Tennessee

Crop Marketing Comments: Chuck Danehower - U.T. Extension (6/30/10)
Special Report: Acreage Report

USDA released the June 30 Acreage Report and Quarterly Grain Stocks Report today. Both of
these reports are based on conditions as of June 1.The acreage report has been called bullish for
corn, bearish to neutral for cotton, soybeans, and wheat. This report contained at least one major
surprise or deviation from what the trade was expecting as corn acres were below the average
trade guess, below even the lowest estimate and below the March intentions. The increase in
cotton acreage was expected, but while within the range of guesses it was slightly higher than the
average guess. Soybeans were within the range of guesses, but on the high side. Wheat acreage
was about expected. There were surprises all around in the Quarterly Grains Stocks Report as it
is called bullish for corn and soybeans and bearish for wheat. Based on the stocks report, it is
expected that the July USDA Supply & Demand report will reflect decreased carryovers for corn
and soybeans and increased wheat ending stocks. Corn ending stocks could be decreased as
much as 300 million bushels leaving ending stocks at 1.3 billion bushels. Soybean stocks were
23 million bushels lower than expected and have some analysts looking for ending stocks to
approach 100 million bushels. I would not look for USDA to lower ending stocks that
dramatically, but we could see a 20 -30 million bushel reduction. Wheat stocks ended their
marketing year at 973 million bushels, 43 million bushels higher than reported in June’s USDA
Supply & Demand report. Increased stocks are negative for wheat, but wheat to some extent will
trade along with corn rather than its dismal fundamentals. The tables below summarize the
Acreage report in the U.S. and Tennessee and the Quarterly Grain Stocks report.

U.S. Tennessee

1,000 Acres 1,000 Acres

Corn 2010 2010 Change 2009 Change 2010 2010 Change 2009 Change
Cotton 6/30/10 3/31/10 6/30/10 3/31/10
Soybeans 87,872 88,798 -926 86,482 +1,390 -30 670 +10
Wheat 10.909 10,505 +404 9,149.2 +1,759.8 680 710 +20 300 +100
78,868 78,098 +770 77,451 +1,417 400 380 +20 1,570 -120
54,305 53,827 +478 59,133 -4,828 1,450 1,430 -10 430 -150
280 290

Quarterly Grain Stocks ( 1,000 bushels)

2010 2009/10

June 1 June 1 September 1 December 1 March 1
7,693,940
Corn 4,310,044 4,261,427 1,673,311 10,902,460 1,270,068
Soybeans 1,356,357
Wheat 571,017 596,159 138,198 2,338,550

973,392 656,505 2,209,338 1,781,691

Like last year except in a different direction, corn acreage was the biggest surprise as at 87.872
million acres, it came in 1.4 million acres below the average trade estimate and 926,000 acres

lower than the March intentions. Typically, higher corn acres are reported in the June report than
in March. With good planting conditions this spring, it was widely anticipated that the acreage
would increase. Some of this decrease could be attributed to rotational needs as well as difficulty
getting corn fertilizer applied late last year and somewhat in early spring. Nationwide, planting
got off to an excellent start and current crop condition ratings put the corn crop at 73% good to
excellent. Although a 2% reduction from last week, the crop is still in very good shape. Biotech
varieties accounted for 86% of the corn planted compared to 85% last year and 80% in 2008.
Tennessee corn acreage is expected to be 10,000 acres greater than in 2009, but 30,000 acre less
than March intentions. Planting conditions were good for corn in April, but some of the
reduction from March could be due to the excessive rains and floods the state suffered in early
May.

Cotton acreage was bearish at 10.909 million acres, up 404,000 acres from the March 31 report,
up 1.8 million acres from 2009 and slightly higher than the average pre report guess. Tennessee
cotton acreage was up 100,000 acres from the March 31 report at 400,000 acres. This compares
to 300,000 acres in 2009. Cotton acreage in Tennessee might have even been higher if conditions
in May had not been so wet. In Tennessee, 98% of the cotton planted is a biotech variety
compared to 97% last year and 93% nationwide. Tennessee growers have planted 82% of the
cotton crop in a stacked gene variety with both insect and herbicide resistant genes. Currently,
nationwide and in Tennessee, cotton has good growing conditions with crop ratings of 62% good
to excellent for the U.S. crop and 80% good to excellent for the Tennessee crop.

