Daily Grain / Hogs Marketing Outlook Written by: Jim Gerlach 2/5/2016

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1 Daily Grain / Hogs Marketing Outlook Written by: Jim Gerlach 2/5/2016 Early Call 8:45am EST: Corn down 1, soybeans up 1, wheat down 1. This week's collapse in the U.S. dollar index could focus even more attention on the January jobs data set for release, while China is set to begin its weeklong New Year's holiday next week. Both could play a major role in the direction of grains, with markets tentatively mixed overnight into early Friday morning. Grains: Prices of U.S. grain and soybean futures dropped Thursday in part because of disappointing demand for some crops. Wheat prices posted the biggest losses, pressured by evidence of lackluster overseas demand for U.S. supplies. The USDA said net wheat sales for the week ended Jan. 28 totaled 154,000mt for delivery in the and crop years. That total fell short of analyst expectations for 250, ,000mt. The sales report highlighted how uncompetitive U.S. wheat is versus rival exporters in the global market. A strong U.S. dollar has for months made U.S. agricultural products such as wheat more expensive for foreign buyers, denting foreign purchases of the grain. The U.S. currency fell 0.7% on Thursday, according to The Wall Street Journal dollar index, which helped stem losses in the wheat market, though couldn't offset pessimism over demand. CBOT wheat futures for March dropped $.07 1/4 to $4.72 3/4. Soybean prices also eased, weighed down by forecasts for rain in Argentina, where dry conditions previously had threatened that country's crop yields. Disappointing export sales also depressed soybean prices on Thursday. March soybean prices fell $.02 1/4 to $8.74 1/2. Corn prices declined despite strong export sales last week. Falling prices for soybeans and wheat dragged down the corn market, though a weaker U.S. dollar and higher prices for crude oil helped put a floor under prices. March corn declined $.02 1/2 to $3.68 1/2. Our lead forecaster says that below-normal rainfall aids soybean harvesting and corn planting in northern Brazil until a stormy pattern begins next weekend. Widespread rainfall occurs to the south over the next 10 days, most notably including the driest areas of eastern Argentina into early next week. Below-normal rainfall affects Bahia, Goias, Mato Grosso, and Minas Gerais, Brazil into next weekend. A stormy pattern begins next 1

2 weekend in northern areas of Brazil. Near-normal affects northern Argentina, southern Brazil, and Paraguay through 10 days. Organized t-storms affect much of Argentina into early next week, and some t-storms follow. For the U.S., mainly dry weather will occur, with large temperature changes affect the central U.S. through next weekend. A a round of rain or snow returns to the eastern Corn Belt and Delta around next Monday (Feb. 15). It is February and the 90 day SOI is still , with anything below -8 an El Nino. The daily contributor is -4 so at the very least the El Nino has barely begun the process of retreating. Most models have the ENSO gradually retreating into spring or summer and it would appear that a collapse is unlikely. Climatologist Dr. Elwynn Taylor doesn't rule it out, citing 1988 when a strong El Nino suddenly shifted to La Nina conditions. A neutral ENSO this summer is still not a likely huge threat to yields. Yields are typically fine when the ENSO is neutral. La Nina's, when the SOI goes +8 or higher, are associated with droughts and below trend line yields. If there is no weather threat this summer, with the acres that they are talking, carryovers would surge again and prices weaken further. The odds of an El Nino going to neutral are about 50% according to the resident expert on El Nino/La Nina's, the Australian meteorology bureau. The odds of going all the way to La Nina are 40% and it would also have to happen fast enough to harm the 2016 crops. By September it would impact the South American crops next winter and the 2017 U.S. crop. The USDA ag attaché in South Africa, in a report dated 1/28/16, sees their corn crop at 8.0mmt, in line with USDA, and down from last year s 10.6mmt. They estimate corn imports at 3.0mmt vs. the USDA officially at 1.5mmt and last year s 1.0mmt, but remains below other estimates out of South Africa of mostly around 4-6mmt. StatsCanada released the equivalent of our quarterly Grain Stocks report yesterday morning, putting all wheat stocks as of 12/31/15 at mmt, below the average trade estimate of 21.8mmt ( mmt range of ideas) and compares to last year s mmt. Canola stocks were reported at mmt, sharply above the average trade estimate of 11.5mmt ( mmt range) and compares to last year s mmt. Canola stocks coming in sharply above expectations helps to confirm the much-largerthan-expected crop estimate made by StatsCan in December. Barley stocks of 6.772mmt were sharply above expectations of 5.4mmt ( mmt range) and compared to last year s 5.441mmt, while oat stocks of 2.833mmt were slightly above the average trade estimate of 2.6mmt ( mmt range) and last year s 2.553mmt. South American weather is exerting pressure on prices as there is no sign of prolonged adversity into mid-feb, which is comparable to August in the Midwest. Private sector estimates on the Brazil soy crop are as high as 102.7mmt vs. Conab s 100.9mmt and last 2

