Daily Grain / Hogs Marketing Outlook

Written by: Jim Gerlach 9/16/2020

Early Call 8:45am EDT: Corn down 1, beans up 6, wheat down 3. Early Wednesday, Dow Jones futures are trading higher and the December U.S. Dollar Index is lower with Europe's stock markets mostly higher. According to CNBC.com, the Organization of Economic Cooperation and Development increased its estimate of world GDP growth in 2020 from -6.0% to -4.5%. Later Wednesday, the Federal Reserve will give its assessment of the economy and is expected to keep interest rates near zero for the foreseeable future. December gold and October crude oil are both higher to start the day. Grain prices are mixed, with soybeans again leading the way higher while corn/wheat are modestly weaker.

Grains: Wheat for December delivery fell 1.4% to $5.38 ¼ on the Chicago Board of Trade Tuesday amid indications of higher Black Sea wheat supply. Corn for December delivery fell 1% to $3.66, while soybeans for November delivery fell 0.8% to $9.91 ½. Farmers in Kazakhstan are bringing in their wheat crop quickly this year, which applied pressure to wheat futures Tuesday. Australian and Canadian wheat crops also higher than they were last year. The unrelenting upward momentum for U.S. grain futures, which pushed U.S. soybean prices above $10 per bushel for the first time since early 2019, is finally taking a breather. Nothing has fundamentally changed, with crop ratings continuing to slide since early August, and China still in the market for U.S. supplies with yet another daily sales announcement from the USDA yesterday morning. However, it's a much-needed break for futures that have mostly traded higher for weeks. Crops in the U.S. are maturing faster than they were at this point last year, the USDA said late Monday. In its weekly crop progress report U.S. corn was 41% mature, while 37% of U.S. soybeans have dropped their leaves, both exceeding last year's figures. Harvesting has only begun for U.S. corn, with 5% of it being harvested. The progress of the harvest is expected to be a growing focus going forward. We will start to see more attention on actual field collected data as harvest will gain momentum over the next few weeks. When it comes to harvest the most interest will likely fall on Iowa to see if crops are as bad as indicated. China has been active buying U.S. exports, a trend that

1

continued yesterday with 132,000mt of soybeans being sold there for delivery in 2020/21 marketing year.

Rain yesterday was confined to hurricane impacted areas in the south yesterday (see left map). Heavy rains from the remnants of Hurricane Sally will lower quality of open boll cotton in the South. Brief, light showers are slated for the Midwest in the 6-15 day period (see 7-day NOAA forecast map right) and in the Delta in the 11-15 day period, but are not expected to impact harvest. NE had the driest August on record. Plains showers have been reduced next week, but moisture is mainly adequate for wheat germination except in the TX Panhandle. Globally, rains will be limited to northeast Argentina next Thu-Fri and 30% dryness in the wheat crop likely expands to 50% by then. A possible frost for southern Argentina wheat areas occurs Sunday and next weekend, hindered by slipping moisture as well. In Brazil, corn planting in Parana has been slowed by dry weather but 6-10 day rains and into the 11-15 day period should help. Rains aid the northern 1/3rd of Russia this weekend and the western 1/3rd of Ukraine late next week, with the rest of the Black Sea region still unfavorably dry. Dryness for western Australian, Black Sea and Argentine wheat crops offers support to world wheat. Black Sea wheat values reached new rally highs yesterday. Fears that heavy rains in India in the second half of Sep could cause damage to ripening oilseed crops supported palm oil prices yesterday and is keeping already nervous shorts in the oilseed markets worried. France lowered their wheat crop to 29.5mmt vs. 29.7mmt previously and is down more than 25% from last year’s 39.6mmt crop. The corn crop was unchanged at 14.4mmt vs. 13.0mmt last year.

