1. Supply and Demand: Oils and Oilseeds
Ankara, February 23rd, 2017
Stephan Johansen

2. Structure Sunflower seed and oil Rape seed and oil Soybeans and oil
President Trump and political risk

3. Sunflower Trade Flows (16/17)
Argentina to EU trade flow in question
EU-28 c/o with Argy: 575kmt
EU-28 c/o without Argy: 455kmt
New stocks to use: 5%
150 KMT Ukr to EU
50 KMT US to EU
40 KMT Ukr to Turkey
40 KMT Rus to Turkey
120 KMT EU to Turkey
100 KMT PRC to Iran
250 KMT EU to Pakistan
General description of the trade flow
The Argy to EU trade flow at risk, which would bring EU c/o down from 575kmt to 455kmt, this would be a new low of 5% for stocks to use
This is largely a result of last years expensive experiences related to linoleic and oleic acid as well as pesticides. The seed that arrived in 2015 was largely mid-oleic seed, as a result of lacking premium for high-oleic seed. This did not incentivize the farmers to keep the seeds separate throughout the supply chain.
This season (2016), few if any were willing to touch Argy SFS without a substantial price discount. For a moment the seed was converging towards interest levels from Pakistan and Iran.
The seed would be consumed with a discount of roughly 50 USD to Canadian canola, but lacking agreement on terms and a small price gap prevented the trade flow. Pakistan booked Canadian Canola, and the Bsea SFS market weakened, resulting in no reported trades from Argy as of now. Now it is largely to late as the export window closes with the end of March, as the SBS programs kicks off and few will divert capacity to SFS
55 KMT PRC to Egypt
120 KMT Arg to EU ?
40 KMT EU to SAR

4. Global Sunseed Market 2016/17 Production at an all time high
13% YoY increase (4.4mmt)
2016/17 Crush at an all time high at 35.9mmt
13% YoY increase
c/o not increasing significantly
The 2016 production is at a all time high globally for major producers, the increase from 2015 is on 4.4mmt (an incredible increase of 13%)
This is captured in an all time high for crush as well at 35.9mmt
This reflects an increased of 13%, 1 to 1 with production. Pointing at the full absorption of the increased production by the crush demand.
This is reflected in the crush numbers for UKR and RUS. The only months where we will be at a normal phase is Jun/Jul/Aug 2016, all others are way above
As the c/o isn’t increasing noteworthy, it is clear that we are not building stocks on the seed. Either the SFO must have take demand from other oils, or oil stocks must be build
This is clearly what hapened

5. Global Sunoil Market 2016/17 YoY crush +13% YoY SFO exports only +11%
As the SFS crush drastically up, the export surplus for SFO increased simultaneously. Yet it is clear that the export did not keep up with the increased production, as YoY crush increased 13% while the YoY SFO export only went up 11%.
The remaining 2% had to increase the SFO stocks in ports, clearly shown with the increased stocks.
Russia is well over LY and had assumed to peak around May and then decline
Ukraine SFO stocks have been elevated over last year during the whole crop year
Argy stocks were lower than LY, but are now increasing rapidly. The missing EU exports will also be absorbed in here and help keep the stocks ample
2016/17
YoY crush +13%
YoY SFO exports only +11%
SFO exports did not keep up with production, so we must be building stocks in export ports

6. Sunoil Capturing Demand
SFO has been very competitive against SBO
Forward port stocks are expected to decrease
Supply and Demand will balance
Price spread expected to increase
From the price spread between Sunflower oil FOB Bsea and soybean oil FOB Argy one can see that SFO has been very competitive
At this spread demand that can shift, shifts towards SFO consumption
We therefore expect the SFO stocks to decrease going forward, which can be seen in the rapidly decreasing ports stocks going forward
Further we expect the supply and demand to be balanced going forward and the price spread has already started to increase

7. SFS Crush Crush margins are low all over
Ukraine sees negative margins towards the crop year end
Larger ports in the Black Sea did rarely calculate to destination
Range bound market
Russian small port seed captured Turkish demand
Crush margins are limited in UKR, RUS, TUR and FRA. GER is next to nothing. As an example, here are the UKR crush margins going forward towards NC. Towards the end of the season there is even negative margins with current seed price.
The farmers / originators have remained very range bound with their prices against the general weakening of other seeds and the oil market.
The larger black sea ports (such as C/V/B) have been ranging from 405 – 395 the whole season. Turkish demand has therefore been served from smaller Russian ports as well as with Moldavian seed.
Currently SFS in Constanta has broken out of the range and is slowly grinding a bit lower towards 390 or below. This is largely a result of the decreased prices of the general oilseeds complex and the disappearance of Pakistan as a buyer