3 year s 96.2mmt crop. Estimates of Brazilian second crop corn acreage are on the rise due to their weak currency, which is offering them near-record prices. This suggests that the USDA s 81.5mmt total Brazilian corn forecast may be understated and the 2016 Brazil corn crop may match last year s record 85mmt output. We also need to keep in mind Argentine weather seems as if it's also improving nearby. Keep in mind that several private sources have been increasing their Argentine corn production estimates as of late, meaning the crop appears to be getting larger, not smaller. Thus, we really don't have much of a weather story, global demand is somewhat suspect, the macro space remains extremely bearish (the Baltic freight index dipped below 300 points, an all-time low, signaling a slow-down in world trade of dry bulk commodities), and the USDA at the end of this month will more than likely project that U.S. farmers will plant an additional 1-2 million acres of corn compared to last year and will harvest a trendline yield just north of 168bpa. For soybeans, record production in South America is soon becoming a reality. The recent drop in the U.S. dollar and renewed interest from China is helping to keep prices stable nearby, but I'm becoming more concerned that without a more bullish weather story or a complete turnaround in the outside macro markets, prices may once again fall prey to the bears. Don't forget the USDA s end of month upcoming Ag Outlook Forum will likely show an increase in U.S. soybean acres and a trend line yield somewhere near bpa. On the demand front, premiums in the soybean barge market continue to weaken. There is still an inverse in the front end, but it too is getting weaker. Jan was offered at $.61 over and looking for a buyer, Feb was bid $.54 for first half or full month and March was $.52 on $.54. Stations on the OH River were bidding $.15 to $.20 over for spot beans, while elevators on the IL River were paying option to $.07 over. Board crush margins have found some support after trading down to $.40 ½ in the middle of January. March margins traded back to $.59 ¾, new highs for the calendar year. Decatur and Gilman, IL were bidding $.15 over, Claypool, IN was at $.10 over, while others in the east were $.07 under to $.07 over. Cedar Rapids, IA raised their spot bid to $.17 under and Iowa Falls improved to $.23 under. Even with the recent increase in the pace of corn export sales from the U.S., premiums in the barge market were weaker. Feb/Mar was $.44 on $.46, down from $.46 on $.47 on Wednesday. June/July was $.40 on $.43. The domestic market is the more aggressive bid in much of the U.S., but interior premiums have also weakened. Bluffton, IN was the best processor bid at $.30 over. Trucks delivered to the Fort Recovery, OH market were bid at similar levels. Portland, IN was bidding $.25 over the May and Greenville, OH was at $.24 over the May. Clinton, IA was bidding option price. Meal basis is trying to hold on in the east and west, but resellers continue to offer beans more aggressively. Crushers have again extended bean ownership and some have suggested enough into mid-march or 45 days. There were rumblings of IL soymeal trading at $4 under May, with the over Chicago 3

4 market trading at $2 under March and offered at $2 over. FOB meal offers climbed again, noting strength and potential switch business from Argentina. In export-related news, Malaysian palm oil prices headed to highs not seen since May 2014 as the market anticipated that Malaysian palm oil stocks further contracted in January. Malaysian Palm Oil Board production and stocks data for January are due out on Wednesday next week. Palm oil stockpiles in Malaysia probably declined to the lowest since July after El Nino-induced dry weather reduced production in the world s second-largest grower. Inventories slid 11% to 2.33mmt in January from a month earlier, according to the median of 8 estimates in a Bloomberg survey of planters, traders and analysts. The drawdown would be the steepest in a year, according to Malaysian Palm Oil Board data compiled by Bloomberg. Output dropped 15% to 1.19mmt. The board will release official data by Feb. 10. Algeria bought 840,000mt of optional-origin milling wheat. The amount was larger than initially announced