1. Marketing Ag Commodities, Grain and Cattle Considerations Rodney Jones Oklahoma Farm Credit Professor of Ag Finance

2. Strategies To Think About It’s all about assessing probabilities –What is the probability the Overall market will move in a particular direction (Futures up or down)? Has the market over reacted based on fundamentals, and therefore is it likely to correct –What is the probability that basis will strengthen or weaken? Do you have some reason to believe that the local relative supply- demand situation will change 2

3. Strategies To Think About If you think it is likely that Futures will go up –And you think it is likely that Basis will Improve Delay pricing Buy Put Options if you cannot handle the risk that your predictions are wrong –And you think it is likely that Basis will Weaken Sell the commodity (cash or forward contract) and buy a call option 3

4. Strategies To Think About If you think it is likely that Futures will go Down –And you think it is likely that Basis will Improve Hold the commodity and Hedge (sell futures) Or Hold the commodity and Buy a Put Option –And you think it is likely that Basis will Weaken Sell the commodity (cash or forward contract) 4 Base your cash selling strategy on what you think basis will do Capture overall (futures) market expectations in the futures or options market

5. HRW Wheat, Sept ‘2014

6. CBT Corn, Dec. ‘2014

7. CBT Soybeans, Nov. ‘2014

8. ProductionConsumption Ending Stocks U. S. Price Year (Billion Bushels) U.S. Wheat Situation 20072.052.32.306$6.48 20082.502.28.657$6.78 20082.222.02.976$4.87 20102.212.42.862$5.70 20112.002.23.743$7.24 20122.272.41.718$7.77 20132.132.42.593$6.87 20141.962.12.574$7.00 5-YR Avg.2.172.30.778$6.49

9. World Wheat Situation (Billion Bushels) ProductionConsumption Ending Stocks Year 200722.522.74.6 200825.123.66.1 200825.223.97.4 201024.024.17.3 201125.6 7.3 201224.125.06.4 201326.225.86.9 201425.825.76.9 5-YR Avg.25.024.97.1

10. Wheat Relevant Numbers U.S. Ending Stocks World Ending Stocks Current ProjectionsAverage Billion Bushels.574.776 6.97.1

11. U.S. Corn Situation ProductionConsumption Ending Stocks U. S. Price Year (Billion Bushels) 200713.012.71.62$4.20 200812.1 1.67$4.06 200813.1 1.71$3.55 201012.413.11.13$5.18 201112.412.50.99$6.22 201210.811.10.82$6.89 201313.913.61.15$4.65 201413.913.41.73$4.20 5-YR Avg.12.5212.681.16$5.30

12. World Corn Situation (Billion Bushels) ProductionConsumption Ending Stocks Year 200731.230.45.2 200831.430.85.8 200832.332.45.7 201032.833.55.0 201134.934.85.3 201234.234.15.4 201338.537.46.6 201438.538.07.2 5-YR Avg.34.5434.445.60

13. Corn Relevant Numbers Current Projections Average Billion Bushels U.S. Ending Stocks World Ending Stocks 1.731.2 7.25.5

14. U.S. Soybean Situation (Billion Bushels) ProductionConsumption Ending Stocks U. S. Price Year 20072.73.10.21$10.10 20083.0 0.14$9.97 20083.4 0.15$9.59 20103.3 0.22$11.30 20113.13.20.17$12.50 20123.03.10.14$14.40 20133.33.40.13$13.10 20143.63.50.33$10.75 5-YR Avg.3.23.30.16$12.18

15. ProductionConsumption Ending Stocks Year World Soybean Situation (Billion Bushels) 20078.138.441.89 20087.798.131.58 20089.598.752.23 20109.709.252.59 20118.809.701.97 20129.849.532.10 201310.439.922.46 201411.0210.313.05 5-YR Avg.9.679.432.27

16. Soybean Relevant Numbers Current Projections Average Billion Bushels U.S. Ending Stocks World Ending Stocks 0.33.16 3.052.27

17. Wheat Considerations U.S. wheat stocks are tight, but World stocks are very adequate. Large World production –U.S. < 10% of world wheat production –World conditions prevail, big driver of the overall wheat market (Futures) –The other “driver” of the overall market is the other feedgrain situation As anticipated, short crop in OK, KS, etc. –Will not impact the futures market much, but is contributing to current strong basis.

18. Feedgrain Considerations Large number of acres, it’s raining in the corn belt (“rain makes grain”), could see very good overall yields What more needs to be said, right now the potential for a good crop on a large number of acres is really pressuring the overall feedgrain market, and there is a spillover impact on the wheat market as well Local basis is strong (need grain in the short run)

19. Soybean Considerations U.S. and World ending Stocks historically large Biggest “surprise” in the recent acreage report was the record large U.S. soybean plantings. (Why should this be a “surprise” given the price signals earlier this spring?) Local basis historically strong

20. Futures Market Considerations Everyone must form their own opinions regarding probabilities

21. Difference Between Two Prices Basis : Local Wheat Price Local Cattle Price Local Soybean Price - HRWW Futures Price CME Cattle Futures Price CBT Soybean Futures Price 21

25. Basis Considerations Local bids for wheat reflect relatively strong basis (short crop), for fall crops reflect better than average basis Local Basis for wheat will likely remain strong, there is some likelihood that Basis will weaken in the future for the fall harvested crops –That is a cash sell signal (for wheat, but especially for other crops) (sell the commodity) This may be the year to be fairly aggressive with early sales on the fall crops –There are numerous ways to maintain the ability to capture an upside move in the overall market. Form your own probability assessment regarding the futures component of price

26. Grain Market Considerations Sound marketing decisions are based on realistic probabilities, not coffee shop talk Right now watch (assess your probabilities to) –Basis changes –Overall market drivers (corn crop, switch to beans, exports, etc.)

27. Live Cattle, August ‘14

28. Feeder Cattle, August ‘14

29. Cattle Markets (What Can I Say!!!!) Record High Prices –Small Increase in imports –Exports also very strong Beef Demand appears to be very strong –Remember, demand is not just consumption, it is consumption at what price –Consumption is down because supplies are tight, but the price response has been unexpectedly solid, consumers want this product bad enough to “pay for it” –Will it last? Is the financial health of consuming public strong enough to sustain this demand???

30. Even Finally Seeing Some Profits in Cattle Feeding

31. Thank You Questions or Discussion !!!! For Farm Management Updates Facebook/OSUFarmManagement