Joe Harroun - Advance Trading

1. Global Economic Outlook for Ethanol Producers
Joe Harroun
Advance Trading, Inc (ATI)

2. Advance Trading, Inc
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Started in 1980, employee owned S Corporation
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Experts in the industry to provide advisory and execution services to agribusiness worldwide.
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Well established, profitable firm, low turnover
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Top quality personnel with an industry leading proven track record
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Branch office network spans U.S. Cornbelt
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Main office in Bloomington IL

3. Crude oil prices collapse. 10 year treasury notes 2.16%, US Dollar very strong… Market is probing levels that shutter inefficient crude oil producers.

4. The breakeven price for every international oil company project through 2020
Source: Ed Morse

5. EIA Short Term Energy Outlook –Supplies outpace Demand The 2015 global demand forecast was also revised downward by 0.2 million bbl/d to an average of 92.3 million bbl/d, based on weaker global economic growth prospects for next year.
Source: EIA

6. Crude Oil WTI Seasonal Chart
Source: HDEA Analytics

7. Crude Oil Brent Seasonal Chart
Source: HDEA Analytics

8. ULSD Heating Oil Seasonal Chart
Source: HDEA Analytics

9. Gasoline Seasonal Chart
Source: HDEA Analytics

10. Chicago Ethanol ITT Seasonal Chart
Source: Platts
Many will say this simply reflects tightness in front month ethanol for Chicago, yest traded $2.08/g ITT Argo, while CBOB was pegged at $1.53/g, diff $.55/g

11. Corn Seasonal Chart
Source: CME Group

12. Ethanol close to RBOB Q1 ’15, by driving season more normal, reflective nearby Chicago strength in ethanol
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$ / gallon
RBOB - Ethanol (CU)

13. Global Factors Impacting Ethanol Mfg
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Price relationships
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Blend economics worldwide
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Economic health of key trade partners
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Renewable fuel policies globally
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Co-product demand
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Feedstock supplies

14. Midwest Corn Gross Cash Crush Ethanol Seasonal
.48
.44
.27
.81
1.08
Anyone can operate a plant. We make it or lose it by buying , selling and converting better than the competition. A plant is a thing we must put up with as an operating base for exercising our procurement, trading and merchandising skills. Economics of Futures Trading, Thomas A Hieronymus, 1971

15. Chicago In Tank Ethanol Price 12 year average Hi to Low $1.22/g
1.04 1.40 1.77 2.06 2.29 2.62 1.84 2.21 2.89 3.03 2.92 2.85 RBOB
31 41 57 66 72 99 62 79 95 94 98 95 WTI
Source: Platts, CME Group

16. Chicago In Tank Seasonal Average Monthly Price & Variation 2003-2014
0
10
20
30
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50
60
70
80
185
190
195
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205
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215
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Standard Deviation
Average
Source: Platts

17. Record high Q3 ‘14 Earning Highlights
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REX 12/4/14 record third-quarter net income of $23.3 million
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We have not sold out all of our ethanol in the future markets and can take advantage of more favorable spot or index pricing,"
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"We have no long-term hedges out there; everything is either spot or index pricing. Most people in the industry, I imagine, are on index or spot pricing because ... there is no real market to hedge if you look at the futures market,“
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ANDE 11/6/14 Ethanol Group net income for the quarter was $21.3 million, up from $10.9 million LY
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Looking ahead, CFO John Granato told analysts on a conference call that the company has hedged 85% of its anticipated fourth-quarter production and almost half of its anticipated January production. However, those hedges are not locking in the extraordinary profits enjoyed in ethanol and DDGS at times in the last year.
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GPRE 10/29/14 Third-quarter 2014 EBITDA $91.4 million, compared with $37.4 million same period in 2013.
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As Becker explained on a conference call with analysts on Wednesday, for the fourth quarter of this year, the company is approximately 65% hedged as of today, with approximately 50% open for the remainder of November and December.
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"We locked margins away before the current correction, but we are starting to see those margins recover quite nicely and believe the rest of the quarter has excellent market fundamentals to build on," he said.

