1. Marketing Ag Commodities, Thoughts For The Rest Of 2013 Rodney Jones Oklahoma Farm Credit Professor of Finance t

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 ‘2013

6. CBT Corn, Dec. ‘2013

7. CBT Soybeans, Nov. ‘2013

8. ProductionConsumption Ending Stocks U. S. Price Year (Billion Bushels) U.S. Wheat Situation 20061.812.05.456$4.26 20072.052.32.306$6.48 20082.502.28.657$6.78 20092.222.02.976$4.87 20102.212.42.862$5.70 20112.002.23.743$7.24 20122.272.40.746$7.80 20132.082.30.659$6.85 5-YR Avg.2.242.27.800$6.48 What About Oklahoma?

9. World Wheat Situation (Billion Bushels) ProductionConsumption Ending Stocks Year 200621.922.74.7 200722.522.74.6 200825.123.66.1 200925.223.97.4 201024.024.17.3 201125.6 7.3 201224.124.86.6 201325.625.56.6 5-YR Avg.24.824.46.9

10. Wheat Relevant Numbers U.S. Ending Stocks World Ending Stocks Current ProjectionsAverage Billion Bushels.659.800 6.66.9

11. U.S. Corn Situation ProductionConsumption Ending Stocks U. S. Price Year (Billion Bushels) 200610.511.21.30$3.04 200713.012.71.62$4.20 200812.1 1.67$4.06 200913.1 1.71$3.55 201012.413.11.13$5.18 201112.412.50.99$6.22 201210.811.20.77$6.95 201314.012.91.95$4.80 5-YR Avg.12.1612.381.25$5.19

12. World Corn Situation (Billion Bushels) ProductionConsumption Ending Stocks Year 200628.028.64.3 200731.230.45.2 200831.430.85.8 200932.332.45.7 201032.833.55.0 201134.834.65.2 201233.734.04.9 201337.936.86.0 5-YR Avg.33.0033.065.32

13. Corn Relevant Numbers Current Projections Average Billion Bushels U.S. Ending Stocks World Ending Stocks 1.951.3 6.05.3

14. U.S. Soybean Situation (Billion Bushels) ProductionConsumption Ending Stocks U. S. Price Year 20063.23.10.57$6.43 20072.73.10.21$10.10 20083.0 0.14$9.97 20093.4 0.15$9.59 20103.3 0.22$11.30 20113.13.20.17$12.50 20123.03.10.13$14.30 20133.43.30.27$10.50 5-YR Avg.3.2 0.16$11.53

15. ProductionConsumption Ending Stocks Year World Soybean Situation (Billion Bushels) 20068.728.292.31 20078.138.441.89 20087.798.131.58 20099.598.752.23 20109.699.262.57 20118.809.412.01 20129.899.512.29 201310.489.932.71 5-YR Avg.9.149.012.13

16. Soybean Relevant Numbers Current Projections Average Billion Bushels U.S. Ending Stocks World Ending Stocks 0.27.16 2.712.13

17. Wheat Considerations Current stocks are very adequate in U.S. and around the World Near record World production Exports OK (but watch for glitches such as Egypt) Local short crop –Will not impact the futures market much, but is contributing to current strong basis (at least in short run)

18. Feedgrain Considerations Current stocks are tight Ethanol production has ramped up again Huge planted acres Near perfect growing conditions in much of corn belt July “weather scare” will have to hurry up if it is going to impact this market (currently counting on a very large crop) On a price positive note, Exports have been strong Local basis is strong (need grain in the short run)

19. Soybean Considerations Production (both U.S. and World) is expected to be fairly large Demand is strong, usage continues to grow Looks like somewhat of a rebuilding of ending stocks for the 2013 marketing year Pressuring the canola market as well

20. Futures Market Considerations Overall Market influences –Once again, it’s all about corn (and beans) Historically, short crops are followed by large crops –Right now the market thinks this will be the case, and indications support that Expect continued volatility, conditions may change through the summer Must form your 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 New crop bids for wheat reflect much stronger than average basis, for fall crops reflect at least average basis There is some likelihood that Basis will weaken in the Future –That is a cash sell signal (sell the commodity) This may be the year to be fairly aggressive with early sales –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, exports, etc.)

27. Strategies To Think About If your like me, and you think there is a good chance Basis will Weaken--- –Sell at least the “Basis” component If you strongly think futures will go down, sell the commodity or forward contract the entire price If you think futures “might” go down, sell the commodity If you strongly think futures will go up, sell the commodity and buy a futures contract or a call option, or sell only the basis component of price in a forward contract, set the overall price later If you think futures might go up, sell the commodity or sell only the basis component of price, and use call options No opinion on futures price direction (equal probabilities) – still recommend locking in strong basis, either be happy with overall price, or buy a call option 27 Base your cash selling strategy on what you think basis will do Capture overall (futures) market expectations in the futures or options market

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