2017-18 Soybean Outlook and Risk Management Update Midwest Outlook Conference Indianapolis, Indiana August 15, 2017 Todd D. Davis Assistant Extension Professor University of Kentucky

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

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)

U.S. Soybean Crop Condition Index for 2017 vs Previous Years

Regression model has significant error at this point. Recent history demonstrates that further surveys can lead to increased yields regardless of the Crop Condition

G & E IL = 63% IA = 56% MN = 74% NE = 61% IN = 56% VP & P IL = 11% IA = 15% MN = 6% NE = 12% IN = 14%

2017-18 Soybean Situation and Outlook

Analysts’s surveyed expected yields in the range 46.9 to 48 bu/acre

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. 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

Projected Indemnities for RP Insurance at the 75% Coverage Level

2017 Projected On-Farm Storage Costs: Soybeans Oct. Soybean price = $9.20; Shrink = $0.023 (.25%) Opp. Cost = $0.038/mo, Storage = $0.10 Updated: Aug 14, 2017

2017 Projected Commercial Storage Costs: Soybeans Oct. Soybean price = $9.20; Shrink = $0.046 (0.5%) Opp. Cost = $0.038/mo, Storage = $0.25 to Jan 31, 2018 then an additional $0.04/bu/mo Updated: Aug 14, 2017

2017 Projected Return to Storage for Soybeans January sales currently a promising profit and tax management strategy Updated August 14, 2017

2017 West KY Soybean Expected Profitability ($/bu) at Harvest and Storage Updated August 14, 2017

2017-18 US Soybean Balance Sheet Sensitivity Analysis

NOV 2017 Soybean Futures Contract

Soybean Pre-Harvest Risk Plan Use budgeted storage costs to guide post-harvest sales

Western KY Soybean Spot Price (Indexed to October) Use budgeted storage costs to guide post-harvest sales with sales most-likely in January. Storing until May might not cover additional storage costs.

Soybean Post-Harvest Plan Use budgeted storage costs to guide post-harvest sales with sales most-likely in January

Futures Based MYA Price Forecast Updated August 14, 2017

Summary and Conclusions Weather still dominating the market news. Reduced condition from previous years could reduce yield from August How much acreage was not planted? Soybean yields are made in August. Will timely August rains save drier crops in the Western part of the Corn Belt? Soybean market has little cushion if projections reverse course and are trimmed A weather scare in South America would be helpful…

Storage decision Don’t know the 2018 DP charges. However, it is 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.

Thank you! I would be happy to answer any questions that you may have. todd.davis@uky.edu For updated information, look at my monthly newsletter Crops Marketing and Management Update http://www.uky.edu/Ag/AgEcon/extmkt.php (or send me an email to subscribe)