The changing dynamics of the Wheat and Commodity Markets ...abitrigo.com.br/congresso2018/apresentacoes/25 09 2018 - Painel 3... · 25% 30% 35% 40% 120 140 160 180 200 220 240 260

11 |

The changing dynamics of the Wheat andCommodity Markets, Flow of Capital and FundamentalsSeptember 25, 2018

Ankush Bhandari

22 |

Disclaimer

DISCLAIMER: : Gavilon Agriculture Investment, Inc. and any of its divisions, subsidiaries and/or

affiliates (“Gavilon”) makes no representation or warranty as to the accuracy or completeness of

any information contained herein, including without limitation any financial information or

results, and Gavilon shall not be liable to any party under any circumstances for its reliance

thereon. All information contained herein is for informational purposes only and is not to be

considered or construed in any way as an offer or solicitation of an offer by Gavilon. Gavilon is

not a fiduciary or advisor of any recipient and all usage or reliance by a recipient on the

information shall be at the recipient’s sole risk and liability. The recipient agrees that no

modification shall be made to the information without Gavilon’s prior written consent, including,

but not limited to, removal of this disclaimer. Any disclosure by the recipient to a third party is at

recipient’s sole risk and liability and recipient shall indemnify Gavilon for any third party claims

arising against it from such disclosure.

.

33 |

20/20: Markets in perspective

• Global GDP rates have been growing steadily

• 2 consecutive years of record soybean acreage in the U.S.

• Soy and corn in the U.S. have witnessed 5 consecutive years of

“above trend” yields

• U.S. Ethanol and meat production continued at record levels

• Imports of Soybean from China continued at a good pace

• Trading ranges have been small combined with prices at low-end of range

• Burdensome Wheat stocks in quantity

• Big carries have been the lure for the wheat speculator

44 |

How and Why did we get here?- 5 years of BIG production along with slower growth in demand has added ~100 MMT of stocks

136

178

195

219

244

257

274

0%

5%

10%

15%

20%

25%

30%

35%

40%

120

140

160

180

200

220

240

260

280

03/04 05/06 07/08 09/10 11/12 13/14 15/16 17/18 E

MM

T

World Wheat Ending Stocks

Stocks Stocks to use ratio

715728

736

752758

550

575

600

625

650

675

700

725

750

775

03/04 05/06 07/08 09/10 11/12 13/14 15/16 17/18 E

M

M

T

World Wheat Production

55 |

World acreage continues to expand- The 3, 2, & 1 Rule

Commodity 08/09 18/19 Chg

Soy 238 321 83

Corn 390 454 64

Wheat 554 536 (18)

527 514 533 537 524 536 554 557 536 546 533 543 548 552 549 542 536

340 350 359 358 370 396 390 388 405 426 444 452 452 446 462 453 454

201 219231 230 234 225 238 253 255 254 272 278 292 297 294 306 321

0

200

400

600

800

1000

1200

1400

02/03 04/05 06/07 08/09 10/11 12/13 14/15 16/17 18/19

m. acres. World Acreage

Wheat Corn Soy

66 |

The minimum support price for wheat continues to stay at elevated levels for farmers in India and China

14101490

17001760

19302040

2240

2360 2371 2360 23602300

1000

1200

1400

1600

1800

2000

2200

2400

2600

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Yuan/MT China Wheat MSP

850

10001080 1100

1170

12851350

14001450

15201625

1735

800900

100011001200130014001500160017001800

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Rs / QuintalIndia Wheat Minimum Support Price (MSP)

