1. Konstantin Litvinsky, COO, Kernel Holding, Inerco Trade S.A.
Kernel Trade
Ukraine and Eastern European Sunflower Seed Complex
and Export Scenario
Konstantin Litvinsky, COO, Kernel Holding, Inerco Trade S.A.
GLOBOIL INDIA, September 2017

2. Kernel Trade
Kernel Trade
Kernel at glance: Integrated business model, World’s largest SFO/SFM Exporter 1
Own farming: Kernel operates over 600 kha of farmland in Ukraine producing over 3 mmt of grains and oilseeds which then move further along the chain
Bottled sunflower oil: Approximately 10% of gross bulk sunflower oil produced is further refined, bottled and sold domestically and abroad
Export terminals:
Kernel operates
Deep-water grain terminal in Chornomorsk (4 mmt/y throughput capacity)
Dry cargo terminal in Mykolayiv (0.5 mmt/y throughput capacity)
Deep-water grain terminal in Taman (2 mmt/y throughput capacity), 50% JV ownership
In 2016 Kernel launched a greenfield construction of its 2nd 4 mmt terminal in Chornomorsk, which should become operative in 2018/19 6 7
Origination: Kernel procures over 3 mmt of SFS and 3 mmt of grains from 5,000 farmers 2 1
Silo network: Kernel owns some 45 inland silos with 2.7 mmt total storage capacity 3 6 2 3 5
Grain export: Kernel exports over 5 mmt of grains annually, using derivative instruments to hedge its exposure to price risk
544 4
I should probably kickoff by telling a few words about our company.
Kernel is a large, diversified agricultural company. One of the largest in Ukraine
There is a lot of activity going on, but basically we have 3 main businesses
Sunflower Oil
Farming
Grain Trading and Infrastructure
And here is our Business Model. It’s fully integrated. So, what do we do?
We got our on Crop Production, and we cultivate the largest landbank in Ukraine
This is not enough, so we originate another 3 mmt of SFS and 3 mmt of Grains
We use our own silo network to store the crops
As Grain Trader, we are one of the largest Grain Exporter from Ukraine
And we Crush SFS, a lot of SFS.
We are Ukraine's, and possibly Worlds #1 SFS Crusher, SFO Exporter, SFM Exporter. A lot of number ones when it comes to SunFlower
We also sell a lot of Bottled SFO, domestically and abroad
And to serve our Export operation, we have our own port facilities 7
455
Oilseed processing:
8 own SFS crushing plants with 3.5 mmt annual crushing capacity

3. World SFS Production 10y ago – 30 mmt
Kernel Trade
Kernel Trade
World SFS Production 10y ago – 30 mmt
06/07 MY
16/17 MY
vs. RU
6.3 EU
6.6
UKR
5.7
40% of World Production
CHINA
1.4
As we all know, driven by world’s appetite for VegOils, Oilseeds Production grows rapidly and SFS is no exception
This is how World SFS Production looked 10 y ago:
• 30 mmt produced worldwide
• 5 major Producers
• UKR and RU combined produce 40% of the Crop
ARG
3.5
Source: USDA
* All values in million metric tons

4. World SFS Production today – 46 mmt
Kernel Trade
Kernel Trade
World SFS Production today – 46 mmt
06/07 MY
16/17 MY
vs. RU
10.9
UKR
14.2 EU
8.6
54% of World Production
CHINA
2.8
And this is how Sunseed Production looks today:
• Sharp rise. 48 mmt crop, that is 59% up from where we stood a decade ago
• Same major Producers
• But the role of Black sea has notably increased. Now, the 2 countries combined are in charge of more than a half of global Sunseed Supply
ARG
3.4
Source: USDA
* All values in million metric tons

