Bullish/Bearish views on the market

Ag markets continue trading within ranges set from 7/22 thru 7/29 (CZ $5.62-6.36-(74
cent range, SX $12.88-$14.89-($2.01 range) and WZ $7.52-8.46-(94 cent range).

o Reuters story yesterday noted “global wheat consumption is headed for its biggest
annual decline in decades”. AgriMer noted cheaper corn is replacing EU feed wheat use
while high wheat prices across Asia & Africa are spawning either lower offtake or outright
replacement with Rice.

o Noteworthy that 20/21 USDA August to Final corn/soy demand increased 215 mb/114
mb respectively while Aug to Final US CN/BN demand also increased in 19/20.
Historically, the odds of Aug to Final gains in US demand are higher in soybeans than in
corn although Aug to Final CN/BN demand declined markedly in both 2017/18 and
2018/19.

o Recall 2012/2013 US feed use of corn (following drought and high prices of 2012)
declined 200 mb vs. prior year while overall 2012/13 US soy demand declined 49 mb.

o What will 22/23 US soy export outlook be (USDA down only 35 mb or 1 mmt vs. 21/22)
if S America achieves forecasted 36 mmt increase in 2023 soy production?
o US/PRC relations are deteriorating in tandem with slowing PRC GDP growth and Beijing’s
push to become more self-sufficient in ag production.

o G-7’s misguided pre-occupation with penalizing fossil fuels to expedite transition to “not
ready for prime time” green energy is a strong headwind for GDP growth and efforts to
dampen inflation while likely prolonging Russian/Ukraine war.

o Despite frantic rhetoric by world leaders regarding Ukraine war’s impact on food
availability/price, both corn and wheat are trading below pre-war levels. Global
corn/wheat supply chains have adjusted to drastic cut in Ukraine grain availability via
rationing, stock drawdown upping production and alternate sourcing.

o Bottom line—analysts underscoring likely continuation of elevated ag price volatility
(and higher prices) into 2023 may be preoccupied with supply concerns while ignoring
cautions flags on demand outlined above. There is no doubt that 22/23 grain supplies
must be clarified but so far—2022 US weather pattern suggests that 2022 US CN/BN
yield are unlikely to stray far from trend.

o Trickle of grain cargos leaving Ukraine ports continues

o Private sector estimates of Russian wheat production inching higher—mitigating
shrinking estimates of EU corn production. Hear talks that EU may approve imports of
US GMO corn.

o Nothing in 60-day weather maps to suggest early frost (vital to reaching maturity for
late planted crops)

o Cash market premiums for old crop US CN/BN’s (while well above normal) continue to
erode across majority of Midwest despite scant farmer selling and prospects for 7-10
delay in normal harvest dates. Board inverses persist as long as cash trading will above
delivery.

o Recession fears mount following Friday jobs report (more Fed tightening) and weekend
passage of Senate bill (higher taxes).

o Managed funds, despite late July rally & ongoing hot/dry weather across plains, remain
reluctant to rebuild large longs.

o Noteworthy that Informa, Farm Futures and StoneX all posting soybean yields at or
above USDA’s July forecast of 51.5 BPA.

o No sign of upturn in PRC soy imports amid ongoing poor crush margins.

o Bottom line—Penetration of late July highs(14.89/6.58) prior to August crop report would be a win
for the bulls. Prevailing weather pattern suggests good areas to the east will continue
to improve while areas to the west (KS/NE/parts of IA) deteriorate. Nonetheless, recall
August to Final CN/BN yields increased last year on heels of late Aug/early Sept Midwest
rains, a warm Sept & a late frost. Inability to hold/add value this week would reinforce
notion that selling rallies is most prudent course in current range bound/choppy market.

-RJO’Brien Rich Feltes

Feltes Ag Report