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Optimising Biofuels and Feedstock Risk Management
Joachim Emanuelsson, COOStarsupply Commodity Brokers
Today’s Topics
Market Factors affecting the Biofuel “paper” markets
Managing Risk Across the Biofuel Supply Chain
Physical and Derivative price differences
Market Factors affecting the Biofuel “paper” markets
• Related markets, Agricultural and Soft commodity markets and their movements plays more and more of a role
• Changes in Foreign Exchange $/€ and $/myr• Gasoil price moves• Transportation and Logistical issues• Global growth and super cycles
Market Factors
Physical Supply & Demand
Vegetable Oil
Blend Economics
Gasoil Price
Ags/Soft
$/€
Bio-Fuels
RegulationsCommodity Super Trends
Food vs. Fuel
Global Growth
Corn and FAME 0
Sugar and FAME 0
Wheat and FAME 0
Super Cycles
Managing Risk Across the Bio-Fuels Chain
• Managing risk across the bio fuel chain is crucial, gone are days of flat price trading
• Correlation hedges• Instruments; Swaps, Options and Futures• Clearing and counterpart risk control
Bio-Fuel Supply Chain
Soy Beans
Rapeseed
Bean Oil
CPO
RSO
SME
RME
PME FAME +5FAME 0FAME -5
FAME -10FAME -15
RME
Ethanol T1Ethanol T2
Hedges Available
Sugar/Corn/Wheat Ethanol
Signs of a Good Hedge
• Basis for a good hedge– Liquid markets– Data availability – Price discovery is easy– Access to clearing or credit lines– High correlation
Good Correlation22
/05/
2010
11/0
6/20
10
01/0
7/20
10
21/0
7/20
10
10/0
8/20
10
30/0
8/20
10
19/0
9/20
10
09/1
0/20
10
29/1
0/20
10
700.00
800.00
900.00
1000.00
1100.00
1200.00
FAME 0
FOB Arg BO
FAME 0 and FOB Argentine
$/t
Date
Price Correlation: 0.977
Poor correlation23
/11/
2009
13/1
2/20
09
02/0
1/20
10
22/0
1/20
10
11/0
2/20
10
03/0
3/20
10
23/0
3/20
10
12/0
4/20
10
700.00
750.00
800.00
850.00
900.00
950.00
1000.00
1050.00
FAME 0
FOB Arg BO
FAME 0 and FOB Argentine BO
$/t
Date
Price Correlation: 0.5635
RME Swaps vs. Physical RME13
/03/
10
02/0
5/10
21/0
6/10
10/0
8/10
29/0
9/10
18/1
1/10
800.0
850.0
900.0
950.0
1000.0
1050.0
1100.0
1150.0
1200.0
1250.0
RME paper
RME physical
$/t
Date
RME paper and RME physical vs. time
Proportional Change Correlation: 0.8746
CPO Swaps06
/07/
2009
25/0
8/20
09
14/1
0/20
09
03/1
2/20
09
22/0
1/20
10
13/0
3/20
10
02/0
5/20
10
21/0
6/20
10
10/0
8/20
10
29/0
9/20
10
18/1
1/20
10
500.00
600.00
700.00
800.00
900.00
1000.00
1100.00
CPOPME
CPO paper and PME physical front month data
Date
$ / t
Price Correlation: 0.9298
Proportional Change Correlation: 0.3654
Physical and paper price differences
• We have seen paper trade at a significant discount to physical
• Inherent cost handling physical, financing, transport etc.
• Gasoil is averaging -12 USD/MT• FAME 0 is averaging -9.40 USD/MT• More Liquidity and counterparts• Limited risk limits available globally
FAME Paper vs. FAME Physical13
/03/
10
02/0
5/10
21/0
6/10
10/0
8/10
29/0
9/10
18/1
1/10
800.0
850.0
900.0
950.0
1000.0
1050.0
1100.0
1150.0
FAME paper
FAME physical
$/t
Date
FAME paper and FAME physical
Prop Chg Correlation: 0.8342
Physical vs. Paper Spread13
/03/
10
02/0
5/10
21/0
6/10
10/0
8/10
29/0
9/10
18/1
1/10
-35.0
-30.0
-25.0
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
Date
$/t
FAME physical/paper spread vs. time
Gasoil Paper vs. Physical7/
6/20
09
8/25
/200
9
10/1
4/20
09
12/3
/200
9
1/22
/201
0
3/13
/201
0
5/2/
2010
6/21
/201
0
8/10
/201
0
9/29
/201
0
11/1
8/20
10
500.000
550.000
600.000
650.000
700.000
750.000
800.000
Physical Gasoil
Paper Gasoil
$/t
Date
Gasoil paper and physical
Prop Chg Correlation: 0.9768 Average: -$12.00
Joachim EmanuelssonStarsupply Commodity Brokers
T 41-22 365 5503F 41-22 361 8380
M 41-(0)78 904 4829joachim@starsupply.ch
yahoo: joachim_starsupply
www.starcb.com
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