and will most likely be sourced from France or the UK. Egypt is back in tendering for an unspecified amount of wheat for March 2-11 shipment. If the ergot issue is resolved they should see offers this time. Results will be out this morning. Here come the South Americans. Frought with poor economic policies for decades, both Brazil and Argentina appear to be making major inroads in investing in agriculture, which will likely see them continue to increase their export share. Another major Brazilian export port is set to open in the north, sharply reducing transportation costs and transit times from Mato Grosso and other areas where truck routes are in excess of 1200 miles to the ports of Santos and Paranagua in the southeast. The new terminal will begin receiving grains over the next two months, with ocean vessel loading expected to start in July. The 6.5mmt annual export capacity facility will offload trucks onto barges on the Tapajos River and move to the export port of Barcarena for ocean-loading. Bunge also has a 4mmt/year capacity operation through the port of Barcarena, as well. For much of the past decade, soybean processors in Argentina couldn t get enough of the crop to crush, as farmers clashed with the government over agricultural policies. Now, with newly elected President Mauricio Macri cutting taxes and ending an import ban, processors are ready to expand Argentina s global dominance in exports of soybased animal feed and cooking oil. As of mid-december, when Macri took office, total overseas shipments of oilseeds and grain for 2015 totaled $17.6 billion, the lowest for that period since 2009, according to CIARA-CEC, a Buenos Aires-based consortium of Argentine exporters. In January, export sales more than tripled from the same month a year earlier to a record $2.7 billion. While the country crushed a record 38.6mmt last year, that was well below total capacity of 62mmt, industry data show. With the new 4

5 government policies in place, processing may jump 8% to 42mmt this year and expand 10% further in 2017, according to Farias, the Cordoba exchange economist. Since 2003, the industry invested in new plants alongside the Parana river, with easy access to farms and coastal export terminals. But the processors over-expanded, and the business was hurt by 30% inflation, currency controls and changing agriculture policies under Kirchner, including increased export taxes. Farmers protested in sometimes violent clashes with the government and began holding larger soybean inventories rather than sell them for reduced income. In 2008, Kirchner banned soybean imports in a bid to force domestic farmers to sell. Before the ban that year, Argentina imported 2.9mmt from neighboring growers including Paraguay and Brazil. In mid-december, Macri cut export taxes on soybeans and devalued the peso in one day by 30%, the most since On Jan. 18, he said processors can import soybeans tax free if the products are sold overseas. Agriculture Minister Ricardo Buryaile estimates that change would lead to at least 2mmt imported from Paraguay alone. Hogs: Cash hogs are called steady-firm in most regions as plants work to make up for down time due to winter storms across the Midwest earlier in the week. Needless to say, the major storm of early February has made it momentarily difficult to track and measure the flow of country numbers. Yet, we suspect that the offering of ready hogs would have contracted this week, even if the weather had remained mild. Peoria is called steady after closing steady at $38.00 yesterday. The national bid gained $.46 to close at $61.12 while the IA/MN bid bid gained $.93 to close at $ Frigid temperatures and heavy precipitation have blanketed swaths of the Midwest this week, west from Nebraska into Minnesota and Iowa, where up to 10 inches of snow have fallen. Multiple facilities early this week have cancelled production or reduced shifts to avoid the inclement weather, and long stretches of interstates connecting producers and plant workers to slaughterhouses were closed, delaying the transport of both livestock and meat. While all but a few plants have resumed production Thursday, most still have to work through shifts planned for earlier in the week when blowing snow and icy conditions prevented lines from running. Weekly kill is down 8.52% vs. a year ago and projections for Saturday's load of hogs to be processed total 198,000 head, while for the week, an estimated million hogs are expected to have been processed. Cutout values lost $.71 to close at $76.52 on average movement of 315 loads. Estimated packer margins were $25.84/head for non-integrators and $22.67/head for integrator vs. $28.51 and $15.90 the previous day. April lean hog futures posted strong follow-through buying to close higher Thursday. Recent selling action to the Feb. 2 low at $69.00 was corrective to the recent gains. The market's willingness to shrug off the weakness so quickly is encouraging to the bullish trend outlook. The near and intermediate-term trend patterns remains bullish. On the upside, resistance lies at the recent high at $