8. Sunseed Outlook 2017/18 crop slightly below LY
The 2017/18 SFS production in UKR, RUS, EU, ARG, USA and SAF is will be high, but is estimated 1% down from last year
The price incentive to continue planting SFS is large and ROI for farmers is excellent. SFS is far above all other crops in ROI terms. Corn has done recent gains in ROI across UKR and RUS.
Specifically, for UKR ROI is currently at 90% and for RUS 70%.
As ARG production is increasing for the 4th year in a row, it will be interesting to see if they will have an export program again
2017/18 crop slightly below LY
Excellent ROI for farmers planting SFS
UKR: 90%
RUS: 70%
ARG production expected up for a 4th year

9. Rapeseed Trade Flows (16/17)
Major stories of 2016/17:
Production in EU: -8% YoY (from 21.9 to 20.1mmt)
EU crush -2% YoY only
Production in Ukraine: -15% YoY (from 1.4 to 1.2mmt)
Record EU imports from Australia (2.7mmt +70%) and Canada (800kmt +83%)
4.0 MMT Can to China MMT Can to Japan
800 KMT Can to EU
0.9 MMT Ukr to EU
1.5 MMT Can to Mexico
600 KMT Can to US
850 KMT Can to Pakistan
440 KMT Can to UAE
2.7 MMT Aus to EU
130 KMT EU to UAE
300 KMT Aus to China
120 KMT Aus to Japan
Here we can visualize the major trade flows for RS and Canola
A year dominated by a tight EU SnD, a result of 8% reduction in production from 21.9mmt to 20.1mmt coupled with only 2% reduction in crush.
This was the smallest crop of the last 5 years, and large imports or crush rationing were needed. The first 6 months of the crop year we saw margins exceeding the level where crush rationing is incentivized.
This made EU dependent on record imports, but UKR export potential decreased drastically as the production went down 15% in same time
Therefore the imports from Canada increased, Canada had a record crop, record crush and record exports.
This supported import programs of sustainable Canadian canola sourced via contract growing. However, there seems to have been problems along the chain, and the final number might end up being slightly lower.
Australia had a record crop with exports to the EU expected to finish above 2.7mmt or even 2.8mmt. This is a 70% increase YoY.

10. Global Rapeseed Market: Europe
For 2017/18 we expect the EU dependency on imports to continue
Ukrainian production to increase
Australian production to normalize
Importance of Canadian import to increase
Currently the crush margins across EU are below variable cost or barely covering them, this is to ensure the needed crush reduction to not create a unsustainably low carry out. This can clearly be seen in the rapeseed crush margin for April/May/June over the last 10 months. At current level we are well below costs
We expect UKR production to increase to 1.6mmt after LY low production (increase of 33%). This seed will be exported mostly to EU as seen last year as well in Aug/Sep/Oct
Further we expect Australian production to normalize after the last years nearly perfect conditions and converge towards 3.6mmt
As a result of the more normal australien production we expect Canadian Canola to play an increasing role throughout the year to solve the EU SnD
CMX below variable costs to ensure sustainable c/o

11. Global Rapeseed Market: Canada
Outlook points to a new record crop in 2017/18
Acreage increase and high trend yield
Stable crush
Slight increased export
Need to build end stocks
India / Canada fumigation dispute might increase oilseeds acreage
Past years special crops have captured large acreages due to great ROI
In 2016 farmers ignored agronomic risk such as diseases due to firm prices in pulses
Could equal large shift to oilseeds
So far the outlook for 2017/18 points to another record year for Canola in Canada. Both acreage and trend yield is on the side of increased production. The past years we have increased several percent each year
There is a possibility to see a crop of 21mmt.
Generally crush and export is expected to increase less than production and it is likely we will again build end stocks
One of the big uncertainties is the dispute between India and Canada regarding fumigants and fumigation practices on pulses.
The past years special crops have increased their acreage in Canada drastically owning to strong prices and farm ROI
Due to the firm prices, many farmers ignored crop rotations and now face strong pressure from diseases
As oilseeds currently create good income to the farmer, it is possible we will see a large shift in acreage from pulses to canola and other oilseeds

12. SnD Puzzle Impossibility
European Sustainable non-GMO seed:
Canada needs to price to destination
EU needs 3.8mmt imports (AUS, UKR, CAN)
European RS is 35 USD cheaper than Canadian Canola Jul/Aug shipment
Working its way into Pakistan
August UKR RS = Oct Canadian Canola
Canada needs to price into destinations
While the EU needs to attract 3.8mmt of import seeds from AUS, UKR and CAN. This means that price spreads between MATIF and WPG must hold MATIF at a premium over WPG to an extent where UKR and AUS seed flows towards EU.
Currently this is not the case, for Jul/Aug shipments, UKR Sust. Non-GMO seed is trading at a USD 35 discount into destinations versus Canadian canola.
The spread between AUG MATIF / JUL WPG remains at a 3 yr low. Remaining at this level, the spread ensures that more seed will flow out of Europe
The other spread shows the seasonality between Nov MATIF and Nov WPG, there is a clear seasonal pattern and again we are approaching levels where EU RS is equal to Canadian canola. To secure the imports needed, one can assume this spread firm over time

