CORN. July 29, Sep Corn Futures

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1 CORN SIDEWAYS GRIND September corn chopped sideways this week, losing half a cent and settling at $ The crop continues to look better than normal and without any threatening weather in the forecast, the trade is just waiting to see what s actually out there. The funds have been sellers, adding to their small net short position in corn. Absent of any late season weather developments, corn likely drifts into a sideways channel between $3.20 and $3.75 for the next days. The August S&D report is due out the 12 th, which will reveal an updated yield estimate and get us closer to locking down the 15/16 carryout. After that, crop tours kick off, with many anxiously awaiting some hard data from the field. CROP PROGRESS / CONDITION Corn condition ratings remained unchanged again this week at 76% good/excellent. Improved ratings took place in 3 of the top 4 corn states, with Nebraska the only one to see a slight tick down. Ohio and South Dakota saw the biggest drop in ratings with a 4 and 3 point drop, respectively. Overall, conditions are much better than normal with the current ratings tracking with 2014, the year that produced a record bpa yield. Corn silking was listed at 79% vs 70% on average while 13% of the crop was listed in the dough stage, right on the 5 year average. Key states and their deviation from average in terms of good/excellent rating: NE (+13), IA (+18), IL (+29), MN (+15), KS (+27), IN (+25), OH (+8), MO (+26), and SD (- 8). (Chart courtesy of FC Stone) Sep Corn Futures July 29, 2016 ETHANOL Ethanol production fell from its lofty levels a week ago to 998k barrels/day, down from last week s record 1,029k. Stocks fell by 32 mln gallons (-3.6%), now down to their lowest level in 7 weeks. Overall, ethanol margins remain favorable which should continue to encourage steady production. Crude oil is down 21% since early June, which certainly impacts the profitability of the ethanol industry. Corn is down 26% over that same stretch, which has kept margins in good shape for ethanol processors. Despite this, the USDA s current 5,225 mbu ethanol demand target is at risk of being cut again in the upcoming August S&D report.

2 EXPORTS Corn export sales were within trade estimates this week as 17.3 mbu were reported. That total brings commitments to 1,917 mbu vs 1,855 mbu a year ago (3.4%). Total sales now exceed the USDA s 1,900 mbu export target. It s expected that old crop export demand increases some in the August S&D as these numbers would support. New crop export sales totaled 18.8 mbu this week, within market expectations. Corn shipments were in line with market ideas this week as 51.4 mbu were shipped. That number is right on pace with what is needed each week to hit the USDA s 1,900 mbu target for 15/16. However, should the USDA raise the export target in the August S&D, shipments will need to increase further from the current pace. So, if the USDA raises exports by mbu in a few weeks, the weekly pace would have to jump by 4-8 mbu. FUNDS Friday s Commitment of Traders (COT) report showed the funds trimming length and adding to short positions through trading last Tuesday. The funds can certainly press things further if they decide to, as the net short position is small at this point in time. The funds continue to pile on to the short wheat trade as managed money is short 130k contracts - near a record for the wheat crop. Negative news will need to continue to keep that position that large, otherwise wheat is primed for a short covering pop. Would corn follow a wheat rally? Yes, I believe it would find some support in that scenario. NEW CROP December corn formed a sideways channel this week as volatility and weather premium have been sucked out. The funds are building a net short position as the market attempts to figure out how big this year s corn crop will be. Good demand has helped stop the bleeding at current levels, though lower prices cannot be ruled out. The August Supply & Demand report is due out on the 12 th, and with that we will get an updated look at yield estimates. Typically the August report reveals the USDA s first yield revision of the summer, with many in the trade expecting a couple bushel increase this time around. With December Corn Futures the current crop conditions near all-time highs, the funds should be safe with their short positions for the time being. Producers who need to add to new crop sales should remain patient. As funds build their short position it creates opportunities for short covering rallies to develop. Macro market factors often trigger these types of moves as investors respond to risk and cross hedge type trades. Look for retracement levels back to the $3.75 area as opportunities to engage. HTA s at those levels can produce $4.00 July 17 futures if managed properly. Reach out to a member of the ProEdge team for details on how this can work for you! On the week, December corn added a penny to finish at $

3 BASIS Corn basis was steady to firmer this week as farmer selling remains extremely light. The theme hasn t changed for several weeks, though the calendar continues to creep closer to harvest. Basis may show some additional strength yet, but the risk-to-reward may not be worth getting too cute. Expect values to start softening up as we get to the 2 nd half of August. RECOMMENDATIONS Manage your old crop inventory by locking in basis values while they are firm yet. The risk in this category is to the downside as well. We may gain a nickel, yes, but I can confidently say we ll lose when it decides to break. Manage your risk-to-reward here on old crop stocks. Basis contracts allow you to lock in basis, deliver the grain, and keep your price open. Visit with your ProEdge rep for details on how this can work. CVA can do this for you at any of our elevators as well as direct ship destinations. One suggestion would be to execute this and then look for Bonus Premium opportunities on a retracement higher. $3.30 cash with an extra 20 cents from a Bonus Premium makes $3.50 attainable yet. Call for details! SOYBEANS FORK IN THE ROAD The soybean trade is approaching a fork in the road. Depending on how weather shakes out in the coming weeks soybeans could trade a dollar on either side of the current market. Fund length is still quite large in the soybean market, even after the $2.00 break from the June highs. Current crop conditions suggest a good one is coming at us, but market bulls are quick to point out that soybean ratings can be confusing last year s ratings were worse than 2010 and 2014 but produced a record yield. The macro markets are still impactful as some policy adjustments (or lack thereof) in Japan had some bearing on the US Dollar index Friday. On the week, August soybeans added 26 0 cents to settle at $ CROP PROGRESS / CONDITION Soybean conditions remained unchanged again this week at 71% good/excellent. Like corn, conditions are much better than recent history with 2014 the only year with a better rating for the comparable week. Most states saw steady to higher ratings week over week, including key states like IA and IL. KS and SD saw ratings decline by 4 and 5 points, respectively. Soybeans blooming stood at 76% vs 66% on average while 35% of the soybean crop is setting pods vs 26% on average. Key states and their deviation from average in terms of good/excellent rating: NE (+14), IA (+18), IL (+23), IN (+24), MN (+11), OH (+14), MO (+25), KS (+15) and SD (-4).