Soybean acreage at a record 78.868 million acres came in on the high end of expectations,
685,000 acres above the average trade guess of 78.183 million acres. This was an increase of
770,000 acres from planting intentions and an increase of 1.417 million acres from 2009. Since
this survey was completed, wet conditions in some areas of the Midwest have most likely
trimmed the planted acreage, with some acreage going unplanted. Nationwide, 93% of the
soybean crop was planted in a biotech variety, compared to 91% last year. In Tennessee, soybean
acreage is estimated at 1.45 million acres up 20,000 from the planting intentions and down 120,
000 from 2009. Crop conditions in Tennessee are rated 79% good to excellent compared to 67%
good to excellent nationwide.

All wheat acreage is estimated at 54.305 million acres, down 4.828 million acres from 2009 and
up 478,000 acres from March 31. Tennessee planted wheat acreage was estimated at 280,000
acres a 10,000 reduction from March. Harvested acreage is estimated at 190,000.

The next USDA Supply and Demand report will be released on Friday, July 9 and will update the
fundamental numbers based on the Acreage Report and Quarterly Stocks Reports. It is
anticipated that the Quarterly Stocks Report will result in reduced carryovers for corn and
soybeans and increase carryover for wheat. The supply and demand numbers below will not

reflect the anticipated stocks change, but will look at the effects of yield on ending stocks with
today’s acreage. I have added a line to show what the effects might be in the July 9 report.

Corn ----------Supply/Demand ---------
Beginning Stocks(MB)
2009/10 2010/11
Projected
1673 Bearish Expected Bullish
1603
1603 1603
87.9
Acres (MPA) 86.5 81.0 87.9 87.9
Acres (MHA) 79.6 169.0 81.0 81.0
Yield 164.7 10 163.5 158.0
Imports 10 15303 10 10
Supply(M. Bu) 14793 14853 14412
Use:
Feed 5350 5350 5350 5350
Ethanol 4550 4500 4700 4500
Food, Seed 1340 1290 1360 1290
Exports 1950 2100 2000 2100
Total Use 13190 13410 13410 13410
Ending Stocks 1603 1893 1443 1002
Projected Price $3.55 $3.00-$3.50 $3.75-$4.25 $4.25 -$4.75
Stocks/Use 12.2% 14.1% 10.8% 7.5%

Ending Stocks

With adjustment (-300mb) 1303 1593 1143 702

If USDA adjusts downward by 300 million bushels the ending stocks for this current marketing
year, we could see a carryover of 1.3 billion bushels for 2009/10. This most likely would be a
reflection of lower test weight corn from 2009 and has resulted in either more bushels used in
feed and or ethanol. We would then be starting the next marketing year with just adequate stocks
and become more sensitive to weather. Using trend-line yields of 163.5 bushels in the expected
column would result in a tight carryover of 1.1 billion bushels, again assuming USDA makes a
300 million bushel stock reduction. However, crop conditions are good and yield estimates,
while still early, are being mentioned at 169 bushels per acre. This type of record yield would
bring stocks up to an adequate, but not burdensome 1.593 billion bushels. With projected
demand, it is looking more and more that record production will needed to continue to meet
demand. Corn prices were limit up at one point today and closed at $3.54 bushel for July and
$3.63 bushel for September. Today’s reports should give support to the market and barring
negative non ag influences see the corn market trade sideways to up as the market closely
watches the weather. Fund buying also could offer support and help sustain a rally. Closely
watch for pricing opportunities to either make catch up sales or implement an option strategy. I
am currently 50% forward priced on the crop.

Cotton ----------Supply/Demand ----------

2009/10 2010/11
Expected Bullish
Bearish

Beginning Stocks (MB) 6.34 2.90 2.90 2.90
Acres (MA Planted) 9.15 10.91 10.91 10.91
Acres (MA Harvested) 7.69 10.2 10.2 10.2
Yield (lbs.) 777 875 815 775
Imports 0.01 0.00 0.00 0.00
Supply(MB) 18.53 21.5 20.2 19.4
Use:
Domestic 3.4 3.3 3.3 3.3
Exports 12.25 13.5 13.5 13.5
Ending Stocks (MB) 2.90 4.7 3.4 2.6
Projected Price/lb $0.625 $0.50-$0.60 $0.60-$0.68 $0.68-$0.78
Stocks/Use 18.6% 27.9% 20.3% 15.3%