13. State Reserve Auction Ending
20+ weeks of consistent SR auctioning ending
Supportive for RSO in China and possibly crush margins over time
The issue described in last slide should not be affected by the ending of the China State Reserve ceasing the weekly auctions. However we expect this to be supportive for the oil side of the market over the long run.

14. Soybean World Production
Soybeans have been one of the more volatile and interesting seeds during the past year.
2016/17 world production increase around 20MMT YoY, a number almost twice what is needed to meet the yearly increase in demand which we estimate to be around +10MMT per year.
This has resulted in stocks building in all major origins.
The majority of stocks have been build in the US and BRA where we realized record yields.
Looking forward, we forecast production to remain relatively stable for the 2017/18 marketing year.
2016/17 world production increase around 20MMT yoy more then meeting the yearly increase in demand which we estimate to be around +10MMT per year.
This has resulted in stocks building in all major origins.
Main increases came from the US and BRA where we realized record yields.
Looking foreward, we forecast production to remain relatively stable for the 2017/18 marketing year.

15. Soybean Crush Demand
Along the increase in production we also expect crush to increase around 13MMT with the main driver being China.
China SBM growth is projected around 7.5% YoY, which converted into crush will stand for roughly 5.3MMT of the total global crush increase.
Crush Expected to increase around 13MMT with the main driver being China.
China SBM growth is projected around 7.5%, which converted into crush will make 5.3MMT of the total global crush increase.

16. World SBM growth Ever increasing protein demand
The ever increasing demand for proteins and shifting diets towards meat will continue to increase soybean meal demand.
World SBM demand is expected to continue to increase at a steady pace of +5% which is line with the last 5-year average.
As mentioned in the previous slide, China makes up the bulk of the growth in notional terms, increasing 7.6% or 4.5MMT
Ever increasing protein demand
World SBM demand expected to continue to increase at a steady pace of +5% which is line with the last 5-year average.
As mentioned in the previous slide, China makes up the bulk of the growth in notional terms, increasing 7.6% or 4.5MMT

17. Meal Demand Outlook
Chinese per capita pork consumption is already high relative to the US and Europe, so growth potential is limited. But there is huge scope for growth of chicken and dairy production.
China already has a similar per capita consumption of pork as the EU and slightly more than the US
The major demand pull potential lies in chicken and diary production. A slight change in diet would make a immense impact

18. Soybean Global stocks
Current prices still favor the planting of beans as we expect farmers to increase bean acreage next year, and as mentioned before, consumption/demand increase is lagging slightly behind production, which will further increasing global stocks
Current prices still favor beans as we expect farmers to increase bean acreage next year and further increasing global stock.

19. President Trump Wild Card
2016/2017: Marked by political risk
Brexit
US elections
Dutch elections
French elections
Most of all: President Trump and the Renewable Fuel Directive
Not expected to change the blending mandate
The Wild Card is the Bio-Diesel tax credit
Currently expired
Reinstating as a US soil credit i.e. Producers Credit?
Marginal galleon comes from Argentina
2016 has been and 2017 will be marked by uncertainty in the commodity and FX markets from political risks.
Brexit impacted the FX market
US elections moved the financial markets
Dutch and French elections have put the EUR on a volatile path
But most of all there is large amount of uncertainty in the vegoil market due to President Trumps views on EPA and the Renewable Fuel Standard
If Biodiesel needs to be produced in the US, as in a producers credit, effectively US SBO will widen the premium to SAM SBO, as the US needs the oil to stay in the US for production of biodiesel. This would create a large surplus of oil in SAM (specifically Argy), which would have to capture other export demand.
Might increase SAM SBO availability with more than 500kmt and increase US SBO demand by 500kmt

20. Conclusion Sunflower seed
Bearish until end April but might be technical
FOB Constanta support at USD 380 due to Pakistan demand
Price resistance at USD 400
Rape seed
Spring rally backed by bullish tone on oil
But fighting ample SBS stocks
Going towards Q4, global supply will increase dramatically
Price premiums of RS and SFS to SBS will struggle to hold
Bearish long term
Oil complex
Friendly flat price, but SFO will not lead the way up due to heavy supplies