77 |

Increasing and high support prices help maintain acreage levels- Over the last 10 years the combined acreage for China & India has increased

by 3 m. hectares or nearly 8 m. acres

20

22

24

26

28

30

32

90/91 92/93 94/95 96/97 98/99 00/01 02/03 04/05 06/07 08/09 10/11 12/13 14/15 16/17E

M. H

A

China Wheat Acreage

22

23

24

25

26

27

28

29

30

31

32

90/91 92/93 94/95 96/97 98/99 00/01 02/03 04/05 06/07 08/09 10/11 12/13 14/15 16/17E

M. H

A

India Wheat Acreage

88 |

China: One policy to another- Corn + Wheat stocks DOWN 10 MMT

97111

127

136

111101

8061

0

50

100

150

200

250

92/93 94/95 96/97 98/99 00/01 02/03 04/05 06/07 08/09 10/11 12/13 14/15 16/17 18/19F

MM

T

China Corn + Wheat stocks

Wheat Corn

99 |

Wheat area has been FLAT while yield has “INCREASED” 22%- ONLY 1 out of last 10 years saw below trend yields

95

100

105

110

115

120

125

07/08 09/10 11/12 13/14 15/16 17/18 E

IND

EX (

'07

/08

=1

00

)

Index of World wheat

Yield

Area

1010 |

The growth story continues….!!!???- How will the below trend change due to the recent trade spat?

17 26 28 29 38 41 50 52 59 6070 78 83

93 94 94

1515 14 15

15 1313 12

12 1313

1415

13 14 16

2223 22 25

25 2324 24

23 25

2932

3537

45 45

0

20

40

60

80

100

120

140

160

03

/04

04

/05

05

/06

06

/07

07

/08

08

/09

09

/10

10

/11

11

/12

12

/13

13

/14

14

/15

15

/16

16

/17

17

/18

E

18

/19

F

M

M

T

Global Soybean imports

China European Union Rest of the World

1111 |

Recent trade spat has led to higher soybeans stocks while the drawdown in corn is led by China

105

131

123

109

128

143 141

122127

131

172

207210

228

194

157

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

100

110

120

130

140

150

160

170

180

190

200

210

220

230

240

03/0

4

04/0

5

05/0

6

06/0

7

07/0

8

08/0

9

09/1

0

10/1

1

11/1

2

12/1

3

13/1

4

14/1

5

15/1

6

16/1

7

17/1

8

18/1

9

Sto

ck

s t

o u

se

ra

tio

M

M

T

World Corn Ending Stocks

Ending stocks Stocks to use ratio

39

49

54

63

52

43

60

70

5456

62

78

80

97

95

108

0%

5%

10%

15%

20%

25%

30

40

50

60

70

80

90

100

110

03/0

4

04/0

5

05/0

6

06/0

7

07/0

8

08/0

9

09/1

0

10/1

1

11/1

2

12/1

3

13/1

4

14/1

5

15/1

6

16/1

7

17/1

8

18/1

9

M

M

T

World Soy Ending Stocks

Ending stocks Stocks to use

1212 |

World Meat consumption continues to grow led by poultry

0

50

100

150

200

250

300

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

Mill

ion

Met

ric

Ton

s

World Meat consumption

Poultry Beef Pork

1313 |

Per capita wheat consumption: Tale of many worlds

MENA: Middle east and North Africa

160

165

170

175

180

185

190

195

91/92 93/94 95/96 97/98 99/00 01/02 03/04 05/06 07/08 09/10 11/12 13/14 15/16 17/18E

Lbs

China Per Capita Wheat consumption

185

190

195

200

205

210

215

220

225

91/92 93/94 95/96 97/98 99/00 01/02 03/04 05/06 07/08 09/10 11/12 13/14 15/16 17/18E

Lbs

United States Per Capita Wheat consumption

400

405

410

415

420

425

430

91/92 93/94 95/96 97/98 99/00 01/02 03/04 05/06 07/08 09/10 11/12 13/14 15/16 17/18E

Lbs

MENA Per Capita Wheat consumption

1414 |

DEMAND/POLICY/PROFITABILITY

• DEMAND growth for Corn and Soybeans outpace Wheat helping SHIFT acres

– Meat vs. bread consumption

– Biofuels Mandate

• LOW or NO profitability for growing Wheat

• INCREASED levels of Minimum support prices provided by the 2 largest producers in the world

