History gives hope for wheat rally Be sure to reward $2 rally. By Bryce Knorr, Senior Grain Market Analyst

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1 History gives hope for wheat rally Be sure to reward $2 rally By Bryce Knorr, Senior Grain Market Analyst For years the wheat market stagnated waiting for a single trigger: A sharp reduction in global production. That worldwide event finally occurred this year, lifting prices to four-year highs. Wheat is a market that likes to trend once it gets going. Bottoms typically occur around five years apart. Rallies eat up the first three years of the cycle, with down markets taking up the next two. At least that s the Cliff s Notes version of wheat marketing. The last cycle took nearly seven years to confirm. Fallout from the financial collapse a decade ago soured investors on commodities. And while U.S. acreage dwindled, other producers gained market share, namely Russia and its former Soviet Union satel-lites. Good weather and improving technology boosted their yields twice as fast as those in the U.S. That streak ended this year in the Black Sea region. Yields and acres both declined, part of a pattern seen across the result of Europe too. Now, a brewing El Nino warming of the equatorial Pacific threatens to slash Australian production by a third. If wheat returns to its old cycle, prices might be expected to rally into Dry conditions for seeding next year s winter wheat crop extend from the southwest Plains to France, though Ukraine and Russia are starting to trend wetter. Production in Argentina should rebound, with good moisture as seeding ends. A return to normal production will be needed to keep inventories from dropping further. The stocks-to-use ratio among major exports could drop to its lowest level ever by the summer of But higher prices should lure more acres into production too. Futures are starting to show signs of fatigue, and that s especially a warning sign for soft red winter wheat, which tends to top first in bullish years. Hard wheat contracts can extend rallies into September if conditions for seeding are a concern. Storms over the next week could help ease some of those concerns. As a result, it s time to get more aggressive pricing 2018 inventory after a $2 rally. Deferred futures are moving into my projected selling ranges. Winter wheat carries are rising again, not a bullish sign, but provide opportunity for good storage hedges for those with on farm storage and year-round markets. Also get started price 2019 winter wheat production. USDA s Aug. 10 report could lower the size of the U.S. crop, but this rally is about what s happening around the world.

2 Wheat Supply & Demand Table USDA Bryce Area Planted 50,154 46,012 47,300 46,012 47,821 Harvested 43,890 37,586 38,900 37,586 38,336 Yield Beginning stocks 976 1,181 1,100 1,181 1,100 Production 2,309 1,741 1,881 1,741 1,863 Imports Supply, total 3,402 3,078 3,117 3,079 3,094 Food Seed Feed and residual Domestic, total 1,171 1,077 1,157 1,077 1,101 Exports 1, Use, total 2,222 1,979 2,132 1,979 2,066 Ending stocks 1,181 1, ,100 1,028 Average price $3.89 $4.73 $5.00 $3.91 $5.19 Stocks to use ratio 53.1% 55.6% 46.2% 55.6% 49.8% Ave. Nearby Futures Chicago $5.65 Kansas City Hard Red $5.79 Minneapolis $6.10 Top Third of Price Range 2018 Chicago $5.81 to $6.17 Kansas City Hard Red $5.99 to $6.40 Minneapolis $6.10 to $6.65

3 Beginning Stocks Production Total Supply Domestic use Exports Total Use Ending stocks Soft Red Winter BK White BK Durum BK Hard Red Spring BK Hard Red Winter ,018 1, , , ,000 1, , , ,082 1, , , BK ,

4 55 Projected U.S. Spring Wheat Yields /21 6/4 6/18 7/2 7/16 7/30 8/13 8/27 9/10 Previous year State Model U.S. Model

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7 80% ODDS 'EL NINO' WILL EMERGE 70% 60% 50% 40% 30% 20% 10% 0% JJA 2018 JAS 2018 ASO 2018 SON 2018 OND 2018 NDJ 2018 DJF 2019 JFM 2019 FMA 2019 Source: NOAA

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28 Total Ending Stocks of Major Exporters 120, ,000 80,000 60,000 40,000 20, Includes U.S., Argentina, Australia, Canada, EU and FSU Total Wheat Exports (Year to Date) 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Total Commitments % of USDA Forecast

29 Accumulated Wheat Export Shipments % 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Total Shipments % of USDA Forecast Hard Red Winter Wheat Exports (Year to Date) 60% 50% 40% 30% 20% 10% 0% Total Commitments % of USDA Forecast

30 Soft Red Winter Wheat Exports (Year to Date) 80% 70% 60% 50% 40% 30% 20% 10% 0% Total Commitments % of USDA Forecast Hard Red Spring Wheat Exports (Year to Date) 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Total Commitments % of USDA Forecast