4 EXPORTS Soybean export sales were very disappointing this week as Thursday s report showed net cancellations of 1.4 mmt while the market was searching for something between mmt. The old crop book is now at 1,910 mbu vs 1,876 mbu a year ago (+1.8%). That number is well above the USDA s 1,795 mbu export estimate, though a good portion of these sales will likely be rolled into the 16/17 marketing year. New crop export sales of 24.9 mbu were reported this week, within the range of market ideas. Soybean shipments were the largest in 19 weeks this past week with 25.7 mbu reported. That number is well above what is needed each week to hit the USDA s 1,795 mbu estimate. Right now, sales are well above that number (read above), so the reality of what gets exported this year rests in the shipments number. Performances like the one this week could justify an export increase in the upcoming August S&D. FUNDS Friday s COT report surprised the trade when it revealed the managed money sector was as long as they were. Given the steep break in price over the past two weeks, many expected to see a much larger cut to the size of the fund long. The numbers indicate that through Tuesday last week, the funds still had over 109k contracts of net length. What does this mean for soybeans? They are more at risk of a deeper price break than what the trade thought towards the end of last week. If the weather doesn t provide some threatening conditions, we could see premium continue to be extracted. November futures with an $8 in front would not be out of the question and the road to that point will likely be a fast one. What the length does reveal is the market s appreciation for the tightness and demand pull taking place on the soybean balance sheet. The market needs a good crop to satisfy global protein demand. MACRO The US FED kept interest rates unchanged last week, contributing to some weakness in the US dollar on Friday. Additionally the Bank of Japan (BOJ) disappointed the market when it decided to make fewer adjustments to their stimulus efforts than what many were expecting. Interest rates were left unchanged at a negative 0.1% and asset purchases were not expanded beyond the current schedule. That move contributed to the pressure in the US Dollar Index, thereby supporting beans last Friday. In other macro news, Argentina appears to be wavering on their commitment to pull their soybean export tax down by another 5%. This was the campaign promise of now president Mauricio Macri, in which corn and wheat export taxes were abolished, and soybeans were expected to take several 5% drops over the span of several years. Newspapers in Argentina have indicated that the Minister of Agriculture and the

5 Argentine government are now second guessing the next 5% cut as it would have adverse impacts to government revenue. NEW CROP November soybeans had a positive finish to end the week as a variety of news created the right environment for a green day. Soybeans are still sensitive to the supply conversation as we enter pod fill in key production areas. The tightening old crop carryout has put pressure on this year s growing season to produce a very good crop. So far, that crop has avoided major issues, leading to some weather premium extraction in recent weeks. Still, the funds hold a sizeable long, longer than many thought, through trading last Tuesday. This suggests that soybeans are still at risk to lose another Nov Soybean Futures dollar if supply is perceived to be safe. On the other hand, a dollar could be added to the upside as well under the right weather scenario. Producers should ask themselves how many more soybeans need to be sold before the combine hits the field. Once you ve determined that, understand that weather premium exists for a few weeks yet. Beyond that and the supply side risk starts to wane. So, if you re in the boat of needing to add to pre-harvest sales, pay attention to price action leading up to the August S&D report. You may receive a good opportunity to get additional sales on. Targets would include retracement levels at $10.48 Nov futures followed by $ Expect the volatility to continue for several more weeks. On the week, November soybeans added 14 6 cents to settle at $ BASIS Soybean basis was firmer this week as old crop stocks get divvied up between counter seasonal export demand and the domestic processors. With the export program running strong, expect basis values to act a little bit like corn. As the calendar approaches September, values will want to retreat. Until then, values should remain supported. RECOMMENDATIONS Be a seller in the next 3-4 weeks if you need to add to sales. Soybeans are the only row crop commodity with excessive fund length yet, so the risk for further price erosion is there with the right weather forecast. Look to the retracement levels outlined above for targets. Simple offers have proven valuable in volatile times like this. Reach out to your ProEdge rep to get your orders ready and waiting!

6 WEATHER AUGUST MAPS Heat looks to be in the two week forecast, though moisture will be there to limit stress for a majority of the Belt. Temperatures look to peak on Tuesday this week before moderating into the 80 s the balance of the week. Further out, the 6-10 day suggests moisture will be above average in addition to higher temps. The latest one-month outlook from the National Weather Service shows above normal temps for the southeast portion of the Belt while moisture looks to be above average for key production areas, including Nebraska. At this stage, soybeans will reflect changes in the forecast and be more susceptible to larger price swings. Corn is a follower with most of this season s weather risk in the rearview. Risk Disclosure -The risk of loss in trading commodities can be substantial and past performance is not necessarily indicative of future results. Therefore, you should carefully consider whether such trading is suitable for you or your organization in light of your financial condition. Any examples given are strictly hypothetical and no representation is being made that any person will or is likely to achieve profits or losses similar to those examples. Neither the information, nor any opinion expressed shall be construed as an offer to buy or sell any futures or options on futures contracts.