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

1. Jaime Nolan Miralles
Senior Commodity Risk Manager
INTLFCStone Ltd.
PANNONIA ETHANOL – INNOVATION DAY
2015
International Assets Holding Corporation | www.intlassets.com

2. Hungarian Corn
Corn yield and 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

3. Ethanol Sector providing leading 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

4. Just under 50% of output moves to
export market
54% of output moves to export market
EXPORT
MARKET –
KEY
PRICE
DRIVER

5. Danube market trades into N EU and
Constanza
Constanza trades off Odessa/Ukraine
Ukraine trades off US and South American
corn market…chasing demand
PHYSICAL
GLOBAL
CORN
PRICE

6. Matif correlation
with Hungarian
maize of 96%
What happens on Matif impacts our
local Hungarian maize price
HUNGARIA
N MAIZE
VS.
MATIF
CORN

7. Correlation with Matif Wheat of almost 90%
As Hungarian ethanol/feed & export grow
So too will this relationship between both
markets
HUNGARIA
N WHEAT
VS.
CHICAGO
WHEAT

8. 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?

9. Wheat is in hands of leading exporters!
Second largest wheat production in last ten years
WHY ARE
WHEAT
PRICES
LOW…
AGAIN?

10. USDA EU wheat balance 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?

11. Third consecutive Bumper year for Global corn production
But EU maize output falls sharply – Divergence from global market
MAIZE
STORY –
A LITTLE
DIFFEREN
T

12. In fact EU wheat, barley and maize production will be down 22MMT
v last season (but third largest after 2014 and 2008)
MAIZE
STORY –
PERSPECT
IVE

13. But with recent share prices
collapse and slowing growth
how sustainable is this
demand?
MAIZE –
INSATIAB
LE
CHINESE
DEMAND

14. Despite heavy supply values remain supported
Weak Euro leaves EU trading lower
Into international market
WHEAT –
THE FX
DRIVER
IN PRICE

15. MAIZE –
THE FX
DRIVER
IN PRICE

16. Will growers plant? Europe – 2016 futures price of
€184, above average: Probably
WHAT CAN
BRING
BACK
BETTER
PRICES?

17. 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?

18. When prices are low
When prices are high
SO WHAT
TO DO?
WHERE TO
FROM
HERE?

19. Work with your partners 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?

20. BUILDING
SUSTAINA
BLE
GROWTH &
SECURITY