The strong, contra-seasonal rally in beans vs. corn is being fueled by a dry finish to the growing season, an early Sept upper Midwest frost and an exceptional gain in new crop soy export sales vs. last year relative to corn (soy up 20.4mmt vs. 11.6mmt gain in corn). North Dakota’s soybean rating dropped 11% last week, suggesting frost/freeze damage may have been greater than feared. The soy rally is being fueled in part by firming soy processor basis for quick shipment beans ahead of harvest. After taking out

2

the contract high yesterday, the next tech objective is $10.82 high posted on 3/2/18, which is possible but unlikely without disappointing 2020 U.S. soy yields along with the ongoing brisk pace of Chinese buying. Meanwhile, managed funds have extended their soy long to an estimated 200,000 contracts, the largest since 3/20/18 which corresponds to the March 2018 chart high referenced above. The last time managed funds accumulated a 200,000 or larger managed fund soy long was the 2012 drought year (long 200,000-253,000 long from 3/20/12 to 9/18/12, a 7 month run when 2012/13 U.S. soy stocks shrunk to 141mb (4.5% stocks/use) vs. my estimated 340mb 2020/21 ending stocks estimated (8% stocks/use). There is certainly room for funds to continue extending soybean longs and the current fund soy long has exceeded 100,000 contracts for only 1 month, which is a relatively short duration vs. the last time funds accumulated a large soybean long. I suspect managed funds will continue to extend their soy long as long as Chinese soy buying continues, uncertainty over 2020 U.S. soy yields persist and until spring rains across west/central and northeast Brazil to relieve the prevailing dry pattern.

The U.S. now has at least 1.18 billion bushels of soybean sales on the books, over half of which are attributed to China. With USDA now estimating 460mb of soybean stocks at the end of 2020-21 in the U.S., there is not a lot of room for any more bullish surprises and that adds some excitement to watching South America's next crop in the months ahead. Planting conditions have been dry in Brazil so far, but light rains are expected in Mato Grosso this week, helping the new season begin. With USDA estimating just 92mb of soybean supplies in Brazil when the current season ends on January 31st, 2021, there is not room anywhere for a bullish surprise in this market. Brazil's soybean prices are high, giving producers plenty of incentive to expand production to record levels once again. We have seen this scenario before and it remains astonishing that world demand continues to take all the soybeans the U.S. and Brazil can grow and still threaten world inventory with the possibility of a tight supplies.

For corn, I suspect this market will be unable to retreat as long as the threat of large Chinese corn buying persists. I’m hearing estimates of Chinese corn imports ranging from 20-30mmt. USDA is at 7mmt vs. 7mmt last year, which is silly since 9mmt is already on the books along with 2mmt or more from Ukraine as well. One factor that may be adding to the demand for U.S. agriculture in China is the rebuilding of hog herds in China decimated by African swine fever. Food waste is massive in China, where the culture prides itself in extravagant meals. There was a whole industry created to channel this food waste to hog farms prior to ASF, but that is now illegal due to the risk of spreading ASF. That food waste must be replaced, with corn and soymeal the primary components doing the job. Meanwhile, as noted yesterday, crop conditions do NOT line up with current U.S. yield, meaning that unless conditions suddenly improve

3

late in the season, there is another 3.5-7.0bpa of downside yield risk in the market. U.S. end users are getting antsy after buying hand to mouth for the last 5-6 years and will likely extend forward coverage on breaks while the U.S. farmer will be a holder of new crop corn at harvest. A look at 5 prior marketing years with 225mb or higher year to year gains in U.S. corn exports (USDA has 2020/21 U.S. corn exports up a conservative 425mb) shows prices steady to firmer into year’s end in 3 of the 5 years. The two exemptions were 1994/95 and 2016/17 (both record corn yields and big gains in 94/95 corn stocks). I would also point out that 1995/96 saw corn prices vault to a then record $5.50 after China unexpectedly bought 10mmt of U.S. corn, which could be dwarfed this year.

Typhoons have ripped China’s major corn producing areas, which a key potential factor in surging U.S. corn exports. If one believes some initial estimates, 30% to 70% of the corn in China’s Jilin Province has been impacted. This is a major producing area (see map), but only time will tell how much of the crop was actually damaged. China was hit by three typhoons late in the production year, each making landfall along some key producing areas. Typhoon Bavi moved into Liaoning Province on Aug 27th, typhoon Maysak struck neighboring Jilin on Sept 3rd and a week after that, Typhoon Haishen hit Jilin once again. The Jilin Province is no slouch when it comes to the makeup of Chinese agricultural production. Looking at previous history, the potential impacts of bushels lost on China’s balance sheet may loom quite large. Think of the Derecho wind damage in the Midwest primarily in Iowa. That same kind of damage in China is on a potentially much larger scale. As of the latest USDA WASDE Report, China was expected to produce 260mmt of corn (around 10.23 billion bushels). Even that is not enough considering China’s demand estimates are hovering around 280-288mmt (or- 11.02-11.34 billion bushels). That is a difference of 20-28mmt or 787mb to 1.102 billion bushels that China will have to import from various countries like the U.S., Ukraine, and South America over time due to particularly strong feed demand in the hog sector trying to rebuild from African Swine Fever within the last 16 months, along with the rebuilding of the government reserves.