• REVIVAL of Russian acres and farm productivity along with subsidies (Fertilizer & Transportation)

– Yields UP 50% in last 10 years

• ELEVATED level of US Dollar

• US still remains not only the residual supplier, but also the High quality and specialty wheat exporter

1515 |

Key issues for the year ahead

• Continued usage of record crops

• Large Speculator fund length

• Wheat harvest in Southern hemisphere

• Chinese appetite for soybeans

• U.S. share of exports

• Acreage allocation amongst crops

• Value of U.S. Dollar

• Resolution of Trade war

1616 |

Year to date returnsBig moves in the various asset classes over the last 3 months

17% 2%

(1%) 10%

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2,600

2,800

3,000

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Jan

-15

Jul-

15

Jan

-16

Jul-

16

Jan

-17

Jul-

17

Jan

-18

Jul-

18

S&P 500 Index

70

75

80

85

90

95

100

105

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Jan

-15

Jul-

15

Jan

-16

Jul-

16

Jan

-17

Jul-

17

Jan

-18

Jul-

18

$ Index

$20

$30

$40

$50

$60

$70

$80

$90

$100

$110

$120

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Jan

-15

Jul-

15

Jan

-16

Jul-

16

Jan

-17

Jul-

17

Jan

-18

Jul-

18

$/bl Crude Oil

150

200

250

300

350

400

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Jan

-15

Jul-

15

Jan

-16

Jul-

16

Jan

-17

Jul-

17

Jan

-18

Jul-

18

CRB Index

1717 |

Wheat exporter (U.S. competitor) currencies WEAKER

US$ Index DXY 1.9%

Euro EUR (1.9%)

Japanese Yen JPY 0.2%

Canadian CAD (2.6%)

Aussie $ AUD (6.6%)

Russian Ruble RUB (13.1%)

Ukraine Hrvynia UAH (2.6%)

Brazilian Real BRL (18.8%)

Mexican Peso MXN 4.4%

Argentine Peso ARS (51.3%)

Currency ETF

YTD Returns

1818 |

The large spec are SHORT corn, soy and wheat

400

500

600

700

800

900

1,000

J-0

6

J-0

7

J-0

8

J-0

9

J-1

0

J-1

1

J-1

2

J-1

3

J-1

4

J-1

5

J-1

6

J-1

7

J-1

8

# o

f co

ntr

acts

('0

00

)

C+S+W: Index Fund Length

(600)

(400)

(200)

0

200

400

600J-

06

J-0

7

J-0

8

J-0

9

J-1

0

J-1

1

J-1

2

J-1

3

J-1

4

J-1

5

J-1

6

J-1

7

J-1

8

# o

f co

ntr

acts

('0

00

)

C+S+W: Large Spec Fund Length

1919 |

Large Speculators are short wheat led by soft wheat

(200)

(150)

(100)

(50)

0

50

J-0

6

J-0

7

J-0

8

J-0

9

J-1

0

J-1

1

J-1

2

J-1

3

J-1

4

J-1

5

J-1

6

J-1

7

J-1

8

# o

f co

ntr

acts

CHICAGO WHT: Large Spec Fund Length

(60)

(40)

(20)

0

20

40

60

80

J-0

6

J-0

7

J-0

8

J-0

9

J-1

0

J-1

1

J-1

2

J-1

3

J-1

4

J-1

5

J-1

6

J-1

7

J-1

8

# o

f co

ntr

acts

K.C. WHT: Large Spec Fund Length

(250)

(200)

(150)

(100)

(50)

