the producer wanted and the first few sessions of 2016 has not shown a marked change. Grain movement by rail for the prior week is down 19% compared to a week ago. Petroleum rail business is also down 20% from a year ago cost of production tables are beginning to be released by various research services. I have assembled what the producer is looking at for the coming year and his cropping options. Interesting to note that despite a decline of 30 dollars/short ton, Hay is still the best return over variable cost. Corn is behind the return over variable cost for soybeans by 50 dollars which should hurt corn acreage expansion beyond the surplus prevent plant acres from It could be argued that the higher land rents and the better upside yield potential in corn yields keeps the deeper in the red crop in stronger consideration for additional acres again this year. Economics rule in March and weather rules in June. Dry weather adds corn acres, trades them for soybeans. Page 2

3 Crop Economics Alfalfa Corn Soybeans HRS SRW HRW Cotton Hay Yield New Crop Price Income Variable Cost Return Over Variable Cost Stocks estimates by the trade were released today. Corn stocks are expected to be bln bushels which implies a 2203 Q1 feeding number and a feeding number. Funds were estimated as remaining on the sidelines but my volume stats show they bought 4000 contracts during the session. SOYBEANS: Values bounced off the 853 support in the SH16 as the market is unwilling to commit to a new bearish push until the weather system currently crossing Brazil and Argentina plays out. Users were featured buyers down by the lows of the session along with shippers still needing some coverage. CIF is 60 over, 15 cents off last week but barge freight has declined more than enough to offset the nominal change in the CIF. China Yuan spiked into new multiyear lows against the USD cutting into their crush margins once again. Worrisome economic news out of China stimulated the central government to reiterate it was here to support the stock market like it had in the past despite the interventions it had instituted were to expire this week. Brazil s stock market dropped into 7 year lows. Argentina s peso dug into new lows against the US dollar at , which is now weaker than the initial spike logged when the two currency exchange rates were normalized. Noon updates for Brazil increased rain amounts for the center west regions of the soy belt in the 5 day and increased the rain expectations for the NW regions in the Most of the models have shifted towards better conditions to grow soybeans in Brazil this week. Argentina s forecast also improved with the new maps at noon. Trade expectations for the upcoming stocks report on the 12 th were published today. A 2.72 bln bushel trade estimate would indicate a quarterly residual of 253 vs last year of 248. With a few assumptions the annual residual is estimated to be 98 vs 47 last year. Funds were credited with buying 7000 contracts of soybeans during the session and my volume stats would add 2k to that. Funds were also credited with buying 2000 meal during the session. Page 3

4 WHEAT: A choppy session that ended up slightly higher. On one hand the SRW offered out of the US is 25 dollars above the best offer into most regular importers while on the other hand Argentina is estimated to be having some severe problems making protein and should turn Brazil to sourcing some high pro US HRW. Brazil would only be catching up, not going above and beyond what they regularly do this year. This might be the catalyst that causes a pause in the market especially with an estimated fund short of 87K. Chester, IL and Cape Girardeau are now below major flood stages today. Ardent Mills has resumed operations on the river. Census exports reported by the government today showed the US exported mln bushels vs 47.0 last year. 5 month totals show the US exporting nearly 327 mln bushels this year vs 373 mln last year. There is 7 months to go and the government s revision to 800 mln only picks up the shortage logged 1/3 of the way into the marketing year. Weather forecasts are positive for the FSU winter wheat region while the trade is increasing its interest in the India growing area s problems. The trade estimates are out for stocks and acreage for the upcoming reports on the 12 th. The trade is estimating the wheat stocks to total 1698 mln bushels which would imply findback of 72 mln bushels compared to a findback of 95 last year. Seedings are estimated at for all winter wheat compared to last year. Funds were credited with buying 2000 contracts during the session. FOB NOLA US SPOT PRICES CORN SOYBEANS SRW + 52H + 66F + 50H FOB TEXAS GULF US SPOT PRICES HRW + 65H ECBOT HIGH LOW CLOSE CHANGE Mar Corn /4 May Corn Jan Beans Mar Beans /2 Mar wheat /2 Page 4

5 Regards Bevan Everett Risk Management Consultant INTL FCStone Financial Inc. FCM Division Page 5