5. World SFO Exports 10y ago – 4 mmt
Kernel Trade
Kernel Trade
World SFO Exports 10y ago – 4 mmt
06/07 MY
16/17 MY
vs.
UKR
1.87 RU
0.71
64% of World Exports (UKR&RU)
Ukraine alone – 46% EU
0.15
Speaking of SFO Exports, the change is even more drastic
10 years ago we used to have 4 major Exporters, with UKR and RU combined already dominated on the market – 64%
Ukraine alone exported 46% out of total world trade
ARG
0.85
Source: USDA
* All values in million metric tons

6. World SFO Exports Today – 10 mmt
Kernel Trade
Kernel Trade
World SFO Exports Today – 10 mmt
06/07 MY
16/17 MY
vs.
UKR
5.7 RU
2.1
78% of World Export.
Ukraine alone – 57% EU
0.43
TUR
0.65
And these are last season volumes
2 countries in total supplied 78% of SFO to the world market
Ukraine alone supplies 57% of the Oil,… so, in case you need to by some SunOil, you know where to look, right?
One other thing. As you see, there is very little Oil comes out of EU, which Seeds Production is quite high And since we are here to talk about Eastern European Sunseed Complex, let’s break it down by member states
Who are the key Sunseed growers within EU?
And Why it’s all concentrated in Eastern Europe?
ARG
0.55
Source: USDA
* All values in million metric tons

7. SFS Production – Why Eastern Europe?
Kernel Trade
Kernel Trade
SFS Production – Why Eastern Europe?
SFS Production map – Europe
Here’s a thing about SFS – there are not many areas in the world where it can be grown successfully.
Overall, most Sunflowers are remarkably adaptable, tough and easy to grow. They are also heat- and drought-tolerant.
And if you like to get nice cut flowers in your garden, you can grow Sunflowers at various places around the globe
But, to generate good Yields of Sunflower Seeds, you going to need nutrient-rich, well-drained soils with neutral acidity (slightly acidic to somewhat alkaline (pH 6.0 to 7.5))
and right climate – warm and sunny with sufficient precipitation
Even though the Sunflower is native to North America,
It turns out, that most of SFS Production is concentrated in Europe
Source: USDA

8. SFS Production – Why Eastern Europe?
Kernel Trade
Kernel Trade
SFS Production – Why Eastern Europe?
16/17 SFS Production by country, mmt
All European Continent produces at 77% of World Sunseeds
Eastern European Crops makes 70% of World SFS Production
Only few EU member states produce significant SFS volume
UKR
14.2
EU is net importer and a major buyer of SunOil and SunMeal RU
10.9
HUN
1.9
MLD
0.7
FRA
1.2
ROM
1.8
And here we go again. We got Ukraine and Russia – 2 major producers by far
We have Moldova on the side.
And then, if we look at EU as individual states, we ‘ve got only few EU members who produce any notable amounts of seeds
All Europe produces at 77%
And if we narrow it to Eastern Europe – more than 70% of World Output generated in this area, the Black sea and Danube region
BUL
1.8
SPN
0.7
Source: USDA
* All values in million metric tons

9. SFS Production – Why Eastern Europe?
Kernel Trade
Kernel Trade
SFS Production – Why Eastern Europe?
16/17 SFS Production by country, mmt
UKR
14.2 RU
10.9
HUN
1.9
MLD
0.7
ROM
1.8
So, 70% of Global Sunseed Production concentrated in this area
Let’s see how each country production evolved in the past years
BUL
1.8
Source: USDA
* All values in million metric tons

10. Kernel Trade
Kernel Trade
Eastern Europe SFS Production has doubled over past 10Y. Where does the Growth come from?
Here is Eastern Europe SFS Production breakdown by major states.
And we can see that all of them build up their SFS Production, but Ukraine is the fastest growing followed by Russia
SFS Production is growing in the Danube area as well,
but being part of EU they don’t supply much to the world market – It’s all stays within EU
EU SunOil and Meal Demand grows faster than Domestic Production, therefore I wouldn’t count on these counties as a potential Sunseed and Products Supplier
Instead, we should focus on what’s happening in the big two – Ukraine and Russia
Source: USDA