In Jilin, much like the rest of the country, the percentages of corn production vary from year to year. But if one uses USDA FAS data, Jilin has been producing around 13% of

4

China’s total corn supply, or around 1.33 billion bushels of this year’s 2020 potential supply of 260mmt. If one uses the ranges of the damaged or destroyed corn (30% to 70%) specifically in the Jilin province then the numbers are actually quite startling. So if Jilin produces 13% of the 260mmt Chinese total, that is 33.8mmt of production. If 30% is damaged or destroyed as some Chinese reporting agencies are claiming, that would equal 10.14mmt or nearly 400mb. If 70% is damaged or destroyed, then that would be 23.66mmt or well over 900mb. The potential impacts on China’s accelerated and definitively increased need to import more corn from other nations becomes quite clear if the prior numbers are remotely close. Currently the market is fixated on the first 20- 23mmt of shortfall in Chinese supply and how much of that market share the U.S. will eventually send to China. But is anyone considering the production loss potentials in China and what that means for an additional 10-20mmt if the stories of damage/destruction prove true over time? If those shortfalls are indeed realized, and the U.S. is the majority provider of the additionally needed bushels, it will make the U.S. balance sheet eventually look quite interesting. As of the last WASDE report, the U.S expected exports to China would remain unchanged at 7.0mmt even though as of yesterday morning sales had approached 9.4mmt. If China is in a situation where the bushel shortfalls are almost doubling current levels, U.S. corn exports could surge.

The school-scare narrative from the media appears to be largely over after very few if any kids are being hospitalized and/or killed (of course they don’t ever mention that). The new scare tactic appears to be the virus is being perpetuated by Mother Nature due to hurricanes and wildfires. Dow Jones News is reporting that new coronavirus cases in the U.S. rose to more than 52,000, the highest daily total in more than a month, as wildfires in some Western states and an approaching hurricane in the Southeast opened potential pathways for the virus to spread further. The wildfires in California, Oregon and Washington state have killed at least 34 people and are part of a wider outbreak that has scorched more than 4.7 million acres, according to the National Interagency Fire Center. Health experts say the wildfires make it harder for people to take preventive measures against the virus as people are forced to seek shelter. Dr. Mark

5

Ghaly, secretary of the California Health and Human Services, said his agency had taken steps to ensure that individuals displaced by the historic and deadly fires across the state would also be protected from the threat of infection from Covid-19. He said that nearly 90% of people in shelters were in hotel rooms either by themselves, or with family members, rather than the “old norm of a congregate shelter where hundreds of people might come together to spend a few nights in a gymnasium eating buffet style food.” Hurricane Sally: As the storm’s trajectory shifted away from Louisiana, Gov. John Bel Edwards said the state would pivot to focus on helping neighboring states, the continuing recovery from last month’s Hurricane Laura and coronavirus mitigation efforts. Mr. Edwards said most of the more than 12,000 Louisianans displaced by Laura are in non-congregate sheltering facilities across the state. More than 5,300 people are still sheltering in Texas. Cases and deaths: The U.S. reported 52,081 new cases for Tuesday, up from about 34,000 a day earlier. The latest figure is the highest daily tally since Aug. 14, according to data compiled by Johns Hopkins University. The nation’s death toll approached 196,000.