0

50

100

J-0

6

J-0

7

J-0

8

J-0

9

J-1

0

J-1

1

J-1

2

J-1

3

J-1

4

J-1

5

J-1

6

J-1

7

J-1

8

# o

f co

ntr

acts

All WHEAT: Large Spec Fund Length

2121 |

World Wheat production and ending stocks to decline- Production at a 4 year low

- Ending stocks draw down after 5 years of build

728736

752758

733

550

575

600

625

650

675

700

725

750

775

04/05 06/07 08/09 10/11 12/13 14/15 16/17 18/19 F

M

M

T

World Wheat Production

156

195

219

244

257

274

261

0%

5%

10%

15%

20%

25%

30%

35%

40%

120

140

160

180

200

220

240

260

280

04/05 06/07 08/09 10/11 12/13 14/15 16/17 18/19 F

MM

T

World Wheat Ending Stocks

Stocks Stocks to use ratio

2222 |

China and India combined hold more wheat stocks than the rest of the world

20

40

60

80

100

120

140

160

04/05 06/07 08/09 10/11 12/13 14/15 16/17 18/19 F

MM

T

Wheat ending stocks

Rest of the world

China + India

2323 |

Russia has surpassed U.S. as the #1 exporter of Wheat

0

5

10

15

20

25

30

35

40

45

91/92 93/94 95/96 97/98 99/00 01/02 03/04 05/06 07/08 09/10 11/12 13/14 15/16 17/18 E

MM

T

Wheat Exports

Russia United States EU-28

2424 |

Week 15: U.S. Wheat export commitments are LOWEST since 2009/10 led primarily by HRW

- USDA forecast for all Wheat at 1025 mbu (900 mbu YA)Implied increase of 231 mbu in balance of year

436

339

766

592

358

570

482454

627

457

394

474 481

375

483

300

350

400

450

500

550

600

650

700

750

800

05/0

6

06/0

7

07/0

8

08/0

9

09/1

0

10/1

1

11/1

2

12/1

3

13/1

4

14/1

5

15/1

6

16/1

7

17/1

8

18/1

9 F

5 yr

avg

mbu Wheat export commitments: Week 15

2525 |

World Wheat trade expected to be DOWN 1 MMT led by North Africa, Turkey and India, not offset by higher numbers in China and Brazil

- Trade will be curbed further led by lower Wheat feeding prospects

172

182 183 182

100

110

120

130

140

150

160

170

180

190

04/05 06/07 08/09 10/11 12/13 14/15 16/17 18/19 F

MM

T

World Wheat Trade

2626 |

Decline in FSU-12 wheat exports to be filled by all to include North America- Most “other” big exporters to stay FLAT YoY or decline

- EU-28 exports at 23 MMT seems high and Russian pace needs to be monitored

Country ‘17/18 ‘18/19 F YoY

U.S 23 29 6

FSU-12 69 61 (8)

EU 23 23 -

Canada 22 24 2

Aus 16 14 (1)

Arg 14 14 -

TOTAL 167 166 (1)

28 27 25 34 27 2436 28 28 32 23 22 29 23 29

16 21 2322 38 37 14 39

2637

40 5154 69 61

1516 14

12

2522

23

1723

32 3535

2723 23

1516 19

17

1919

1718

19

22 2522 20

22 24

1615 11 7

1314

18

2321

18 1716 22 16 14

14 8 12 10

95

8

127

2 49

12 14 14

0

20

40

60

80

100

120

140

160

180

04

/05

05

/06

06

/07

07

/08

08

/09

09

/10

10

/11

11

/12

12

/13

13

/14

14

/15

15

/16

16

/17

17

/18

E

18

/19

F

MM

T

Wheat Exports

US FSU 12 EU Canada Aus Arg

Major Exporters = US, Canada, Australia, Argentina and EU 28

2727 |

Wheat feeding for 2018/19 is expected to be DOWN led by EU and FSU-12

60 52 59 63 60 5261 58 53 58 51 49 55 59 56 58 53

24

18

2123

2224

25 2724

28

22 2325

27 2832

29

9

7

65

59

9 1316

28

2919

1813 20

1619

0

20

40

60

80

100

120

02/

03

03/

04

04/

05

05/

06

06/

07

07/

08

08/

09

09/

10

10/

11

11/

12

12/

13

13/

14

14/

15

15/

16

16/

17

17/

18

18/

19

MM

T

Wheat feeding by region (Major)

