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