31 White Wheat Exports (Year to Date) 60% 50% 40% 30% 20% 10% 0% Total Commitments % of USDA Forecast Weekly Wheat Export Inspections 35,000 30,000 Thousand bushels 25,000 20,000 15,000 10,000 5, Yr. Avg. 0 J J A S O N D J F M A M SOURCE: USDA

32 Chicago December Futures /6 3/6 5/6 7/6 9/6 11/6 Bull Non-Bull Dec Dec-17 Chicago December Wheat Futures Seasonal Trend Start Date +1 Week +2 Weeks +3 Weeks +4 Weeks +5 Weeks 8/6 8/13 8/20 8/27 9/3 9/10 Ave. Gain/Loss (2.7) (0.5) 0.8 (2.7) (1.5) % Up 23/44 20/44 21/44 19/44 19/44 % Down 20/44 24/44 23/44 25/44 25/44 Ave. Gain - Up year Ave Loss - Down Year (14.6) (15.0) (17.2) (20.6) (22.4) Biggest Gain Biggest Loss (71.5) (101.0) (126.8) (106.5) (111.3) This table shows the typical seasonal pattern at weekly intervals from the start date, based on average daily futures prices from Gains and losses are based on the difference between the closing price on the start date and the closing price on the weekly date shown.

33 Kansas City December Futures /1 2/1 3/1 4/1 5/1 6/1 7/1 8/1 9/1 10/1 11/1 Bull Years Non-Bull Years Dec Seasonal Trend for Kansas City December Futures Start +1 Week +2 Weeks +3 Weeks +4 Weeks +5 Weeks +6 Weeks 8/6 8/13 8/20 8/27 9/3 9/10 9/17 Ave. Gain/Loss (0.0) (0.7) (1.2) (2.1) % Up 23/42 22/42 21/42 19/42 20/42 18/42 % Down 17/42 19/42 21/42 22/42 22/42 24/42 Ave. Gain - Up year Ave Loss - Down Year (15.7) (18.5) (23.1) (20.0) (23.8) (28.9) Biggest Gain Biggest Loss (55.0) (74.8) (90.0) (68.3) (104.5) (97.0) This table shows the typical seasonal pattern at weekly intervals from the start date, based on average daily futures prices from Gains and losses are based on the difference between the closing price on the start date and the closing price on the weekly date shown.

34 Minneapolis December Futures Feb Mar Apr May Jun Jul Aug Sep Oct Nov December 2018 Bull Years Bear Years

35 Kansas City July Futures /1 10/1 12/1 2/1 4/1 6/1 300 Bull Year July 2018 Normal Year 700 Minneapolis September Futures Normal Year /4 2/4 3/4 4/4 5/4 6/4 7/4 8/4 350 Bull Years Sepember 2018 Normal Years

36 650 Chicago July Futures /25 7/25 9/25 11/25 1/25 3/25 5/25 Bull Non-Bull Jul-18 Chicago July Wheat Futures Seasonal Trend Start Date +1 Week +2 Weeks +3 Weeks +4 Weeks +5 Weeks +6 Weeks 5/15 5/22 5/29 6/5 6/12 6/19 6/26 Ave. Gain/Loss (2.3) (4.0) (4.7) (5.6) (4.7) (3.8) % Up 19/43 14/43 18/43 17/43 15/43 18/43 % Down 24/43 29/43 25/43 26/43 28/43 25/43 Ave. Gain - Up year Ave Loss - Down Year (12.2) (15.9) (21.5) (23.0) (25.2) (34.0) Biggest Gain Biggest Loss (34.8) (52.0) (87.0) (93.0) (96.0) (139.5) This table shows the typical seasonal pattern at weekly intervals from the start date, based on average daily futures prices from Gains and losses are based on the difference between the closing price on the start date and the closing price on the weekly date shown.

37 Commitment of Traders - Chicago Wheat $7.00 $ $6.00 net position in contracts $5.50 $5.00 $4.50 $4.00 $3.50 nearby futures /15 3/15 5/15 7/15 9/15 11/15 1/16 3/16 5/16 7/16 9/16 11/16 1/17 3/17 5/17 7/17 9/17 11/17 1/18 3/18 5/18 7/18 $3.00 Source: CFTC Index funds Hedge funds Futures Commitment of Traders - K.C. Wheat $ $6.50 net position in contracts $6.00 $5.50 $5.00 $4.50 nearby futures $ /15 4/15 7/15 10/15 1/16 4/16 7/16 10/16 1/17 4/17 7/17 10/17 1/18 4/18 7/18 $3.50 Source: CFTC Index funds Hedge funds Futures

38 Commitment of Traders - Minneapolis Wheat (Futures and Options Combined) $8.00 Contracts /14 7/14 1/15 7/15 1/16 7/16 1/17 7/17 1/18 7/18 $7.00 $6.00 $5.00 $4.00 $3.00 Large traders Nearby Futures

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