Cotton acreage of 10.91 million and expected abandonment would most likely result in a
carryover of around 3.4 million bales at an average yield of 815 pounds per acre. If yields were
875 pounds/acre, then we could see carryover at 4.7 million bales. Today’s acreage report was
somewhat bearish and would need to see yields similar to last year to become bullish again.
There is still uncertainty in the production season as concerns are mounting on how the hurricane
season will affect the Delta and Texas. Too much wind and rain at the wrong time would be
disastrous while some rain would be welcome and help make the crop. At this point, I think we
have to assume we will see weakness in the market, at least in the short time until the weather
unfolds. December 10 cotton closed at 76.38 cents/lb, down 1.75 cents. I would currently be
20% forward priced, with that amount covered by buying call options. I would also implement
an option strategy on another 20% of the crop by buying a 76 cent December Put Option costing
3.95 cents and setting a 72.05 cent futures floor. This will give protection on the downside, but
still allow an upside should yields be below average and prices go up. This is the basic option
strategy, others are available. Producers should have an understanding of the strategies they put
in place.

Soybeans 2009/10 ----------Supply/Demand ----------
2010/11
Beginning Stocks(MB) Projected
Acres (MAP) 138 Bearish Expected Bullish
Acres (MAH) 77.5 185 185 185
Yield 76.4 78.9 78.9 78.9
Imports 44.0 78.0 78.0 78.0
Supply(M. Bu) 15 44.5 42.9 41.3
Use: 3512 10 10 10
Crushing 3665 3541 3416
Exports 1740
Seed, Feed 1455 1640 1640 1640
Total Use 133
Ending Stocks 3328 1350 1350 1350
Projected Price 185 154 154 154
Stocks/Use $9.50
Ending Stocks 5.6% 3144 3144 3144
With adjustment (-25mb) 521 397 272
160
$6.50- $7.50 $7.75-$8.75 $8.50 - $9.50
16.6% 12.6% 8.6%

496 372 247

Today’s acreage report for soybeans was considered bearish, but the stocks report was bullish.
The stocks report was 20 – 30 million bushels lower than expected and reflects better demand
than earlier estimated. The market closed today mixed with July up 1 cent at $9.48 and
November down 9.5 cents at $9.03. Both months traded considerably higher during the day.
Soybean acreage of 78.9 million planted acres at an average yield of 42.9 bushels per acre and
projected demand would create an ending stock of 397 million bushels. If USDA does adjust
stocks as reflected in the quarterly stocks report, then ending stocks would be 372 million
bushels. This would be more than adequate and would reflect prices in a $7.75 - $8.75 range.
However, there a couple of unknowns that bears watching related to soybeans. One is the
weather as some forecasts call for dry conditions in late summer. The timing will have a bearing
on whether soybean yields will be affected. A drop of a bushel or two from current projections
would drop ending stocks back to the 200 – 250 million bushel range. The second unknown is
whether demand will continue to set records. It is assumed that with the large South American
crop, exports will drop 105 million bushels from the 2009/10 marketing year. The crush is also
forecast to drop 100 million bushels. I don’t know that we have seen strong evidence just yet that
those numbers will drop that much. As it is in most years, the market has potential to go either
way. I would currently be 50% forward priced. I would look at any rallies as an opportunity to
implement an option strategy.

Wheat ----------Supply/Demand ----------

Beginning Stocks(MB) 2009/10 2010/11
Acres (MAP) Projected
Acres (MAH) Bearish Expected Bullish
Yield 657
Imports 59.1 930 930 930
Supply(M. Bu) 49.9
Use: 44.4 54.3 54.3 54.3
Food, Seed 115
Feed, Resid 2988 48.3 48.3 48.3
Exports
Ending Stocks 992 42.4 43.9 42.6
Projected Price 180
Stocks/Use 885 110 110 110
Ending Stocks 930
With adjustment (+43mb) $4.85 3183 3159 3086
45.2%
1016 1016 1016
973 200 200 200
900 900 900
1067 1043 970
$3.75-$4.25 $4.00-$4.50 $4.25-$4.75
50.4% 49.3% 45.9%

1100 1086 1013

The wheat market continues to surprise us as what other market could rally in the face of bearish
reports. Most likely, wheat prices were hanging on tight to corn as July wheat closed up 22.75
cents at $4.65 bushel. September closed at $4.80 bushel and July 2011 was at $5.66 bushel. The
43 million bushel increase in wheat stocks in the Quarterly Stocks report pretty much ensures
that wheat ending stocks in 2010/11 will be projected at over 1 billion bushels. At current
demand levels, wheat will need to see production reduced in 2011 to maintain or increase prices.
Producers planning on raising wheat in 2011 should look closely at current July levels. Any
rallies would be strongly dependent on corn and soybean prices and would be pricing
opportunities for 2011.