Presentation on theme: "Grain Outlook AUGUST 2012 Michael O’Dea | Risk Management Consultant"— Presentation transcript:
1 INTL FCStone Inc. | www.intlfcstone.com Grain Outlook AUGUST 2012Michael O’Dea | Risk Management ConsultantCommercial Grain DivisionFCStone, LLCINTL FCStone Inc. |
2 “It’s tough to make predictions… especially about the future!” Disclaimer“It’s tough to make predictions… especially about the future!”Lawrence P. “Yogi” Berra“Anyone who believes that exponential growth can go on forever in a finite world is either a madman or an economist.”Kenneth Boulding (an economist)But first, I too must start with a disclaimer:-all the data I will present come from sources we believe are credible and authoritative but we have not independently verified them.-all views and opinions are my own and do not necessarily reflect the views and opinions of INTL FCStone
3 Real DisclaimerCommodity trading involves risks, and you should fully understand those risks prior to trading. FCStone Group, Inc., INTL FCStone, Inc., and their affiliates assume no liability for the use of any information contained herein. Neither the information, nor any opinion expressed shall be construed as an offer to buy or sell any futures, options on futures contracts, or OTC products.Past financial results are not necessarily indicative of future performance. Any examples given are strictly hypothetical and no representation is being made that any person will or is likely to achieve profits or losses similar to those examples.References to and discussions of exchange traded products are made solely on behalf of FCStone, LLC. References to and discussions of OTC products are made solely on behalf of INTL Hanley, LLC, and OTC products are only available to eligible counterparties.Information contained herein was obtained from sources believed to be reliable, but is not guaranteed as to its accuracy. Any opinions expressed herein are subject to change without notice. Reproduction or use in any format without authorization is forbidden. All rights reserved.
5 Corporate Overview 20,000 CUSTOMERS INTL FCStone Inc. is a customer-centric business focused on mid-market customers.MARKET POSITIONINGWe have one of the leading franchise’s in grains and metals markets.We are one of the largest traders of agricultural and softs options and structured products designed to mitigate customer risk.We are a recognized leader in global payments and treasury management services.In many verticals, we are recognized as industry experts providing advice to industry-leading corporations.We serve more thanmainly commercial customers in more thancountries through a network of more thanemployeesIn offices aroundthe world.MISSIONWe seek to provide high-value-added financial solutions to allow our customers to efficiently and effectively utilize the financial markets to control risk and protect margins.Our mission is founded on the concept of educating our middle market customers in a transparent fashion.We provide customers across the globe with execution and advisory services in commodities, capital markets, currencies, asset management and more.Serving more than20,000 CUSTOMERSin more than100 COUNTRIES through a network of over1,000 PROFESSIONALS across39 OFFICESaround the world.AS OF SEPTEMBER, 2011…FCStone, LLC had $1.4 billion in required customer segregated customer assets, and executed more than 28.8 million exchange-traded contracts in fiscal year 2011.INTL FCStone traded more than $75 billion of physical commodities in 2011.Record operating revenues and net income for fiscal year 20113
6 Macro Market Price Discovery – Is it art, science or voodoo ? Supply and Demand back in focusWorld Economy - DemographicsGlobal currencies – USD Vs. Euro Vs. YuanGlobal Energy supplies/US Ethanol programMoney flow into commoditiesFund money and order flowHFT and market disruption.Geopolitical Regional IssuesMiddle East (Syria, Iran)European Politics in wake of Financial CrisisUS and World Election CycleChina – South China Sea new flashpoint ?
9 World Population 1950-2100 9.3 billion The world has been getting more crowded at a faster rate. It took homo sapiens about 200,000 years to reach a population of 2.5 billion, another 45 years to add 4.5 billion more but the rate of growth is slowing dramatically so that it will take another 40 years to add a further 2.3 billion.The baseline throughout the presentation will be the medium fertility variantAssumptions: High-fertility: Until 2010, no fertility reduction or only an incipient decline; Medium-fertility: Fertility declining but estimated level still above 2.1 in ; Low-fertility: Total fertility at or below 2.1.Source: Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects: The 2010 Revision.
10 Most Populous Countries The order of the 20 most populous countries will change and the bar to entry will rise. The smallest of the top 20 goes from 66 mil. to 92 mil.Assumption: Medium-fertility variant.Source: Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects: The 2010 Revision.
