Major Junctions Ahead Energy, Grains and Metals David Hightower President, The Hightower Report
30 25 23.55 2018 Commodity Performance - Annual Percent Change 20 16.49 15 10 10.09 6.44 5 0 0.24-5 -10-15 -20-25 -30-35 -1.85-1.91-2.2-3.83-6.68-7.95-9.4-9.54-10.75-12.48-15.82-16.43-16.9-16.91-17.25-20.42-21.89-22.18-23.24-23.54-27.06 Cocoa Wheat Palladium Source: Bloomberg Corn Live Cattle Soymeal Canola Gold Natural Gas Soybeans Cotton OJ Silver Lean Hogs Rough Rice Platinum NY ULSD Soybean Oil LME Copper Brent Crude Copper Coffee Sugar WTI Crude RBOB Gas Lumber
2,400,000 2,100,000 1,800,000 1,500,000 1,200,000 900,000 600,000 300,000 0-300,000 Non-Financial - COT - Futures and Options Non-Commercial and Nonreportable Combined Net Position Number Of Contracts -600,000 95 97 99 01 03 05 07 09 11 13 15 17 19 The Hightower Report Source: CFTC Max: 2,102,118 (2/14/2017) - Min: -321,202 (2/16/1999) - Most Recent: 833,655 (02/12/2019)
Major Market Issues to Consider Global Sentiment Ruptured by trade/saved by trade? Higher/Lower tariffs are inflationary if growth survives Chinese Crude oil Cost US versus Brent African Swine fever THE Commodity story of 2019 Dollar Maximum bull condition is past Grains bearishness reaches well into next crop cycle Clean air effort/exports Natural Gas/Ethanol/Biodiesel Year of Commodity Substitutions
2019 Views US/Global Economic Outlook Impact of foreign policy and tariffs on trade Economic volatility in South America China protein demand down-asf, US demand stable Renewed focus on Bio-fuels Gold - A Bullish Shift in classic fundamentals Where is all the Oil going?
EIA Weekly Crude Oil Production Million Barrels / Day 12.5 12.0 11.5 11.0 10.5 10.0 9.5 9.0 8.5 8.0 7.5 7.0 6.5 6.0 5.5 5.0 4.5 12 13 14 15 16 17 18 19 Most Recent: 12.1 on 02/22 Source: EIA
Million Barrels 550 500 450 400 350 EIA Weekly Crude Oil Stocks US Production +3 mbd US Exports +3.4 mbd 300 250 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 Most Recent: 445.865 on 02/22 Source: EIA
Pemex-PDVSA-Libyia-Aramco-Funds Percent of Operating Capacity 100 98 96 94 92 90 88 86 84 82 EIA Weekly Refinery Operating Rate Current Year vs. Last Year vs. Average 80 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Most Recent: 87.1 on 02/22 2019 Last 5 Yr Avg Source: EIA
Sabine Pass Feb 2016 Top 5 2020 Source: US Department of Energy
Tightest in 6 Years Monthly Natural Gas 4,500 4,000 3,500 EIA Working Gas In Storage 5 Year Comparison Billion Cubic Feet 3,000 2,500 2,000 1,500 1,000 Source: US EIA 500 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2015 2016 2017 2018 2019 Most Recent: 1,539 on 02/22/19
