Grain Growers Webinar June 2020 02 9499 4199 | marketcheck.com.au | AFSL 223688

Navigating Grain markets Through Pandemics and Trade Issues

Tuesday 16th June 2020

Grain Growers Webinar June 2020 02 9499 4199 | marketcheck.com.au | AFSL 223688

Agenda

1. Market Outlook

2. Strategy Considerations

Market Outlook

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Barley: Where to now?

Bad News for Barley

• Can China be replaced?

• Global production and stocks on the rise

• Demand waning• China (ASF) • Saudi (more pellet feeding)

• Beer consumption?

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Global Barley Balance SheetMajor Global Barley Importers

Barley: Where to now?

Good News for Barley

• 2019/20 ending stocks tight

• Export competitive

• Thailand is in drought

• Increased domestic demand• Feed• Malt

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2019/20 Australian Barley Exports

Wheat

Global

• Global supply is solid

• Northern Hemisphere harvest

• Covid-19

• Demand side > food & feed

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AUD Tracking US stocks Major Exporter Stocks vs Global Imports

30%

35%

40%

45%

50%

55%

60%

65%

70%

30,000

40,000

50,000

60,000

70,000

80,000

90,000

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Sto

ck

s-t

o-u

se

ra

tio

'00

0 m

etr

ic t

on

ne

s

0%

20%

40%

60%

80%

100%

120%

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Sto

ck

s-t

o-u

se

ra

tio

'00

0 m

etr

ic t

on

ne

s

Aus Wheat Ending Stocks

Wheat

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Ending Stocks & Stock/Use

Domestic

• 2019/20 ending stocks

• Potential but it’s a long way to harvest

• Little to no ‘risk premium’ in 20/21 prices

• Domestic demand sluggish

• Exportable surplus

BAR1 vs APW1 Spread

2020/21 Crop

20/21 Melbourne APW1 MG

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240

260

280

300

320

340

360

Jan

-20

Feb

-20

Mar

-20

Ap

r-2

0

May

-20

Jun

-20

MLB APW1

Dec-20 CBOT

0

10

20

30

40

50

Jan

-20

Feb

-20

Mar

-20

Ap

r-2

0

May

-20

Jun

-20

Basis

New Crop Outlook

• Russia/US crop all but made

• Basis at historically cheap levels

• Risk is global prices falling

• China spring wheat crop

• Covid-19

Strategy

Considerations

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Strategy Considerations

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2020/21 Strategy Considerations

Strategy Benchmarking vs Forward Selling

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New Crop Outlook

• Absolute prices strong, relative value (basis) weak

• 3 strategies:1. Forward selling physical2. Hedging via futures/swaps3. Hedging via put options

• Hedging is the clear winner

• Added benefits

-$40.00

-$20.00

$0.00

$20.00

$40.00

$60.00

$80.00

$100.00

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Swaps/Futures

Put Options

Put Options Strategy

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Using Put Options to Protect Prices

• Options are like insurance

• An option (but not a commitment) to buy or sell

• Put option = option to sell

• Call option = option to buy

Put Options Strategy

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250

270

290

310

330

350

370

390

410

Jan

-20

Feb

-20

Mar

-20

Ap

r-2

0

May

-20

Jun

-20

Jul-

20

Au

g-2

0

Sep

-20

Oct

-20

No

v-2

0

JAN-21 ASX

Spend $20 on ASX Puts, sets a ‘floor price’

Net Floor

Put Options Strategy

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250

270

290

310

330

350

370

390

410

Jan

-20

Feb

-20

Mar

-20

Ap

r-2

0

May

-20

Jun

-20

Jul-

20

Au

g-2

0

Sep

-20

Oct

-20

No

v-2

0

JAN-21 ASX

Net Floor

Put Options Strategy

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250

270

290

310

330

350

370

390

410

Jan

-20

Feb

-20

Mar

-20

Ap

r-2

0

May

-20

Jun

-20

Jul-

20

Au

g-2

0

Sep

-20

Oct

-20

No

v-2

0

JAN-21 ASXReturn increases

Summary of pros / cons

▪ Low risk, safer way to protect new crop prices

▪ Cover / protect more

▪ Market rallies, still participate

▪ Market falls, underperforms versus forward sales (but more covered)

▪ Flexible delivery (location / timing / grades)

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Put Option Strategy

Pre Harvest Program

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How to Execute the Put Options Strategy

• Futures broker / futures account

• Limited offering through some banks.

• Pre-Harvest Program

• Benefits:• Avoid washout risks• $2.50/t management fee• Flexible harvest delivery options • Actively managed

Grain Growers Webinar June 2020 02 9499 4199 | marketcheck.com.au | AFSL 223688

Thankyou, QuestionsTuesday 16th June 2020