6 ahead of $72.60, the Oct. 20 daily high. As long as support at $69.00 holds firm, the bulls will remain in control. Hog futures ended narrowly higher lifted by short-covering. February hog futures rose cent to cents a pound after trading in a narrow range for much of the past week. April hogs advanced cent to cents a pound. Pork export sales were sold again last week, totaling 18,600mt. Actual shipments for the week were also impressive at 18,400mt, a marketing-year high, and up 2% from the previous and 15% from the prior four-week average. In what is good news for the potentially capacitystressed industry, the shuttered PM Beef plant in Windom, Minn., will become a new pork processing plant. Minnesota Timberwolves owner Glen Taylor and a partner plan to invest as much as $25 million to convert the facility, which has been closed since Dec. 11. Cattle futures ended the session mixed on Thursday as investors watched for signs of strengthening demand for cattle in the cash markets after a rally to the highest prices in three-months. February live cattle futures rose cent to $ a pound, the highest closing price since November 4. Cattle futures for April shed 0.1 cent to $ a pound. Feeder cattle futures for March declined cents to $ a pound after posting gains earlier in the session. A snow storm swept over Nebraska and northern Kansas early this week, buoying futures prices as investors worried about the health and transportation of livestock. Cattle producers are seeking as much as $1.40 to $1.42 a pound live for cattle this week, facing deep snow and muddy conditions in some regions that could make it more difficult to market and ship their animals. Bids so far on Thursday were reported at $1.36 and $1.38 a pound in the southern Plains States, raising hopes that cash trade will again take place at higher prices this week. Profit taking capped gains in some contracts around midday, as traders awaited fresh indications of demand from retailers and packers for beef supplies. Average prices for beef and pork climbed in grocery store advertisements this week, according to the latest Wall Street Journal retail meat survey. The 15-cut average for beef rose to $5.37 a pound from $5.25 last week and $5.23 a year earlier, the Journal survey found. Grocers listed higher prices for steak cuts, including sirloin, T-bone, ribeye and chuck. The five-cut average for pork prices increased to $3.02 a pound from $2.87 last week and $2.91 a year earlier. Chicken prices also gained. The two-cut average rose to $1.82 per pound from $1.75 last week. It was down slightly from $1.83 a year ago. Over the first three full weeks of 2016, slaughter has averaged 4.4% above the comparable weeks last year. Importantly, the trend over the first three full weeks in 6

7 January has been back towards 2015 slaughter levels, with the year-to-year difference narrowing as the month progressed. For the first week of the year, slaughter was up 11.0%, the second week was up a much more modest 2.4% and the third week was essentially unchanged year-on-year. For the last two weeks, slaughter has matched-up rather well with the indications of the Quarterly Hogs and Pigs report. From a supply perspective, the large year-over-year increases in U.S. pork production for the next few months seems to be behind us. Still, close attention to slaughter levels will be important, especially until the next Quarterly Hogs and Pigs eased in March, as traders will want to see if rumors of much higher than normal disease (primarily PRRS), have any validity. Another important seasonal trend to follow is dressed hog weight. So far this year, weights have continued to post year-on-year declines, which has been the case since March In recent weeks, dressed weights have been running 2 pounds below a year ago and forecasts the year-over-year declines may not persist in In recent days, there have been media reports that update the status of the new hog packing plant being built in Iowa and that plant could be operation as early as mid-year There is also a new plant in Michigan under construction, which we currently believe opening is planned for late This week, there are to turn the former PM Beef plant in Southern Minnesota into one for hogs. Weather: The U.S. and European models are in good agreement early in the 6-10 day period, fair agreement late in the period. Today's European model is a little more likely to verify. The mean maps at 8-10 days both feature a moderate to strong upper level trough over eastern Canada that dips down into the Great Lakes region