Grains at Maximum Bearishness! Period of Highest Supply Assumptions Assumption of flawless South American supply Higher US Soy acres Reversed Little Concern for El-Nino/Palm Oil/SEA-China Flooding A Peak in World ending stocks off SA Production/Slowing/Trade/economic fear/oil slump Chinese Corn Supply views coming down to reality Declining world stocks Corn/Wheat/Palm? Surprise Demand/Bull Issues Bio-Diesel Profitability & SEA Mandates Soaring Hog liquidation/supply & then soaring production outside of China China Ethanol target a game changer Net Corn use increase 27.5 metric tons /1.1 bill ion bushels China 2-3 billion gallon Ethanol Import 5 billion gallon demand Fund activity from short to long or from minor long to big longs Total Chinese bean imports Not Total Chinese imports from the US Chinese Corn/DDG imports
Million Metric Tonnes (MMT) 8 6 4 2 0-2 -4-6 -8-10 -12-14 -16 China Corn - Net Imports / Exports Net Imports Net Exports 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 Crop Year Beginning Source: USDA Most Recent: 4.95 As Of 02/08/2019 The Hightower Report Million Metric Tonnes (MMT) 300 275 250 225 200 175 150 125 100 75 50 25 0 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 The Hightower Report Most Recent: As Of 02/08/2019 China Corn - Domestic Usage Crop Year Beginning Feed Source: USDA Other
Record Production Needed Ahead 70% 60% 50% 40% 30% 20% 10% 0% US Corn Ending Stocks / Usage Ratio 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 Est Source: USDA Most Recent: 11.67% As Of 02/08/2019 The Hightower Report
If Only 2 million Acres Higher; Tightness Ahead USDA SUPPLY/DEMAND 2019/20 Proj US CORN Dec Dec Dec USDA USDA USDA 10 Year Source: USDA & Hightower 11-12 12-13 13-14 14-15 15-16 16-17 17-18 18-19 Trend Planted Area (M Acres) 91.9 97.3 95.4 90.6 88.0 94.0 90.2 89.1 91.0 Harvested Area (Acres) 83.9 87.4 87.4 83.1 80.8 86.7 82.7 81.8 83.5 Yield (Bu/Acre) 146.7 123.2 158.2 171.0 168.4 174.6 176.6 178.9 176.5 Beginning Stocks (M Bu) 1,128 989 821 1,232 1,731 1,737 2,293 2,140 1,781 Production 12,314 10,755 13,829 14,216 13,602 15,148 14,604 14,626 14,746 Imports 29 160 36 32 68 57 36 45 50 Supply, Total 13,471 11,904 14,686 15,479 15,401 16,942 16,934 16,811 16,577 Feed & Residual 4,512 4,309 5,002 5,286 5,118 5,470 5,298 5,500 5,575 Food, Seed & Industry 6,431 6,044 6,531 6,595 6,647 6,885 7,058 7,080 7,190 Ethanol for Fuel 5,000 4,641 5,124 5,200 5,224 5,432 5,605 5,600 5,700 Domestic Total 10,943 10,353 11,533 11,881 11,765 12,355 12,355 12,580 12,765 Total Exports 1,539 730 1,921 1,867 1,899 2,294 2,438 2,450 2,425 Use, Total 12,482 11,083 13,454 13,748 13,664 14,649 14,793 15,030 15,190 Ending Stocks 989 821 1,232 1,731 1,737 2,293 2,140 1,781 1,387 Stocks/Use Ratio 7.9% 7.4% 9.2% 12.6% 12.7% 15.7% 14.5% 11.8% 9.1%
Ethanol Developments China imported ethanol from Indonesia and Malaysia 1st Time Indonesia in July and Malaysia in Aug & Sept US origin ethanol imports incur a 70% import duty in China. Exports out of Indonesia and Malaysia into China are duty free. The domestic price of ethanol in China is $686.09/cu m. The cost of US-origin ethanol is $848/cu m after adding the 70% import duty and 16% VAT. 20,000-25,000 cu m of ethanol exports from Indonesia to China in Oct.