On the demand front, Malaysian palm oil markets are closed for a holiday. USDA reported another 132,000mt of 2020/21 soybeans sold to China yesterday, along with another 132,000mt sold to an unknown. USDA also reported a 120,000mt sale of 2020/21 corn to an unknown. January corn futures posted a contract high on the Dalian Grains Exchange yesterday at roughly $9.06/bushel. The national U.S. average corn basis is about $.02 stronger than the beginning of September, which is unusual with harvest getting underway and a carryout over 2.2 billion bushels. Another argument favoring a higher U.S. corn price is that FOB prices at the U.S. Gulf are $.13 below those in Brazil, which is very surprising as this is Brazil’s main shipment window after Brazil harvested a record 4.0 billion bushel corn crop in 2020. The U.S. Grains Council said they do not expect global ethanol production to return to pre-pandemic levels until sometime in 2022 due to more than 250 plants worldwide having closed. Russian freight giant Rusagrotrans sees Russian grain exports setting a new record in Sep of 5.85mmt, including 5.2mmt of wheat that would be last year’s Sep wheat exports 4.2mmt and the record of 4.56mmt in 2018. They pegged August wheat exports at 4.9mmt, which would match the record set last August. Local consultancy Safras and Mercado estimate Brazil’s new crop bean exports at 82.5mmt, even with last year but down 500,000mt from the August estimate. Egypt's state import agency launched a tender late Tuesday to buy an unspecified amount of wheat for shipment between Nov 10-20. Official EU data showed marketing year to date wheat exports outside of the EU bloc totaled 3.57mmt through Sept 13th, down 42% from a year ago.

NOPA reported its members crushed 165.1mb soybeans in August, down from 172.8mb in July and below the average trade estimate of 169.5mb. Moreover, it was the first time

6

in nine months in which crush fell below last year and did not set a new record for the month, while only being the 3rd month of the entire 2019/20 marketing year in which crush was below year ago levels. Based on the recent months' relationship between NOPA member crush and U.S. total crush, nationwide August crush would be implied at roughly 176mb vs 184.5mb in July and 177.3mb last year, putting 2019/20 marketing year total crush at roughly 2.165 billion bushels, 5mb below the USDA's current 2.170 billion bushel estimate. Official crush data for August will be released by USDA on October 1. NOPA reported soybean oil production in August by its member was 1.915 billion pounds, down from 2.005 billion in July and last year's 1.965 billion pounds, with the average soybean oil yield in August holding steady from July at 11.60 pounds/bushel, but still well below last year's 11.69. NOPA reported end August soybean oil stocks held by its members at 1.519 billion pounds, right in line with average expectations of 1.515 billion pounds, despite crush being solidly below expectations, therefore implying demand during the month was less than expected.

Livestock: Cash hogs are called $1 lower to $2 higher, with most bids expected steady to $1 higher. Slaughter Wednesday is expected at 485,000 head. Saturday runs are expected at 192,000 head. A day or two of steady trade wouldn't be a defeat for the lean hog sector as the market's ginormous leap higher was done in a short matter of time. But with consumers pulling pork protein, packers are likely to keep buying aggressively. The national bid gained $.72 yesterday to close at $58.89, while the IA/MN bid lost $.1.06 to close at $60.44. The CME Lean Hog Index for September 11th was another $1.27 higher to $64.55. USDA’s National Pork Carcass Cutout value bounced $4.55 higher to $84.26, the highest since May 29th, on good movement of 421 loads. All of the primal cuts increased, led by hams which were up $7.72 to $75.18. Estimated packer margins were $45.19/head for non-integrators and $52.91/head for integrators vs. $53.58 and $46.20 the previous day. Weekly kill is down 1.12% vs. last year.

Price volatility is expected to continue in lean hog trade as traders still are trying to get a better grasp to the short- and long-term implications of Germany essentially out of the export market outside of Europe. This will no doubt help to increase the value of U.S. pork and spark increased export sales over the short and long term. But the question of if Germany can renegotiate trade based on individual areas affected with countries like China and South Korea will have a dramatic impact on the need to increase exports from the U.S. in the near future. The surge higher in lean hog prices indicates that a strong market impact is likely, but at this point, it is still unclear just how far-reaching that impact will be, and if it will be able to push lean hog futures even higher over the next several days. The lean hog complex closed lower Tuesday except for the spot October contract, which traded safely within the realm of Monday's trade. October lean hogs closed $1.07 higher at $65.70, December lean hogs closed $0.52 lower at $63.05

7

and February lean hogs closed $0.05 lower at $68.70. Though packers didn't move Tuesday's cash market $2.00 to $4.00 higher like they have in the day's past, the market still closed stronger and on nearly 10,000 head. Even though the board closed mostly lower, the market continues to be supported by not only the cash market, but also consumer demand as the pork cutout values closed over $4.50 higher Tuesday's afternoon. Producers may have questions regarding the market's longevity, but so long as demand is noteworthy, packers will most likely keep pulling for more hogs. There are growing worries about U.S. restaurant industry suffering once temperatures cool, as many have been able to offer outdoor dining and that season is coming to an end. China reported its pig herd in August was up 31% from last year, while the sow herd was up 37% vs. last year. China issued a state reserve pork auction notice, the state will sell 20,000mt of pork on Sept 18.