and the northeast U.S. The U.S. model is somewhat stronger with this trough and a little further to the south, with the strong jet stream on the bottom of this trough. This likely means a trend towards below normal temperatures for central and east Canada and the north and east Midwest and the northeast U.S. It also likely means near to mostly below normal precipitation chances. While the mean maps at 8 to 10 days are not very different, there are some differences in the day by day breakdown worth noting. The U.S. model shows a strong surface high, implying colder temperatures moving across the northern Midwest next Friday and Saturday. The European model shows a short wave upper level trough rotating around the parent east Canada trough, dropping down over Ontario Canada at the end of the period. This may suggest somewhat colder weather into the Plains and western Midwest at the end of the period. The European model also shows a surface low forming over the southern Plains and tracking through the southern and eastern Midwest at the end of the period. This would suggest some chance for precipitation. These end of the period differences are interesting, but probably not strong enough to warrant a change in the overall forecast for the 6-10 day period, at least not until there is better agreement between the models. 7

8 North American Crop Impact: There are no significant concerns for transport and travel in the Midwest during the next 7 days or longer. It will be colder at times, but probably not cold enough to harm winter wheat. A more moderate temperature pattern will favor HRW wheat and livestock in the Plains during the next 7-10 days. Cold weather coming southward out of Canada is mostly headed into the north and east Midwest and the northeast U.S. regions. Global Weather Highlights: Argentina will see increasing coverage of showers and thunderstorms today into Monday. Rainfall may become locally quite heavy. Rain will maintain and improve soil moisture in most crop areas and is favorable, except in local areas that may see flooding if the thunderstorms become too heavy. Periodic shower and thundershower activity in Brazil will maintain adequate to surplus soil moisture for soybeans and corn from RGDS to southern Parana. A few scattered showers from northern Parana northward will favor late filling crops, but may be unfavorable for maturing crops and early harvesting. A variable temperature pattern is in place for the FSU at this time. However, damaging cold weather is not expected and will favor overwintering grains. Soil moisture this spring is expected to be adequate to surplus due to winter time precipitation, snow and sometimes rain. Scattered showers yesterday mainly occurred in eastern growing areas of South Africa. The weather pattern suggests near to above normal temperatures in the west and near to below normal east during the next 7 days. However, a few showers and afternoon or evening thundershowers are possible at times. Reproductive and filling crops could use a little more rain, especially in the western growing belt. Colder temperatures continue for a few more days in Chinese winter crop areas, especially in north and east areas. No significant damage should result from this cold weather. A warmer trend is expected during the early and middle part of next week. Macros: The macro markets were mostly weaker as of 8:55am EST on poor U.S. jobs data, with Dow futures down 0.2%, the U.S. dollar index is up 0.4%, crude oil is down 0.2% and gold is down 0.4%. The S&P 500 on Thursday closed 0.15% higher, the DJIA gained 0.49%, and the Nasdaq lost 0.10%. Bullish factors included strength in mining and raw material producing stocks as a fall in the dollar index to a 3-1/4 month low boosted commodity prices, and a rally in transportation stocks with Ryder System closing up by more than 9% and Union Pacific and Kansas City Southern both closing up by more than 4%. Gains were limited on bearish factors that included the 3.0% decline in U.S. Q4 non-farm productivity, a bigger drop than expectations of 2.0% and the most since Q1 of 2014, and the 2.9% fall in U.S. Dec factory orders, a slightly bigger drop than expectations of -2.8% and the largest decline in a year. The dollar is headed for its biggest weekly decline since 2009 and finding an explanation other than profit-taking is next to impossible. However, with the EU, Japan, Sweden, Denmark and 8