EU - 28 FSU -12 E. Asia (China, S Korea, Japan & Taiwan)

7 9 9 8 83

107 6

1015

117 7

116 8

22 1 1 1

1

1

23

4

3

3

58

10

995

4 5 5 5

5

5

5 5

7

5

65

6

6

76

0

5

10

15

20

25

30

02/

03

03/

04

04/

05

05/

06

06/

07

07/

08

08/

09

09/

10

10/

11

11/

12

12/

13

13/

14

14/

15

15/

16

16/

17

17/

18

18/

19

MM

T

Wheat feeding by region (Minor)

N. America S.E Asia (VIMPT) Middle East

2828 |

Ending stocks to be drawn DOWN by 18 MMT to meet exports- This will continue to pose competition for the U.S. in the short term

40

59 59

3932

4858 55

4740 43

50 52 56 57

45

15

18 18

13

15

22

2623

27

1516

21 1721 20

14

20

30

40

50

60

70

80

90

03

/04

04

/05

05

/06

06

/07

07

/08

08

/09

09

/10

10

/11

11

/12

12

/13

13

/14

14

/15

15

/16

16

/17

17

/18

18

/19

MM

T

Wheat Ending Stocks

Major FSU 12

Major Exporters = US, Canada, Australia, Argentina and EU 28

2929 |

Tax structure change on exports (23% to 0%)- The return of acres post the Macri regime in Dec 2015

-It has become an export powerhouse as Food use has stagnated along with capped Brazil market

Argentina Wheat Annual 13/14 14/15 15/16 16/17 17/18 E YOY chg 18/19 F YOY chg

Wheat (DEC - NOV) MMT Sep est Sep fcst

Harv Acres (M HA.) 3.50 4.96 3.95 5.56 5.60 0.04 6.00 0.4

Yield (MT/HA) 3.00 2.81 2.86 3.31 3.21 (0.10) 3.25 0.0

Production 10.5 13.9 11.3 18.4 18.0 (0.4) 19.5 1.5

Beg. Stocks 0.3 2.5 4.8 0.8 0.2 (0.6) 0.7 0.5

Imports 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

TOTAL SUPPLY 10.8 16.5 16.1 19.2 18.3 -1.0 20.2 2.0

Food use 6.0 6.1 5.5 5.1 5.5 0.4 5.6 0.1

Feed & Residual 0.1 0.3 0.2 0.1 0.1 0.0 0.1 0.1

Exports 2.3 5.3 9.6 13.8 12.0 (1.8) 14.2 2.2

TOTAL USE 8.3 11.7 15.3 19.0 17.6 (1.4) 19.9 2.4

Domestic Use 6.1 6.4 5.7 5.2 5.6 0.4 5.7 0.1

Ending Stocks 2.5 4.8 0.8 0.2 0.7 0.5 0.3 (0.4)

% of Use 30.0% 41.2% 5.3% 1.3% 4.0% 2.7% 1.6% (2.4%)

Argentina Wheat Supply and Demand

3030 |

Smaller supplies will ask for record imports- But most of it will stem from Argentina

Brazil Wheat Annual 13/14 14/15 15/16 16/17 17/18 E YOY chg 18/19 F YOY chg

Wheat (OCT - SEP) MMT Sep est Sep fcst

Harv Acres (M HA.) 2.20 2.73 2.45 2.1 1.9 (0.2) 2.0 0.1

Yield (MT/HA) 2.41 2.20 2.26 3.18 2.23 -0.95 2.35 0.1

Production 5.3 6.0 5.5 6.7 4.3 (2.5) 4.7 0.4

Beg. Stocks 1.0 1.9 0.9 1.0 2.3 1.3 1.3 (1.0)