Live cattle futures are expected mixed in limited trade early Wednesday morning. The ability for December futures to hold price levels above $111 will continue to limit widespread price pressure during the week, although traders appear to be taking a short- term view of the market during mid-September, which will put more emphasis on cash values and the daily movement in wholesale beef prices. Monday's cattle trade was higher, Tuesday's trade was mostly lower and now both packers and feeders sit around waiting for the rest of the week, keenly watching the board to see how it will influence this week's cash cattle trade. October live cattle closed $0.22 higher at $107.10, December live cattle closed $0.12 lower at $111.57 and February live cattle closed $0.32 higher at $116.02. The battle this week falls into the hands of the cash market. Feeders want to regain some of the leverage they've lost over the last couple of weeks and would like to see the market $1.00 to $2.00 higher. Packers obviously want the complete opposite. With boxed beef prices falling, packers hope to see prices steady at best this week. There's rumor that two major packers don't have Saturday kills planned. If this is true, feeders' ability to move the market higher is slim. If it's not true, and just a scare tactic, then waiting this week out and pushing trade later could better serve feeders once again. Tuesday's slaughter is estimated at 120,000 head, 2,000 head more than a week ago and steady with a year ago. Boxed beef prices were lower, with choice down $1.12 ($216.09) and select down $1.48 ($206.28) with a movement of 159 loads. Cash is called steady. Thus far there's been no cash cattle trade shifting the week's business to the latter half and potentially very tail end of the week. Tuesday's pull back leaves cattlemen wondering if the market simply took the day to rest before igniting stronger trade come Wednesday or if the upward momentum has run its course. September feeders closed $0.17 higher at $141.67, October feeders closed $1.10 higher at $143.70 and November feeders closed $0.92 higher at $144.12.

8

With typical German efficiency, measures to combat African swine fever (ASF) are being consistently implemented in the state of Brandenburg, Germany. On September 10th the outbreak of the notifiable animal disease African swine fever in a wild boar found dead was officially established in the Sembten district in the Spree-Neisse district. The infected carcass is a 2 to 3-year-old brook in a badly decayed state, which was found on a harvested corn field at a distance of about seven kilometers from the German-Polish border in the immediate vicinity of the district border with Oder-Spree. Based on the state of the carcass, an initial assessment suggests that the carcass remained at the site for two to four weeks, according to the Ministry of Social Affairs, Health, Integration and Consumer Protection of the State of Brandenburg. After farmers and hunters were informed of the situation, the core zone, including a radius of at least three kilometers around the location where the first infected wild boar carcass was found, was completely fenced in with an electric fence on Saturday. Then, a targeted search for further dead wild boars intensified. Simultaneously, the hunting of wild boar has also significantly intensified. The districts of Spree-Neisse, Oder-Spree and Dahme- Spreewald affected by the endangered area have published their general animal disease directives with all the necessary measures. At the same time, the state government is in close contact with farmers and pig keepers, who fear the serious economic consequences from the ASF outbreak.

“We are only at the beginning of the ASF outbreak. The response was immediate and comprehensive," said Consumer Protection Minister Ursula Nonnemacher said after a cabinet meeting. "We must continue to proceed prudently." The plan is to implement a targeted and systematic fall game search. If more infected wild boars are found around the provisionally established core zone, it will be enlarged accordingly. "In this phase, we must avoid anything that unnecessarily scares wild boars. Above all, this includes harvesting and hunting," said Nonnemacher. "Only when we know the actual extent of the infection can we secure the core zone with a solid fence so that we can then begin intensive hunting. The measures ordered are painful for many farmers in the affected region. But they are necessary to fight the ASF in a reasonable amount of time." Agriculture Minister Axel Vogel said once the fence has been built, the state forestry team will be intensively supporting the fall game search, using drones and search dogs. Working together with the Ministry of Consumer Protection, they are in close contact with the agricultural associations, farmers that keep animals in the area and those acutely affected by the harvest stop. They are also speaking to slaughterhouses and meat processing companies to keep sales channels open for local Brandenburg companies.