15 MONEY FLOW INTO COMMODITIES Who are trading these markets now?HedgersGrain handlers, consumers and traders.SpeculatorsDirectional tradersHFT – High Frequency TradersBlack box – SP/Crude/Currencies – moving into AGS.View of markets – highly correlatedMy view very disruptiveIndex Funds/ETFSDB PowerShares Commodity Index as of 6/30/12Sector weightings Energy 55%, AG 22.5%(C 5% W 5% S 5% sugar 5%) Ind. Metals 12.5% Precious Metals 10%Returns ? YTD -3.51% 1 yr % 5 yr. 1.31% Incept 3.02%
40 Wheat FundamentalsIf Russian production is 40 mmt or less at the current pace ofExports they would need to shut down exports by October toMaintain a historical carryout to use ratio.WTO entry makes an embargo more problematic but it cannotBe ruled out, interesting to see multinational grain companiesAggressive sellers of Russian wheat in latest tenders.
49 Carryout is at a 95 day supply Wheat FundamentalsCarryout is at a 95 day supply
50 WHEAT FORWARD LOOK Fundamentals: World Supply/Demand has shifted. Smaller World production/ending stocks have changed market attitude from bearish to nervous in the short term.Black Sea production issues will shift export demand back to US, Canada and the EU, will the EU need to ration exports ? .Basis is firm as demand continues to be strong.Feeders and new KC storage rates compete for bushels.Rally in futures has seen producer sell – who will be a seller of this market with corn/bean action ?Basis will have to do the work if flat price or spreads will not.Over The HorizonWeather Threats – Australia El Nino can sharply lower production, September critical, US HRW areas need rains for fall planting.Break up of CWB still a work in progress – more imports into US but “transparent” exports.Smaller production in Argentina due to Government actions.
55 World Supply/Demand WORLD S/D Notes: These numbers are my estimate on the 12/13 they reflect smaller Black Sea and Australian production from USDA.2007/8 is listed as a reference but note that C/O to use that year was 20.7% and if demand did stay constant in this estimate the 12/13 C/O % estimate would be on that pace – but I would expect demand to drop with this type of projection as futures prices would cut demand.Remarkable to look at this S/D just 6 months ago estimates had Carryout over 200 mmt.
56 Outliers – Corn price elevates wheat VS C/O to USE ratio Supply issue
57 INTL FCStone Inc. | www.intlfcstone.com CornUnited States and WorldSupply and Demand InformationINTL FCStone Inc. |
63 Corn Fundamentals Ethanol = 40.6% of last years corn crop Ethanol = 41.6% of this years corn cropEPA waiver is not the silver bullet to reduceCorn usage – ethanol is integrated into theUS gasoline complex, economics will the issue.
90 CORN FORWARD LOOK Fundamentals: Markets have added Risk Premium. US corn production and corn stocks have been reduced, trade looking for smaller numbers going forward, small crops get smaller, big crops get bigger.Corn futures have rallied to $8.50 and stalled, smaller production can take futures higher post harvest – true rationing will be late in the crop cycle and be done by basis and inverses in the markets.US Ethanol will not go away till they run out of money.Demand and price.Wheat/Corn spread will encourage more wheat feeding.Producer may be limited seller at harvest – yields and insurance.Over The Horizon -China corn production reports will be watched closely.Political intervention in markets, ethanol, export taxes etc.New crop corn plantings – prices to encourage more area.Shift to El Nino is good for both US and South American weather.
109 SOYBEANS – FORWARD LOOK Fundamentals – “Market out of control”USDA Crop report reducing US production and carryout, showing a minimum pipeline of 115 mb a 15 day supply.US can literally run out of soybeans in the spring.South American production to rebound -USDA estimating South American production up 1.25 bb.South American producer aggressively selling new crop beans as they receive record prices.Shift to El Nino weather pattern will help production.Over The Horizon -Dislocation of stocks – World forced to source beans from the US until new crop S/A production comes onlineEven if South American crop rebounds market will face inadequate logistic capacity to supply demand – force more business to US.Disruption of futures markets – potential cash convergence issues in the summer.
114 DISCLAIMERCommodity trading involves risks, and you should fully understand those risks prior to trading. FCStone Group, Inc., INTL FCStone, Inc., and their affiliates assume no liability for the use of any information contained herein. Neither the information, nor any opinion expressed shall be construed as an offer to buy or sell any futures, options on futures contracts, or OTC products.Past financial results are not necessarily indicative of future performance. Any examples given are strictly hypothetical and no representation is being made that any person will or is likely to achieve profits or losses similar to those examples.References to and discussions of exchange traded products are made solely on behalf of FCStone, LLC. References to and discussions of OTC products are made solely on behalf of INTL Hanley, LLC, and OTC products are only available to eligible counterparties.Information contained herein was obtained from sources believed to be reliable, but is not guaranteed as to its accuracy. Any opinions expressed herein are subject to change without notice. Reproduction or use in any format without authorization is forbidden. All rights reserved.
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