Imports 7.1 5.4 6.7 7.3 7.0 (0.3) 7.5 0.5

TOTAL SUPPLY 13.4 13.3 13.2 15.1 13.5 (1.6) 13.5 (0.0)

Food use 10.8 10.4 10.6 11.4 11.5 0.1 11.6 0.1

Feed & Residual 0.6 0.3 0.5 0.8 0.5 (0.3) 0.5 0.0

Exports 0.1 1.7 1.1 0.6 0.3 (0.4) 0.3 0.1

TOTAL USE 11.5 12.4 12.2 12.8 12.3 (0.6) 12.4 0.2

Domestic Use 11.4 10.7 11.1 12.2 12.0 (0.2) 12.1 0.1

Ending Stocks 1.9 0.9 1.0 2.3 1.3 (1.0) 1.1 (0.2)

% of Use 16.4% 7.0% 8.2% 17.6% 10.4% (0.1) 8.6%

Brazil Wheat Supply and Demand

3131 |

HRW Insurance for 2019/20 was set at 18% higher than YA- Current prices point towards the highest price since 2015

- Will acres rise above 25.0 m. acres?

30.1

32.6

30.8

30.0

29.3

33.0

31.331.7

28.6 28.5

29.6 29.7

30.5

29.2

26.6

23.4 23.2

22

24

26

28

30

32

34

2002 2004 2006 2008 2010 2012 2014 2016 2018

m. a

cre

s

U.S. HRW acres

334

373

340 356 352

452

588

872

541

716

862 878

702

628

520

459 487

574

300

400

500

600

700

800

900

2002 2004 2006 2008 2010 2012 2014 2016 2018

cen

ts/b

ush

el

Insurance Rate for KW Wheat (Aug 15 to Sep 15 average)

3232 |

TAKEAWAYs- World wheat situation in transition

• There will be short fall in World production in 2018/19 led mainly by FSU-12

• This will however not translate into a 1 for 1 export shortfall due to big carry in stocks availability

• World Wheat trade forecast seems high as feeding could be further curbed

– Russia and Ukraine could face wheat export controls led by the government

• US anxiously awaits export business which is likely to come to fruition in Q1 2019

• Major exporter wheat ending stocks are being drawn down to very tight levels

– This will provide for less of cushion in 2019/20

• US Producers are forecast to increase winter wheat acreage by 10%

3333 |

Takeaways• World Wheat acreage has STAGNATED while yields have IMPROVED

– U.S. acreage though has fallen to historic lows

– Policy and profitability has been a big driver of supply

• DEMAND for corn and soy continue to outpace wheat

– Global wheat stocks increasing led primarily by China

• DECLINE in the value of US Dollar will likely help exports

• U.S. remains a RESIDUAL wheat supplier to the world

3434 |

Takeaways• World Wheat acreage has STAGNATED while yields have IMPROVED

– U.S. acreage though has fallen to historic lows

– Policy has been a big driver of supply

• DEMAND for corn and soy continue to outpace wheat

– Global wheat stocks increasing led primarily by China

• DECLINE in the value of US Dollar will likely help exports

• U.S. remains a RESIDUAL wheat supplier to the world

• Large speculator carrying BIG short positions

• Wheat prices remains at the LOW-END of the range

• Returns in equities are OUTPACING that of commodities (Agriculture)

– Carry structure is shaping market composition of various players

3535 |

• Carries: I need July Dec for KW and W

• KC VSR: Read and 2 different rates

• Option volatility

• KC Protein

• KW vs. WZ

• WL and Informa

• In depth CFTC report

• O.I.

• Acres and yields

• World Per capita consumption and U.S.

• YTD Price change as % or flat price

• Prices in lower quartile

• Insurance Prices for Wheat

3636 |

• Value of equities

• Value of Ag commodities

3737 |

Food for thought

• What will happen to the price discounts against the U.S. offers?