Weather: There is a cutoff trough in the Eastern Pacific, a ridge in the Rockies, a trough through much of Canada, and a few tropical systems in the Atlantic. The ridge is becoming suppressed by the Canadian trough. The trough is unlikely to move deep into

9

the U.S. but will scrape through the Great Lakes and Northeast late this week and weekend. The cutoff trough will move through the western half of the country this weekend with a flatter pattern for early next week. A ridge may start to build in the Rockies late next week. Hurricane Sally is currently making landfall in Alabama. For the outlook period, temperatures on Monday will be near to above normal in the West and Central and below normal in the East. Temperatures should gradually rise through the period. A system moving across the north may produce some shower activity in the Upper Midwest and another may do the same in the middle of next week, but very little precipitation is expected in the extended period.

Things were dry across the Midwest yesterday. Dry weather looks to dominate the majority of the region through the week ahead. A few showers still look to pop across western MN and western IA by Thursday night and early Friday. Totals with that look to be less than .30”, with spotty coverage. The 6-10 day forecast sees the dry weather to continue through the weekend and then a front to bring totals of generally less than .35” to most of MN, WI and the northern 1/3rd of IA and IL by around Tuesday of next week. Little to no rains are seen for the rest of the region in this time frame. The 11-16 day outlook sees a fairly west to east flow aloft to produce below average rainfall and average to above average temps across the Midwest. No cold air threats are seen. Temps in the next 10 days will run below average in most of the region, but with no cold air threats. Dry weather dominated the central/southern Plains region yesterday. Dry weather looks to dominate the majority of the region for the week ahead, with some rains of generally less than .35” possible in the eastern 1/3rd of TX. The 6-10 day forecast also sees little to no rains to fall in most of the region. Temps will run below average this week, with most areas to warm to above average in the 6-10 day period. Rains of less than .25” fell across southeast LA and southeast AR yesterday, with dry weather in the rest of the Delta. The remnants of Sally will pass east of the region in the next 2 days, bringing very heavy rains to MS, northern GA and into the far western sections of the Carolinas. Totals in the growing regions of the Delta look to be generally less than .25”, with fairly widespread coverage. The 6-10 day forecast sees things to be mainly dry across most of the region.

North American Weather Highlights: Dryness in the northern Plains over the next few days will benefit remaining spring wheat as well as early corn harvests. Drier weather in the central/southern Plains is expected for much of the next week, though showers will pop up in the southeast due to an increase of moisture from Hurricane Sally. Shower activity will continue to benefit winter wheat planting, though overall soil moisture is adequate to surplus for much of the winter wheat areas. The Midwest region will be mostly dry through the weekend, benefiting harvest activities. Drought relief occurred last week but dryness over the next week could reduce soil moisture for winter wheat

10

planting. Hurricane Sally will remain east of the Delta. Dryness is expected over the next week, benefiting maturing crops and harvest activity. Heavy rain continues in the Southeast as Hurricane Sally moves through the region through Friday. This may cause significant damage to mature cotton due to heavy rainfall and flooding and also some wind damage in Alabama. Mostly dry conditions are expected in the Canadian Prairies for the majority of the next week, benefiting harvest.

Global Weather Highlights: Scattered showers in Brazil continue to fall over southern areas through Friday, benefiting corn planting and reproductive to filling wheat. Some showers are expected over central Brazil next week but may not be particularly substantial for soybean planting just yet. Scattered showers in Argentina continue to fall over the north, boosting soil moisture for developing wheat. But drought still remains across much of the central and southern portions of the country. A couple of disturbances will move through the country this week, but showers will be limited again to northern areas. Little to no precipitation occurred in Europe over the last several days. Only some localized areas of rainfall are expected this week, though a slow-moving storm may produce more widespread showers over the weekend in the west. Overall, conditions are beneficial for harvest of summer crops and winter grain planting. Little to no precipitation fell over the weekend in the Black Sea region and only scattered lighter showers are expected late this week. This will favor harvest activities. Soil moisture continues to be well below normal, delaying winter wheat planting. In Australia, Queensland is falling short on rainfall to start the spring and could use more. Very little rainfall activity is expected over the next couple of days, though there may be a more promising shot this coming weekend and another early next week for developing to reproductive wheat and rapeseed. Three typhoons moved through northeast China recently, causing widespread flooding and wind damage to filling corn and soybeans in the region. Periods of showers are expected for most areas into the weekend, with some heavy rain potential in the Yangtze River Valley. Overall, favorable conditions are found in the south for rice and sugarcane and in the North China Plain for winter wheat and rapeseed planting. Monsoon moisture in India will continue to withdraw from northwest to southeast over the next 4 weeks. Still, the showers can be counted on for late-season fill. The outbreak of locusts has started to become contained as swarms migrate westward and control measures are reported to be working. Extensive damage has still been reported for all crops in the region, however.