9 Switzerland all experimenting with negative interest rates, we have all been thrown into an Economic Twilight Zone when attempting to ascertain value for any currency. We view gold as the best market to buy when confidence is lost in world currency values. The market is expecting today's Dec trade deficit to expand mildly to -$43.20 billion from -$42.37 billion in November. Today's expected report of -$43.20 billion would be fairly close to the 12-month average of -$44.5 million, indicating that the market is looking for the sideways trend in the U.S. trade deficit to generally continue. The U.S. trade deficit is moving generally sideways as exports and imports are seeing similar weakness. The market is expecting today's Dec consumer credit report to show an increase of $16.0 billion, recovering a bit from Nov's weak report of $13.95 billion but remaining below the 12-month trend average of $18.8 billion. U.S. consumer credit has been below-trend in the past two reporting months of Oct-Nov, suggesting some consumer reluctance to take on more debt. In addition, some consumers are using their savings from lower gasoline prices to pay down their credit card balances, thus reducing revolving credit. The U.S. labor market slowed substantially in January, a potential reflection of employer caution tied to market unrest that could weigh on expectations the Federal Reserve could raise interest rates in March. Nonfarm payrolls increased a seasonally adjusted 151,000 in January, the Labor Department said Friday. The unemployment rate, obtained through a separate survey, fell slightly to 4.9% last month. The unemployment rate was last below 5% in November Economists surveyed by The Wall Street Journal had expected payrolls to rise by 185,000 and the jobless rate to hold steady at 5%. Revisions showed employers added 2,000 fewer jobs in November and December than previously estimated. December's payroll gain of 262,000 was revised from an initially reported 292,000. November's gain was recast to 280,000 from a previously estimated 252,000. Monthly job gains averaged 231,000 over the past three months, compared to average monthly employment growth of 228,000 in Meanwhile, wage gains accelerated last month. The average hourly earnings of all private-sector workers grew by 12 cents in January to $ Wages rose 2.5% in January from a year earlier. The unemployment rate's drop to below the psychologically-important 5% barrier marks the lowest level since the recession began 9

10 eight years ago. The drop, combined with an acceleration in wages, offers some counterbalance to Friday's soft job gains. However the below-consensus payroll number for the first month of 2016 offers signals that recent stock market turmoil and economic weakness abroad, including plummeting oil prices and a slowdown in China, have prompted some caution among businesses. Also Friday, the Labor Department released its annual revision of overall employment in the U.S. It showed the U.S. had 206,000 fewer jobs in March 2015 than previously estimated. The labor force held largely steady in January. The labor force participation rate ticked slightly higher last month to 62.7% from 62.6% in December, though it remains near a 40-year low. An expanding labor force could suggest that the unemployment rate's decline in recent months is prompting some Americans on the sidelines to search for jobs. Overnight, Dow Jones News reported that global stocks were steady Friday as investors awaited a key reading on the U.S. labor market. The Stoxx Europe 600 was up 0.3% in early trade, led by the recently hit auto and banking sectors, after Wall Street closed with modest gains. Later Friday, the Labor Department will report how many jobs U.S. employers added in January, as well as the unemployment rate and a measure of wage inflation. The nonfarm payrolls report is an important barometer used by Federal Reserve officials as they try to determine the strength of the U.S. economy and the course for interest rates this year. The U.S. central bank raised benchmark interest rates in December for the first time in nearly a decade, and had signaled more rate rises in the year to come. But recent soft economic data and dovish comments from Fed officials have raised doubts the bank will be able to raise rates further, sending the dollar to its lowest level since November. While the labor market has remained strong, recent manufacturing and consumer savings reports have disappointed. In currencies, the euro was last flat against the dollar at $ despite a drop in German manufacturing orders, while the dollar was flat against the yen at Yen The yield on the 10-year Treasury note was steady at 1.838%. Markets in Asia closed mostly lower ahead of the jobs report and the Lunar New Year holiday next week. Japan's Nikkei Stock Average fell 1.3% as the yen hit its highest level against the dollar in over a year. Japan's stock market has now given back all of the gains it made after the Bank of Japan's surprise interest rate cut last Friday. China's Shanghai Composite Index fell 0.6% ahead of the release of its foreign reserves data on Sunday, while Australia's S&P ASX 200 edged down 0.1%. In commodities, Brent crude oil was last up 0.9% at $34.78 a barrel. Spot gold in London was up 0.4% at $ an ounce. Summary: For the week, corn prices are down about $.04, Chicago wheat is down around $.07 and soybeans are down around $.05. March soybeans have traded right at $8.80 for some 18 consecutive trading sessions and the market has not gone anywhere since the January crop report. A break above or below recent weekly highs and lows 10

