Pannonia Ethanol - Innovation Day 2015 Market Outlook & the Hungarian Paradigm

Pannonia Ethanol - Innovation Day 2015 Market Outlook & the Hungarian Paradigm

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  Jaime Nolan Miralles SeniorCommodity Risk Manager INTLFCStone Ltd. PANNONIA ETHANOL – INNOVATION DAY 2015 International Assets Holding Corporation | www.intlassets.com
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  Hungarian Corn Corn yieldand output has been hurt by dryness and heat stress. Output at am estimated 6.5Mmt falls below the ten year average of 7.2Mmt and sharply lower than last years record 9.3Mmt output 4.5mmt 10 year average output 7.2mmt 10 year average output Hungarian Wheat Hungarian wheat output of 5.2mmt is on a par with last years output and is the third largest output the last ten years. 700kt over the 10 year average. What do we store and what do we sell? HUNGARIA N WHEAT & MAIZE SUPPLY
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  Ethanol Sector providingleading role to Hungarian producer Ethanol sector provides demand engine in domestic Hungarian maize market Tighter maize S&D Shifts feed demand to Wheat Creating sustainable demand in Hungary over the next ten years Creating strong & reliable counterparties Key partners in your success HUNGARIA N – DOMESTIC DEMAND
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  Just under 50%of output moves to export market 54% of output moves to export market EXPORT MARKET – KEY PRICE DRIVER
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  Danube market tradesinto N EU and Constanza Constanza trades off Odessa/Ukraine Ukraine trades off US and South American corn market…chasing demand PHYSICAL GLOBAL CORN PRICE
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  Matif correlation with Hungarian maizeof 96% What happens on Matif impacts our local Hungarian maize price HUNGARIA N MAIZE VS. MATIF CORN
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  Correlation with MatifWheat of almost 90% As Hungarian ethanol/feed & export grow So too will this relationship between both markets HUNGARIA N WHEAT VS. CHICAGO WHEAT
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  Heavy EU &Global Supply, weighs on market price EU Corn – tight supply, competes with global abundance as we move into harvest SO WHERE ARE WE TODAY – EU WHEAT?
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  Wheat is inhands of leading exporters! Second largest wheat production in last ten years WHY ARE WHEAT PRICES LOW… AGAIN?
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  USDA EU wheatbalance sheets (mmt) Beginning stocks Production Imports Feed non- feed Total domestic Exports End stocks Stocks:use ratio Alt. 15/16 13.5 154.0 5.5 57.0 69.0 126.0 31.0 16.0 10.2% USDA 15/16 13.0 154.1 6.0 57.0 68.9 125.9 32.5 14.8 9.3% USDA 14/15 9.9 156.5 6.0 54.5 69.4 123.9 35.4 13.0 8.2% 13/14 10.8 144.4 4.0 49.5 67.6 117.1 32.0 10.1 6.8% 12/13 13.8 133.8 5.3 51.0 68.5 119.5 22.6 10.8 7.6% 11/12 12.1 138.2 7.4 57.5 69.7 127.2 16.7 13.8 9.6% 10/11 16.7 136.7 4.6 52.5 70.3 122.8 23.1 12.1 8.3% 09/10 19.5 139.7 5.4 57.0 68.6 125.6 22.3 16.7 11.3% 08/09 12.9 151.9 7.7 60.5 67.1 127.6 25.4 19.5 12.7% 07/08 14.9 120.8 6.8 52.4 64.8 117.2 12.4 12.9 9.9% 06/07 24.0 125.7 5.2 60.2 66.0 126.2 13.9 14.9 10.6% 05/06 28.266 132.9 6.8 63.2 65.0 128.2 15.7 24.0 16.7% Where does history suggest fair value is for EU wheat? WHY ARE WHEAT PRICES LOW… AGAIN?
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  Third consecutive Bumperyear for Global corn production But EU maize output falls sharply – Divergence from global market MAIZE STORY – A LITTLE DIFFEREN T
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  In fact EUwheat, barley and maize production will be down 22MMT v last season (but third largest after 2014 and 2008) MAIZE STORY – PERSPECT IVE
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  But with recentshare prices collapse and slowing growth how sustainable is this demand? MAIZE – INSATIAB LE CHINESE DEMAND
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  Despite heavy supplyvalues remain supported Weak Euro leaves EU trading lower Into international market WHEAT – THE FX DRIVER IN PRICE
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  MAIZE – THE FX DRIVER INPRICE
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  Will growers plant?Europe – 2016 futures price of €184, above average: Probably WHAT CAN BRING BACK BETTER PRICES?
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  Will growers plant? Ukraine/Russia– 2016 futures price at near record highs = Yes Will growers plant? Brazil – 2016 futures price at near record highs = Yes Weakest economies to be engines of supply growth: There are three growers in the world today due to extreme currency values: 1.The grower with cheap inputs receiving low prices (US) 2.The grower with average costs and average prices (EU, Canada)prices 3.The grower with high input costs and high prices (Ukraine, Russia, Brazil, Argentina) WHAT CAN BRING BACK BETTER PRICES?
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  When prices arelow When prices are high SO WHAT TO DO? WHERE TO FROM HERE?
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  Work with yourpartners to create certainty and profitability Remove price volatility & secure margins Forward contract and reduce downside price risk Continue to Innovate and pioneer in grain production Set the benchmark for international market Create quality, quantity, reliability and sustainability Development and investment – key to success HOWDO WE SECURE MARGINS/ INCREASE PROFIT?
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  BUILDING SUSTAINA BLE GROWTH & SECURITY