Macros: The macro markets are supportive as of 8:30am EDT, with Dow futures up 0.3%, the U.S. dollar index is down 0.2%, crude oil is up 2.0% and gold is unchanged. The S&P 500 on Monday closed 0.52% higher, the DJIA gained 0.01% and the Nasdaq 100 gained 1.43%. Bullish factors included signs of strength in China's economy that is positive for global growth after China's Aug industrial production rose 5.6%, stronger

11

than expectations of 5.1% and the fastest pace of increase in 8 months, and strength in energy stocks after crude oil prices rose more than 2% to a 1-week high. The Fed has so far been successful in convincing the markets that it will keep interest rates near zero for a long time into the future. The Fed bolstered market expectations for unchanged rates when Fed Chair Powell recently announced at the Jackson Hole virtual conference that the FOMC, as part of its long-term structural policy review, adopted an average inflation target. The new inflation targeting regime means that the FOMC will specifically encourage the inflation rate to move above 2% when inflation has been below the target for an extended period, thus producing a long-term average inflation rate that is closer to the 2% target. Inflation has persistently undershot the Fed's inflation target with the core PCE deflator averaging only +1.6% since the Fed set its +2% inflation target in 2012. The fact that the FOMC has adopted an average inflation target means that the FOMC has essentially pledged to keep rates extremely low until the inflation rate is well on its way above 2%, which could be a matter of years. The markets today are waiting to hear from Fed Chair Powell about exactly how the Fed's new average inflation target will translate into near-term policy action. The markets are waiting for the Fed to provide more specific guidance on the parameters for when the Fed might start raising rates or curbing its QE program. The markets are expecting the FOMC to eventually provide some quantitative guidance such as saying that rates will remain low until the unemployment rate falls below some threshold and inflation is on its way above the +2% target. The FOMC could provide that guidance as soon as today, but the consensus is that the FOMC will wait until later in the year or early next year when the Fed has a better idea of when the pandemic might end with an effective and widely-available vaccine, and when the economy might start to return to normal. The FOMC today is not expected to announce any changes to its $120 billion per month QE program. The Fed has boosted its balance sheet by $2.85 trillion (+69%) to $7.01 trillion from the pre-pandemic level in February of $4.16 trillion. The Fed's balance sheet has ballooned to 32.5% of GDP from just 19.3% of GDP before the pandemic.

World markets were mixed ahead of the Federal Reserve's policy announcement on Wednesday while U.S. futures edged higher. Benchmarks rose modestly in Frankfurt and Tokyo but slipped in London and Hong Kong. Investors are awaiting the outcome of the U.S. Federal Reserve policy meeting later Wednesday. It is expected to keep the benchmark rate at nearly zero for some time to help the economy recover from the pandemic downturn. The U.S. central bank's statement might change some of the language around its existing pledge to buy bonds to support markets, economists say. Japan's central bank has begun a policy meeting that will wrap up Thursday but also is not expected to result in any major changes. Germany's DAX was less than 0.1% higher at 13,223.43 while the CAC 40 in France was flat, at 5,067.95. The FTSE 100 in Britain edged 0.1% lower to 6,101.31. The futures for the S&P 500 and for the Dow industrials

12

both gained 0.2%. Japan's long-serving prime minister, Shinzo Abe, resigned as of Wednesday and was replaced by his chief cabinet secretary, Yoshihide Suga. Suga has said he intends to push ahead with Abe's policies and little change is expected for the world's third-largest economy. Tokyo's Nikkei 225 edged 0.1% higher to 23,475.53 while the Hang Seng in Hong Kong was almost unchanged at 24,725.63. South Korea's Kospi gave up 0.3% to 2,435.92 and the S&P/ASX 200 in Sydney jumped 1% to 5,956.10. The Shanghai Composite index slipped 0.4% to 3,283.92. India's Sensex edged 0.4% higher to 39,182.12 even as the number of the country's confirmed coronavirus cases jumped to nearly 5 million, second only to the U.S. case count of 6.6 million, according to a tally by Johns Hopkins University. The actual number of cases is thought to be much higher.