18. Chicago In Tank Seasonal Average Monthly Price 2003-2014, ’15 paper
100
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300
350
Jan
Feb
Mar
Apr
May
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July
Aug
Sep
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Nov
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2015 Chi Platts
LT Low
LT average Cash Chi
ST MIN 2010-2014
ST MAX 2010-2014
ST Average 2010-2014
2004
Source: Platts, CME Group
LT=Long Term, 14y
ST= Short Term, 5y

19. US Ethanol Fundamentals
So if Run-rate expectations of 957kbpd Q1 ’15 are realized AND
exports verify at 58 kbpd Q1 ’15, then Inventory builds to 21-22 mln bbls Q1
How might we avoid that build ???
To hold stocks at 18 mln bbls in Q1, presuming stronger NI & limited imports
Q1 Run-rates at 927 vs. 909kbpd LY would do it
Or
Q1 Exports at 88kbpd vs. 64kbpd LY would do it
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After Q1 US driving season and exports may help keep inventories in check

20. Cash gasoline & ethanol Chicago
Source: Reuters/Eikon

21. Keeping tabs on US ethanol imports Spike in US ethanol in Nov sparked fuel imports, above and beyond the nominal flow of imports devoted to re- exported products, < 100 mgy imports expected

22. 286, 44%
78, 12%
68, 11%
52, 8%
26, 4%
23, 4%
19, 3%
16, 2%
14, 2%
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14, 2%
13, 2%
9, 1%
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3, 1%
3
3
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Canada
Brazil
United Arab Em
Philippines
Korea
Mexico
Spain
Netherlands
Jamaica
Tunisia
India
Peru
Singapore
Finland
Nigeria
China
Colombia
Panama
Israel
January – October 2014, US Ethanol Exports , Mln G, % ttl
Source: U.S. Census

23. January – October 2014, US Ethanol Exports , Mln G
Source: U.S. Census
2014JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecemberCanada19,275,52217,120,88028,333,95648,379,08630,497,88034,006,05633,393,82232,249,70028,440,84622,966,650294,664,398Brazil23,941,80612,963,88813,906,6209,357,5585,232,822011,594,6880766,62677,764,008UAE12,357,4086,902,6587,988,90403,891,5525,016,6068,241,4085,046,6782,558,76616,336,23668,340,216Philippines5,452,02008,684,0042,728,3202,715,4262,662,04405,265,8347,899,19216,254,08451,660,924EU484,84813,947,6962,486,508429,1982,960,7065,632,4946,360,942235,5368,934,9121,429,76442,902,604South Korea1,370,8383,760,3864,097,6043,109,1764,713,2822,839,78849,5182,714,9641,066,7586,860,28030,582,594Mexico3,365,1242,172,3662,184,546578,8862,119,9085,872,9023,503,8922,383,2482,434,6143,948,75628,564,242Jamaica2,554,4822,562,0004,156,27825,36817,3462,504,62835,0702,610,80414,465,976Tunisia2,770,53000011,268,01214,038,542Peru2,112,9783,286,9202,091,5583,243,5762,049,516012,784,548Spain4,310,5444,726,3443,347,98812,384,876India10,725,5825,54433,97811,21412,55810,788,876Nigeria3,172,00803,415,98603,602,21410,190,208Netherlands5,344,6681,277,6826,622,350China3,304,2663,304,266Colombia1,018,9621,018,0381,010,646041,4123,089,058Singapore1,028,874247,0021,275,8762014 Total gal86,489,13062,566,43479,585,95066,710,36455,446,46864,894,57867,905,68454,802,44063,667,42281,355,09285,680,00078,120,000847,223,562bpd67,96349,16462,53852,42143,56950,99453,36043,06350,02963,92867,32761,386
If we get strong exports as expected in Nov-Dec, annual exports look to be 850 mln g
The concern in the trade is the customers without mandates e.g. UAE, South Korea,
Mexico, Tunisia, Nigeria, China will buy on energy and relative octane value to substitutes
Like Akylate, MTBE, and others

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Canada
Brazil
United Arab Em
Philipines
GDP YoY change for Key Ethanol Importers Reasonable
Source: World Bank

25. 0
500
1,000
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K Bbl/day (Canada)
K Bbl/day (US)
Crude Oil Consumption
Canada
U.S.
Real per capita GDP projected to grow 1.2 and 1.6% for Canada and US respectively leading to potential increased energy use next year of about 1.3%. If the 35% reduction in crude oil holds, this could double growth rates based on GDP alone
Source: World Bank, ATI

26. Source: World Bank, ATI

27. As a basic input to many industries, Copper prices are not indicative of strong economic activity

28. China Crush Margins despite record soybean imports are not on fire

29. Source: The Economist

30. Canada #1 US ethanol market
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Actual ethanol blend exceed 5% federal mandate because of positive blend economics since 2011
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Federal ethanol mandate requires only 528 mln g ethanol
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2014 estimated consumption 821 mln g ethanol
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2014 production capacity 461 mln g from corn & wheat feedstocks
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2014 imports projected 365 mln g
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If blend economics turn negative, will demand revert to 5% federal mandate?
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Big focus on advance renewable fuel from indigenous Canadian industries
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Canadian Ethanol Blend Rate
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Due to NAFTA no tariff on US ethanol, while Brazil has a 5c/liter tariff