Bio-Diesel Indonesia domestic usage on the rise; Starting Sep, 20% palm oil blend biodiesel for railways and electricity generators Indonesia Jan to August exports running 127,000 above last year US biodiesel from soy oil 7.8 bp +9.8% last year and up 26% 2 years Brazil biodiesel production up 28% from last year Argentina biodiesel exports, up 7.5% Malaysia biodiesel output jumped 25% to 900,000 mandate now 10% vs 7% previous Asia used cooking oil is showing huge demand jump from Europe EU Countervailing duty will cause Competition for SEA Biofuel supply
Minor Palm Changes are a BIG Deal Million Metric Tonnes (MMT) 55 50 45 40 35 30 25 20 15 10 5 0 Source: USDA The Hightower Report Palm Oil Exports Comparison Domestic use = Lower Global Supply Biofuel = El Nino33 98 00 02 04 06 08 10 12 14 16 18 Most Recent: As Of 02/08/2019 Crop Year Beginning 52.033 29.000 17.600 World Malaysia Indonesia
Veg Oil Condition is Tight World Soyoil - Ending Stocks / Usage Ratio 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 8.60% 6.62% Crop Year Beginning Source: USDA Most Recent: As Of 02/08/2019 World United States The Hightower Report
Market Personality Weak El-Nino 2015 Oil Reaction then 25 to 38 El-Nino Zones 3-4 not 1-2 Less wind shear & Aussie drought Singapore 14 Oil Volume Pre 2008 434K 2019 3.1 ml Oil Open interest 2008 200K 2019 500K Net Short Volatility in Soybeans
China s We have a Case, or two, of ASF Hundred of cases reported 1,000,000 killed Concern cases are being covered up fits history Taiwan herd 5.39 ml, US 74.5 ml, 700 million China Starting over retaining breeding stock during spread? US Production 1 st to 2 nd quarter production down Vietnam Philippines Thailand Feed Mill diversification Aqua/pets/Bio?/rabbits
Fishmeal Price 2.5 Times Soymeal Fishmeal +$1,000/Salmon fed fishmeal -17% -2017
Central Bank Buying Trend Returns World Central Bank Net Gold Sales 800 600 Net Purchases 400 200 Tonnes 0-200 -400-600 -800 Net Sales 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Data As Of 2018Q4 Source: World Gold Council/THR
Gold Investment 80 Gold Derivative Holdings Monthly/Million Troy Ounces 70 60 50 40 30 20 Gold derivative holdings are below their 2012 highs, but are seeing inflows at the start of 2019 and are closing in on a new 5 1/2 year high! 10 Source: Reuters Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
World Copper Exchange stocks 950 850 "Combined" Exchange Copper Stocks LME+Shanghai+Comex/Weekly/Thousand Tonnes 750 650...it remains far below its highs during 2018! 550 450 350 While the "combined" exchange copper stocks total has risen in recent weeks... 250 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Source: Reuters
2019 Hog Action - A major Impact? Million Pounds - Carcass Weight 575 550 525 500 475 450 425 400 375 350 Most Recent: 501.94 as of Oct 2018 US Monthly Pork Exports April 2018: 547,931 New High (back to at least Jan Source: USDA If ASF disease destroys 16% of China's herd, all of the pork exporters in the world would need to double their exports to make up the difference. If US doubles exports in 2019, US per capita supply would drop to a record low.
130,000 120,000 110,000 100,000 90,000 80,000 70,000 60,000 50,000 Hogs - COT - Futures and Options CIT Commodity Index Trader Net Position Number Of Contracts 40,000 06 07 08 09 10 11 12 13 14 15 16 17 18 19 The Hightower Report Source: CFTC Max: 127,379 (6/3/2008) - Min: 46,004 (3/3/2009) - Most Recent: 65,176 (02/12/2019)
Balance Sheet Run-Off 1,400 Largest Foreign Holdings of US Treasuries Billion US Dollars/October 2018 (Latest TIC Report) 1,200 1,138.9 Billion US Dollars 1,000 800 600 1,018.5 While China and Japan continue to hold the top two While China and Japan continue to hold the top two spots in spots foreign in holdings foreign of holdings US Treasury of Securities, US Treasury their Securities, combined total their has combined fallen by $89 total billion fell during by $89 the billion first ten during months the of 2018! first 10 months of 2018. 400 200 313.9 287.3 263.9 225.4 225.2 208.2 0 Source: US Dept. Of Treasury CHINA JAPAN Brazil Ireland UK Luxem. Switz. Cayman Is.