On Tuesday, the S&P 500 rose 0.5% to 3,401.20 after gaining more than 1% earlier in the session, its second straight sizable gain following the benchmark' index's worst week since June. Big Tech stocks have been bouncing back this week after suddenly losing altitude earlier this month amid worries that their prices had climbed too high. Analysts expect more volatility for stocks in the months ahead as the market navigates uncertainty over the outcome of the election, pessimism that Democrats and Republicans in Washington will be able to reach a deal to send more aid to unemployed workers and an economy still struggling amid the pandemic. Treasury yields were relatively steady. The yield on the 10-year Treasury was unchanged at 0.67%. In other trading, U.S. benchmark crude oil rose 87 cents to $38.15 per barrel in electronic trading on the New York Mercantile Exchange. It surged $1.02 on Tuesday to $38.28 per barrel. Brent crude, the international standard, picked up 82 cents to $41.35 per barrel. The dollar fell to 105.21 Japanese yen from 105.43 yen late Tuesday. The euro climbed to $1.1865 from $1.1848.

Summary: Corn futures began Tuesday weak and once wheat and soybeans began to falter corn set back even more. After a $.51 rally from the lows in early August, the corn market had become overextended. In the past four weeks managed money funds went from a net short near 200,000 contracts to a net long estimated to be close to 60,000 contracts to begin Tuesday. You have to keep feeding the bull and apparently the latest flash sale to unknown destinations announced by USDA yesterday of 4.7mb failed to feed it enough. Corn conditions, as is typically the case, dropped again, but only by 1 percentage point to 60% good to excellent, with poor or very poor rising to 15%. North Dakota fell by six points, presumably the result of some freeze damage. Corn is now 41% mature compared to an average of 32%. The forecast for the next two weeks for the central U.S. is mostly warm and dry and certainly conducive to harvest expansion. There are rumors that China could import from 20-30mmt of corn this year. So far the U.S. has sold close to 9mmt (354mb) to them. However, the funds are long and took

13

profits on Tuesday and harvest is straight ahead. The next level of support on a sustained break on December corn is down at $3.60 and then at $3.45.

For only the second time in the last 16 days, soybeans closed lower, down $.08 and nearly $.18 below the Monday high. Soybeans began very firm in the overnight with the rally since early August extending over $1.40 per bushel. But the market had become overbought and the speculative position had grown very large. Also pressuring beans on Tuesday was the August National Oilseeds Processors Association (NOPA) soybean crush, which at 165mb was a 9-month low and well below expectations. Funds had run their net-long position in soybeans to an estimated 200,000 contracts to begin Tuesday. When coupled with the soy oil and meal long, funds' net soy-complex long now sits at near 325,000 contracts. On the bullish demand side, China and unknown (often China) returned once again to buy a combined 9.9mb, adding to an already record-large new- crop sales book. Soybean conditions, as expected, fell again by 2% with that portion of the crop rated good to excellent now at 63%. North Dakota no doubt had a big part in that, falling 11% in one week, partly due to freeze damage. Soybean harvest should have an open window for the next few weeks and traders still expect a record yield and a very large crop. On November beans, the next level of support looks like $9.70 to $9.80.

All three wheat futures markets finished down hard Tuesday. Paris milling wheat futures also plunged Tuesday. Last Friday's WASDE report, for the third consecutive year, pegged world ending stocks at a new record-large total. That ending stocks number of 319.4mmt could end up going even higher as it seems WASDE is underestimating Russian production. WASDE has Russia at 78mmt compared to consultant SovEcon who has the Russian crop at 83.6mmt. Despite the fact that U.S. wheat is overpriced compared to the competition, U.S. wheat inspections remain 6% higher than a year ago. Several tenders are around on wheat, with South Korea, Pakistan, Turkey and Ethiopia all announcing tenders, following Saudi Arabia's purchase of 745,000mt over the weekend. Spring wheat harvest in the U.S. is wrapping up with 92% of the harvest complete. Good rain coverage in the southern Plains has created good conditions for planting over the next few weeks. Winter wheat planting is slightly above the average pace at 10% planted thus far.

A/C Trading Co. does not accept orders to buy or sell by e-mail, 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. 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

14

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.

15