• How about MENA countries “BUDGET CONSTRAINTS” under stable to

higher Crude oil prices affect either consumption or stocks levels??

• What is World Wheat (Russian) trend yield? Will we break the streak?

• We are 3 months from Winter Wheat harvest for new crop, how will the

market react to quantity and quality??

• What is U.S. Winter Wheat acreage going to do this FALL?

• Does World wheat trade FALL led by fewer feed wheat imports?

3838 |

China and India combined hold 40 MMT more wheat stocks than the rest of the world

20

40

60

80

100

120

140

160

04/05 06/07 08/09 10/11 12/13 14/15 16/17 18/19 F

MM

T

Wheat ending stocks

Rest of the world

China + India

3939 |

Takeaway

• EU-28 wheat production is currently forecast at 149.5 MMT (151.6 MMT YA), however recent heat

in France, Germany, Scandinavia and Latvia has the potential to reduce the crop by 5 to 7 MMT

from YA levels

• Tight ending stocks and already reduced wheat feeding will be unable to fall much further than

current estimates, so declines in production will have the biggest effect on “net exports”

– Key countries that take EU wheat include:

• Middle East: Saudi Arabia, Iran, Jordan, Yemen, Kenya

• North Africa: Algeria, Morocco, Tunisia, Libya, and Egypt

• Sub-Saharan Africa

• Factors to watch in this situation include:

– A YoY increase in Black sea corn supplies will allow corn imports to remain at elevated levels

– Russia whose exports to MENA countries & Sub-Saharan Africa increased to record levels will

now be curbed due not only to a drop in YoY production, but also lower carryin stocks

4040 |

2018/19 WORLD

• PRODUCTION: All Wheat production to be down 3.0%+ from record level of YA to 732

MMT

– There is still some downside in production led by EU-28 and Russia

– Planting progress in Southern hemisphere (Argentina and Australia) is done

• Argentine area to increase whilst Australia yields to be below trend

– The major areas of YoY declines are in EU-28, Russia, Ukraine and South Asia which will not be offset by

increases in North America

– U.S. production to be UP 8% in spite of lower HRW stocks

• BEGINNING STOCKS: Beginning Stocks are UP 17 MMT which provides cushion to

YoY production decline with Supplies (Prod + Beg Stock) will be DOWN 6+ MMT

– Most of these stock increases are in Big 5 (Ex. US)

– Big 5 exporter + FSU-12 stocks still decline from YA

Big 5 = Canada, EU-28, United States, Argentina and Australia

4141 |

• TRADE: World Wheat trade to increase by 3 MMT to a RECORD level

– There is plenty of Wheat (at least in quantity) to help with a BIG world wheat trade which will

have to come on the heels of strong Wheat Feeding

– MENA imports are DOWN YoY due to a bigger crop

– Declines by other competitors combined with higher world trade will help U.S. increase

volumes and market share

• FEEDING: World Wheat feeding is forecast to decline by 3 to 5 MMT

– We envision this decline in Wheat feeding in EU-28 and FSU-12 will aid in their wheat exports,

but will come at the expense of lower stocks along with increased CORN IMPORTS

– Likewise, a decline is also anticipated in VIMPT and So. Korea which will increase their rates

on corn imports

– Will China feeding be curbed as they clear corn stocks????

4242 |

TAKEAWAYs

• There will be short fall in World production in 2018/19 led mainly by FSU-12

• This will however not translate into a one for one export shortfall due to the big carry in stocks

availability

• U.S. wheat crop (Winter) which seems to be below TREND is uncertain and nervous about the

damage from recent dryness (90+days). The Spring wheat plantings to include HRS should gain by

at least 1.0 m. acres combined with return to trend and will help raise the ALL WHEAT CROP from

YA levels by 3 to 4 MMT

– U.S. Wheat exports (HRW) will struggle to find additional demand compared to YA due to improvement in

North Africa production prospects along with bigger EU-28 and FSU-12 supplies

– Competition should remain fierce for SRW wheat led by EU-28

– HRS exports needs to monitored with Phil, China and Mexico importers in focus along with Canadian

prospects

• US ending stocks for 2018/19 to be decline further as over supply is not being offset by lower

demand (Exports and Feed)

4343 |

Food for thought

• What will happen to the price discounts against the U.S. offers?