11 will be technically important when it occurs. Even with a solid export number posted, corn couldn t keep its head above water and gave into negative trade for the day. As South Africa s crops continue to suffer from one of the worst droughts on record, the U.S. could be on tap for about 3.0mmt of corn exports. Brazil s corn crop is getting larger, according to official crop forecasting agency Conab. They re projecting a 1mmt increase of corn production, placing Brazil s crop now at 83.3mmt. In anticipation of next week s USDA report, the average estimate for corn ending stocks is billion bushels vs billion bushels last month. World ending stocks have an average guess of mmt versus the January number of mmt. Regarding other estimates for next week, the Argentine corn crop is thought to be 25.3mmt versus the USDA in January at 25.6mmt. The Brazilian crop has an average guess of 81.5mmt versus USDA at 81.5mmt last month. Soybeans worked their way lower for the session after an early tone was set with export sales at a marketing year low. They were announced at 43,600mt of net cancellations. Soybean meal exports were respectable at 186,300mt versus thoughts around 100, ,000mt. Conab cut Brazil s soybean crop by 1.2mmt to a production estimate of 100.9mmt. The majority of reduction came out of the leading state of Mato Grosso. Conab s estimate still remains higher than current projections of 100.0mmt from the USDA. Average estimates for U.S. ending stocks for soybeans are 445mb versus the USDA s January number of 440mb. The average guess for world ending stocks is 78.97mmt versus January at 79.28mmt. Average guesses for the Brazilian soybean crop is 99.4mmt versus last month at 100.0mmt. Argentina s crop is estimated at 56.9mmt versus USDA s January number of 57.0mmt. Wheat also set a marketing year low for export sales and proceeded to trade in red ink for the session. Export sales came in at 66,200mt while the market was looking for 200, ,000mt. According to the U.S. ag attaché, the potential exists for 2.0mmt of U.S. wheat to be exported to South Africa as a record drought plagues their crop. Looking forward to next week s USDA data, U.S. ending stocks average estimate for wheat is 949mb versus a 941mb January number. The world average guess is at mmt versus January at mmt. March corn futures tumbled to a lower close forming a bearish outside day. The action is negative and reveals hesitation on the part of the bulls at resistance at $3.73 3/4, the Feb. 2 daily high. The recent minor trend pattern is bullish, but Thursday's bearish outside day warns the bulls are losing control. The corn contract edged just below minor 10-day moving average support at the final bell. On the downside, corn bears are targeting a test of strong support at $3.65, the top of a small open gap from $3.65-$3.64 1/2, which initially formed on Jan. 19. If the bears were to close below the gap bottom it would confirm a near-term bearish trend change. March soybeans edged to a slightly lower close Thursday as the market remained on the defensive. The very short-term trend bias is down following the recent failure from the multiday range top at $8.88. The 11

12 market pierced that ceiling early in the week, but failed to follow through to the upside. Soybeans are now vulnerable to a test of the recent range bottom floor at $8.67. The larger multi-month intermediate-term trend remains solidly neutral between major resistance at $9.11 1/2-$9.26 and major support at the contract low at $8.47. A/C Trading Co. does not accept orders to buy or sell by , text or any other form of social media. This material has been prepared by a sales or trading employee or agent of A/C Trading Co. and is, or is in the nature of, a solicitation. This material is not a research report prepared by A/C Trading s Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions. DISTRIBUTION IN SOME JURISDICTIONS MAY BE PROHIBITED OR RESTRICTED BY LAW. PERSONS IN POSSESSION OF THIS COMMUNICATION INDIRECTLY SHOULD INFORM THEMSELVES ABOUT AND OBSERVE ANY SUCH PROHIBITION OR RESTRICTIONS. TO THE EXTENT THAT YOU HAVE RECEIVED THIS COMMUNICATION INDIRECTLY AND SOLICITATIONS ARE PROHIBITED IN YOUR JURISDICTION WITHOUT REGISTRATION, THE MARKET COMMENTARY IN THIS COMMUNICATION SHOULD NOT BE CONSIDERED A SOLICITATION. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that A/C Trading Co. believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. 12