11. UKR and RU SFS S&D Comparison
Kernel Trade
Kernel Trade
UKR and RU SFS S&D Comparison
UKR SFS and Products – Key S&D components, mmt
14/ / / /18
RU SFS and Products – Key S&D components, mmt
Here I’d like to compare two countries S&D
Given that they do have comparable Sunseed Production, the entire S&Ds are different
Here is Ukraine’s Production and Crush
And this is how much Oil and Meal comes out of crushed seeds ( the volumes are about the same, Husk and Losses make around 14.5% )
And this is Oil and Meal Export out of Ukraine. As you see, most of the Products are being exported
And for comparison, here is Russian SFS Production and Crush on the same scale
A little lower Crops and, same as Ukraine, most of if is Crushed domestically
That’s Oil and Meal Production – proportions in line with Ukraine
Yet, here is the difference – they Export much lower portion of SFS Products due to large Domestic Consumption

12. Kernel Trade
Kernel Trade
Ukraine SFS Production grows steady over both Area expansion and better Yields
14.9
13.8
Let’s take a closer look at Ukraine's SFS complex
Ukraine Sunseeds Production increases at a fast pace on both Area and Yields. While Yield keeps trending higher thanks to technology, Area Expansion is capped by land availability and Crop Rotation limitations
Last year Ukraine has set an outstanding record, producing nearly 15 mmt of SFS.
This year, we expect SFS Production to retreat from LY high due to lower Yields.
Harvest is gaining momentum these days, with over 15% of the Area have been harvested and Yields are notably lower than last year same time.

13. Kernel Trade
Kernel Trade
Most of UKR SunSeeds are crushed domestically. SFS Export and FSR Consumption are insignificant
Practically all the crop is being crushed (small amount goes for confectionery usage). Oil makes up about 43% of the crushed seeds

14. Will Ukraine be able to process its fast-growing Supply?.. Sure thing!
Kernel Trade
Kernel Trade
Will Ukraine be able to process its fast-growing Supply?.. Sure thing!
There is no limitation in the Crushing Capacities in the latter years

15. UKR SFS Complex Exports
Kernel Trade
Kernel Trade
UKR SFS Complex Exports
Export grows very sharply

16. UKR SFO Destinations – India is the largest buyer by far
Kernel Trade
Kernel Trade
UKR SFO Destinations – India is the largest buyer by far
Should we show EU total instead of member states??

17. UKR SFM Exports – Mainly Europe, France keeps the lead
Kernel Trade
Kernel Trade
UKR SFM Exports – Mainly Europe, France keeps the lead

18. Kernel Trade
Kernel Trade
Russian SFS Production is on the rise too. Not as fast us Ukraine though – lower Yields
12.0
11.5
How about Russia?
Comparing to Ukraine – vaster area, lower yields
New crop Production expected higher as Planted Area expanded further and initial harvest reports indicate better Yields in some key areas.
For now, at about 7% of SFS acreage has been harvested
If this Increase verifies, it will partly offset Production setback in Ukraine

19. Kernel Trade
Kernel Trade
RU SunSeeds are crushed domestically. SFS Export and FSR Consumption are insignificant
More Seeds consumed by confectionery industry (larger population)

20. There is no bottle neck in Crushing Capacities in Russia
Kernel Trade
Kernel Trade
There is no bottle neck in Crushing Capacities in Russia
Very comfortable Capacity Utilization. There was some tightness many years back, but nowadays Russia has enough facilities

21. RU SFS Complex Exports Kernel Trade
Unlike Ukraine, large portion of RU SunOil (at 2mmt) consumed domestically. Therefore, not too much left for Export

22. RU SFO Destinations – Turkey and Egypt are the largest buyers
Kernel Trade
Kernel Trade
RU SFO Destinations – Turkey and Egypt are the largest buyers

