2017-18 Soybean Outlook and Risk Management Update Alternate Title: Is Dr. “Doom and Gloom” Becoming an Optimist? Southern Extension Outlook Conference Atlanta, GA September 27, 2017 Todd D. Davis Assistant Extension Professor University of Kentucky

Outline Market Fundamentals Update Crop progress and condition Growing season weather September WASDE Update Projected RP Insurance Harvest Price and Crop Insurance Update 2017-18 Balance Sheets Sensitivity Analysis 2017 Projected storage costs and projected return to storage

November Soybean / December Corn Futures Monthly Average 2017 vs November Soybean / December Corn Futures Monthly Average 2017 vs. Previous Years

25% of expansion from the Dakotas 30% from the Top-5 States (IA, IL, MN, NE, IN)

Change in Percent Good + Excellent by week for 2017 and 2016 Soybeans Negative means 2016 had more G&E than 2017 Change in Percent Good + Excellent by week for 2017 and 2016 Soybeans

Change in Percent Very Poor + Poor by week for 2017 and 2016 Soybeans Positive means 2017 had more VP&P than 2016 Change in Percent Very Poor + Poor by week for 2017 and 2016 Soybeans

Analysts’s surveyed expected yields in the September report to be lowered 0.6 bpa. USDA increased 0.5 bpa Trend is 0.48 bu/acre/year

USA vs. Argentina / Brazil Soybean Production (MMT)

US and South American Soybean Export Share Source: USDA-FAS

China’s Soybean Domestic Consumption and Imports (all sources) (MMT) Since 2008 (10/years): China’s soybean consumption has increased 110% and imports have increased about 130% (from all sources). Soybean meal consumption increased 127% while oil increased 80%

U.S. Acres to Meet Ethanol and Corn and Soybean Exports (2005-2020)

U.S. and World Soybean Stocks

Projected RP Harvest Price for Soybeans Using November 2017 Futures Contract Average Price (25th, 50th, 75th Percentiles)

Projected Indemnities for RP Insurance at the 85% Coverage Level

Issue #1 – 2016-17 Ending Stocks Credit to Darin Newsom (DTN) who writes how USDA projections miss exports from Aug (t-1) to Aug (t)

Issue #2 – Adjusting Implied Pod Weight What if the implied pod weight is lowered in future reports? Pulling numbers out of my hat. Not Agronomic Based IF implied pod weight is reduced, holding pods / 18 ft sq constant, 48.1 bushel yield if weight is same as 2016 46.5 bushel yield if weight is same as 2014

2017-18 US Soybean Balance Sheet Sensitivity Analysis

Summary and Conclusions October report might be the last, best hope for those bulls looking for lower production and reduced stocks Soybean market has little cushion if projections reverse course and are trimmed A weather scare in South America would be helpful…

Storage decision The elevator I use for commercial storage examples is charging a $0.35/bushel flat fee from Oct 1, 2017 to Sep 30, 2018. worth budgeting commercial storage costs vs. expected basis appreciation and futures carry to pencil a return to commercial storage. Cash flow and tax management may drive this timing decision Basis may not appreciate as vigorously as in the 2007-2013 time-frame. Earlier years rewarded storage until May (or later)

Thank you! Todd D. Davis, Ph.D. Assistant Extension Professor University of Kentucky todd.davis@uky.edu