31. World Renewable Fuel Stakeholder
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Brazil - Sugarcane and soon corn ethanol producer
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While Brazil’s sugar/ethanol industry profits are limited, the fact remains that October 2014 Center / South inventories are 66.5 mln bbls, up from 52.0 mln bbls LY.
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Sugar mills can shift 10% between sugar and ethanol, this allowed Brazil to build huge inventories despite a short crop of sugarcane
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70% of Brazil’s power comes from Hydro, electricity prices vary widely, due to drought $.3/KW-Hr, therefore Begasse (cane residue left after sucrose extraction is valuable. Begasse powers the entire plant and puts power back on the grid

32. World Renewable Fuel Stakeholder

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Total BRAZIL Sugar cane Production
10% grown in north east – Sep – March 90% grown in center/south – April - November

34. Brazil – Renewable fuel policies
Dilma reelection means a few bones thrown to sugar/eth
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Blend rate changes from 25 to 27.5% by May 1, 2015, raising demand approx 1.1 Bln liters/291 mln g or 6.9 mln bbls or 1.84 mln mt of VHP sugar.
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CIDE Taxes may be reinstated. These taxes would impact gasoline, which if confirmed may help the domestic hydrous ethanol demand slightly
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No changes expected in ICMS taxes which complicate the movement of ethanol between states and limit moves to the 3 wholesalers that run 80% of the 40 B gal gasoline market in Brazil, of which about 6B is ethanol, 50/50 hydrous/anhydrous
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Investments in 2nd generation and corn etoh just starting
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Weak currency aides exports

35. Cane Harvester
Source: AT Educational Excursion September 2014

36. Cane Harvester
Source: AT Educational Excursion September 2014

37. Cane transportation
Source: AT Educational Excursion September 2014

38. Transportation Equipment
Source: AT Educational Excursion September 2014

39. Asian Ethanol Policies Key to US Ethanol Exports
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The Philippines
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Gasoline use 1.2Bgy
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@10% = 120 mgy
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Domestic production 46mgy
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Imports 77 mgy
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Weather / Typhoon impacts
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Thailand
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Gas demand 2.2 Bgy
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@13.4% = 300 mgy
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molasses 55%, Cassava 30%, 15% sugarcane
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Zero imports of ethanol
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Growth in E20 and E85 may limit exports
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Exports: 2009 4mgy, 2010 12, 2011 44, 2012 80, 2013 17 mgy Philippine Ethanol Imports Mln gCountry of OriginJan - Oct2011201220132014USA1522052Brazil0012Subic Freeport182513Thailand62310Vietnam327Australia075Indonesia102Singapore561Korea1011Others009Totals576679

40. U.S. - Renewable Fuel Policies
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Status quo – limited to no growth policies
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Obligated parties yet to turn in 2013 RINS
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Obligated parties yet to know RVO for 2014 maybe buy April 2015?
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Obligated parties continue to buy cellulosic waiver credits in lieu of buying cellulosic because the cost 25c/rin g plus inflation since 2008, and if cellulosic mandates are revised lower obligated parties are refunded full value of waiver credits… this kill’s commercial activity dependent on cellulosic (D3) rins.

41. 36%
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Quarterly Producer Corn Sales
SON
DJF
MAM
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Producer Marketing Corn History 2015 suggests slow start, and cash basis has been firm suggesting we may seem a merchandising 101 axiom to create movement 1) basis rallies, 2) futures spreads firm or narrow 3) flat price rallies – we are not far from $4.00 cash corn today

42. Corn Supply & Demand

43. Disclaimer
This material is a solicitation to enter into a derivatives transaction. The information and data contained herein have been obtained from sources believed to be reliable but Advance Trading Inc. ("Advance") does not warrant their accuracy or completeness. Recommendations and opinions contained herein reflect the judgment of Advance as of the date hereof, are subject to change, and are based on certain assumptions, only some of which are noted herein. Different assumptions could yield substantially different results. You are cautioned that there is no universally accepted method for analyzing financial instruments. Advance does not guarantee any results and there is no guarantee as to the liquidity of the instruments involved in our analysis. Advance, its affiliates, and its and their officers, directors, and employees may sell or purchase, for their own account or for customers, positions in futures, options or other instruments which may be similar or different from the positions referred to herein. As a matter of policy, Advance does not give tax, accounting, regulatory or legal advice to clients. Clients therefore should consult their own advisors regarding the tax, accounting and legal implications of the recommended strategies before transactions are affected. Trading commodity futures and options involves significant risk and is not appropriate for all investors. Information relating to past performance is not necessarily indicative of future results. Reproduction in any form without Advance's express written consent is strictly forbidden.

44. All Wheat Supply & Demand

45. Soybean Supply & Demand