23. RU SFM Exports – 2 countries in charge of nearly 3/4 of entire volume
Kernel Trade
Kernel Trade
RU SFM Exports – 2 countries in charge of nearly 3/4 of entire volume

24. World SunOil Trade was very active last year
Kernel Trade
Kernel Trade
World SunOil Trade was very active last year
16/17 World SFO - Main Trade Flows
UKR
5.8 RU
2.0 EU
1.8
N&M EAST
2.2
5 N AFR
0.9
INDIA
2.2
CHINA
0.8
World Trade is largely divided by 2 major Suppliers.
And the Oil is shipped to 5 Major Destinations
Ukrainian SunOil dominates in EU and India
Russians are very active in Near and Mid East and N Africa
How the coming season can be different? It should be rather similar to this
As probably may see lower Availabilities of UKR SunOil
India is likely to increase its Sunoil Procurements, while other origins will need to reduce slightly their Imort and switch to VegOil choices
Why India?
Source: USDA, Kernel
* All values in million metric tons

25. Indian Import Demand – higher Duties for Palm and Soy Oils
Kernel Trade
Kernel Trade
Indian Import Demand – higher Duties for Palm and Soy Oils
India VegOil Consumption
vs. Main VegOil Import
Imports: ?
India, the world’s largest Edible Oil Exporter
Since consumption is growing more rapidly than production, the appetite for imports is
growing at a faster rate (11% per year) to fill the gap.
Newly imposed changes in Import duties should be supportive to SFO an Canola Oil Imports

26. Indian Import Demand – higher Duties for Palm and Soy Oils
Kernel Trade
Kernel Trade
Indian Import Demand – higher Duties for Palm and Soy Oils
Last month, Import Duties were raised for Palm and Soybean Oils, while SunFlower and Rape/Canola Oil remained unchanged
Newly imposed changes in Import duties should be supportive to SFO an Canola Oil Imports

27. 16/17 SFO Prices were quite low in relation to other Oils
Kernel Trade
Kernel Trade
16/17 SFO Prices were quite low in relation to other Oils
SFO is premium product compare to other oils and normally it is more expensive. Yet it was not the case last year
Prices for SunOil were quite low, largely due to record SFS Production
Now, we expect things to return to normal

28. 17/18 SFO Trade Outlook - Key Factors
Kernel Trade
Kernel Trade
17/18 SFO Trade Outlook - Key Factors
SFS Production in key countries (expected marginally lower than LY). SFO Production will change accordingly
World SFO Demand to absorb as much surplus as available
Recent changes in Indian import duties to encourage SFO exports to India
Chinese Import Demand will depend on World Soybean Supply/Prices and Rapeseed stocks release
EU Demand will follow VegOils’ price ratio and changing Consumer Preferences
Global Production of other major Oilseeds:
Good Soybean Crop coming in Northern hemisphere
World Rapeseed/Canola output is likely to set new record
Palm Oil Production expected higher as well
To conclude, let’s outline some key factors that shape up this new season
As usual, SFO market will largely depend on 2 things – World SFS Production and Global VegOils S&D
New crop harvest is in full swing in Northern Hemisphere, and based on yield reports we expect World Production to be a little lower
And this should be supportive to SunOil prices in my view
Demand for SunOil remains strong and will consume as much Oil as available. It always does.
Indian Import duties increased for Palm and Soy Oils, but left intact for SFO - good news for Ukrainian Crushers
Another big Importer, China – the demand is uncertain. It will depend on Soybean market and government regulations, including Rapeseed stock release
EU and MENA countries demand will follow price ratio for major Edible Oils and changing eating habits
Of course, Major Oilseeds harvest results will play big role and affect SunOil market
All in all, we hope for another busy and fruitful season ahead and wish you all the same
Thank you

29. Kernel Trade
Kernel Trade
THANK YOU