• How about MENA countries “BUDGET CONSTRAINTS” under stable to

higher Crude oil prices affect either consumption or stocks levels??

• What is World Wheat (Russian) trend yield? Will we break the streak?

• We are 3 months from Winter Wheat harvest for new crop, how will the

market react to quantity and quality??

• What is U.S. Winter Wheat acreage going to do this FALL?

• Does World wheat trade FALL led by fewer feed wheat imports?

4444 |

Wheat price is currently trading below the average, but the forward curve is above the average

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

$14.0

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Jan

-15

Jan

-16

Jan

-17

Jan

-18

Jan

-19

Jan

-20

per

bu

shel

Wheat (Chicago futures) historical price and forward curve

Wheat historical price Forward curve Avg (2000 thru current)

4545 |

15

20

25

30

35

40

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

% Chicago Wheat Volatility - July Contract

5 Year Range 2016-2017 2017-2018 5 Year Average

4646 |

(8%) (6%) (4%) (2%) - 2% 4% 6%

Livestock

Industrial Metals

Grains

Agriculture

Precious Metals

Softs

Petroleum

Energy

BCOM Sub-Sector Nov. 2017 MTD Change

4747 |

4848 |

Big carries in the futures market

(60)(40)(20)

020406080

100120

1-A

ug

8-A

ug

15-A

ug

22

-Au

g

29-A

ug

5-S

ep

12

-Se

p

19

-Se

p

26

-Se

p

3-O

ct

10

-Oct

17

-Oct

24

-Oct

31

-Oct

7-N

ov

14-N

ov

21-N

ov

28-N

ov

¢ Dec. - Jul. KC Wheat Spread

5 Year Range 2016 2017 5 Year Average

(100)

(50)

0

50

100

150

1-A

ug

8-A

ug

15-A

ug

22-A

ug

29

-Au

g

5-S

ep

12

-Se

p

19

-Se

p

26

-Se

p

3-O

ct

10

-Oct

17

-Oct

24

-Oct

31

-Oct

7-N

ov

14-N

ov

21-N

ov

28-N

ov

¢ Dec. - Jul. Chicago Wheat Spread

5 Year Range 2016 2017 5 Year Average

4949 |

Wheat area has been flat while yield has increased 20%

95

100

105

110

115

120

125

07/08 09/10 11/12 13/14 15/16 17/18 F

IND

EX (

'07

/08

=1

00

)

Index of World wheat

Yield

Area

5050 |

20/20: Wheat market in Perspective

• U.S. Wheat acreage continues to DECLINE

• U.S. wheat ending stocks FELL by 15% from record levels

• World crops were once again “ABOVE trend”

• SUPPLY > Demand → For the 5th consecutive year

• Increased carries are the LURE for large speculator

• Low protein for a 2nd in a row particularly in the U.S.

5151 |

TODAY

• HRW acreage was FLAT from YA, but led to a smaller crop

• HRW protein was marginally above average

• Funds are long HRW

• HRS: Increased area and above trend yields lead to BIG crop

– Canada forecast to have a bigger crop YoY

• Big exporters EU-28 and FSU-12 production prospects declining

• US export commitments are the lowest since 2009/10

• Record large area in Argentina

• World trade growth being led by Ex. MENA

5252 |

Agenda

• World and U.S. Acreage

• Demand growth

– Ethanol, China and meat

– Wheat flour consumption

• Other “G2” (India and China)

– Minimum support price and Supply & Demand trends

• YTD returns of various asset classes

• Market composition

– Open Interest

– Large speculator and Index funds

• Trade Policy