sugar as the new crude oil: feedstock considerations

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Sugar as the New Crude Oil: Feedstock Considerations October 18, 2012 Presentation to: Platts 2nd Annual Renewable Chemicals Conference Marriott West Loop Houston, Texas 1

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Sugar as the New Crude Oil: Feedstock Considerations

October 18, 2012

Presentation to:

Platts 2nd Annual Renewable Chemicals Conference

Marriott West Loop

Houston, Texas 1

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Feedstock Considerations

Main feedstocks for renewable chemicals … and biorefineries in general

◊ Brazil/global: sugarcane

◊ United States: corn starch (converted to sugars)

Federal Sugar Program & land limitations are key factors behind the competitiveness of corn

Feedstock prices have risen considerably in recent years

◊ Sugar since 2009

◊ Corn since 2006

What is the status of these feedstocks, and what does the future hold?

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The World Sugar Market

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Key Points

Production growth over the last couple of years has been outside of Brazil

◊ India, Thailand and Russia have increased production

Heading toward a third surplus year in the world sugar market

For the 2012/13 crop year (October-September):

◊ Production:

Growth is expected in Brazil (yield rebound), Australia and China

Poor weather has adversely affected prospects in India

◊ Consumption:

Lower world prices should boost consumption growth

Asian demand has room to grow. The pace of economic growth is a key factor.

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Brazil & India Production

Brazil is forecast to increase production modestly in the crop year just begun. India may be

about to enter the downward phase of its production cycle.

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Brazil Sugar and Ethanol

Weather problems affected the start of the ongoing 2012 Center/South

sugarcane crop: Tail end of harvest is now a race against the rainy season.

◊ Insufficient rain early in calendar year 2012

◊ Wet April-June

◊ October-December weather is forecast to be generally favorable for harvesting …

but it’s still the rainy season

Yields are poor

◊ Function of insufficient replanting and less-than-ideal growing conditions

To-date, Center/South sugar and ethanol production are down sharply

◊ Sugar: -8%; Anhydrous Ethanol: -9%; Hydrous Ethanol: -13%.

Sugar and ethanol exports are correspondingly lower

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Cumulative Brazilian Sugarcane Production

Production Affected by the Extremely Slow Start.

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World Sugar Supply/Demand & Prices in 2012/13

Another Sizeable Surplus Forecast for 2012/13 – Third Year of Surplus in a Row

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The U.S. Corn Market

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Overriding Driver in 2012: Drought!

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U.S. Corn Yield

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U.S. Corn Production and Utilization

12 FSI = food, seed and industrial; includes ethanol

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U.S. Ethanol Production

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U.S. Corn Ending Stocks and Prices

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U.S. Corn Supply and Demand (Million Bushels, Million Acres)

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2009/10 2010/11 2011/12 2012/13

USDA Informa USDA Informa

Planted Acres 86.4 88.2 91.9 91.9 96.9 96.9

Harvested Acres 79.5 81.4 84.0 84.0 87.7 87.7

Yield 164.7 152.8 147.2 147.2 122.0 122.0

Carryin 1,673 1,708 1,128 1,128 988 988

Production 13,092 12,447 12,358 12,358 10,706 10,706

Imports 8 28 28 29 75 125

Total Supply 14,774 14,182 13,514 13,515 11,769 11,819

Feed & Residual 5,125 4,793 4,562 4,563 4,150 4,200

Food/Seed/Ind 5,961 6,428 6,421 6,420 5,850 6,175

Ethanol for Fuel 4,591 5,021 5,000 5,000 4,500 4,750

Exports 1,980 1,835 1,543 1,543 1,150 1,000

Total Use 13,066 13,055 12,526 12,527 11,150 11,375

Carryout 1,708 1,128 988 988 619 444

Stocks/Use 13.1% 8.6% 7.9% 7.9% 5.6% 3.9%

Futures ($/Bu.) 3.72 6.47 6.57 7.85

Farm Price ($/Bu.) 3.55 5.18 6.22 6.22 7.10-8.50 7.55

13.1 bil. gal.

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Summary

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Summary

World Sugar

◊ Crop year 2012/13 expected to be third consecutive year of surplus

◊ Longer term, Brazil has the potential for area and yield growth to supply

significantly more sugar to world market, if demand and prices are sufficient

Still, production costs for incremental area are higher than historical levels

U.S. Corn

◊ The drought-reduced 2012 crop is the overriding factor for crop year 2012/13

◊ Longer term, a return to trend yields (assuming normal weather) and much

slower growth in ethanol production should allow stocks to be replenished and

prices to ease significantly

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Thank You!

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Scott Richman

Senior Vice President, Consulting

Informa Economics, Inc.

901.766.4594

[email protected]

Sugar as the New Crude Oil: Feedstock Considerations

October 18, 2012

Presentation to:

Platts 2nd Annual Renewable Chemicals Conference

Marriott West Loop

Houston, Texas 19