Growing Dependence for Palm Oil in World Trade and Consumption

Growing Dependence for Palm Oil in World Trade and Consumption POTS Philippines, 6 7 August 2015, at the Shangri-La Hotel Makati, Manila there somebody to pick me up tomorrow at the airport Thomas Mielke, ISTA Mielke, Oil World, Global Market Research on Oilseeds, Oils and Meals thomas.mielke@oilworld.de

Company Profil and Services ISTA Mielke GmbH publisher of OIL WORLD - was founded in 1958 ISTA = International STatistical Agricultural Information Leading private authority for global research and market analyses for oilseeds, oils & fats and oilmeals Independent, not involved in trading, unbiased information there somebody to pick me up tomorrow at the airport Providing monthly and quarterly world supply and demand balances Daily, weekly and monthly publications on www.oilworld.de We are also providing individual studies and customer support If I can be of any assistance to you email <Thomas.Mielke@oilworld.de>

On Aug 3 palm oil futures falling to their lowest level since Sept 10, 2014 Additional downward potential limited Palm oil prices may soon bottom out - - getting support from rape oil and soya oil (rising oil share) Upward potential in Oct/March 2015/16 and beyond 2400 2350 2300 2250 2200 2150 2100 MALAYSIA: Crude Palm Oil Futures Close First position in Malaysian Ringgit/T 2050 2000 Nov Dec Jan15 Mar Apr May Jun Jly Aug Prices from 1 Nov 2014 until 3 Aug 2015

Competitiveness of Palm Oil on Energy Market Monthly Prices of Palm Oil & Crude Mineral Oil (US-$/T) 1350 1200 1050 900 750 600 450 300 Crude mineral oil 150 Palm oil, crude 0 Ja03 Ja04 Ja05 Ja06 Ja07 Ja08 Ja09 Ja10 Ja11 Ja12 Ja13 Ja14 Ja15 Monthly prices from Jan 2003 until July 2015

Daily Prices of Crude Palm Oil & Brent Oil (US-$/T) 1000 950 900 850 800 750 700 650 600 550 Crude palm oil, cif Rott. 500 Brent crude oil, Brent/ICE 450 400 350 300 Jan13 Mar May Jly Sep NovJan14Mar May Jly Sep NovJa15 Mar Jun Jly Prices from 2 Jan 2013 until 29 July 2015

Feed requirements 30.5 Mn T 2014: Palm oil usage 9.6 Mn T (32% of all feed-stock used) and 16% of world PO usage Soya oil 8.0 Mn T and 18% of total use Rapeseed oil 7.3 and 27% Tallow 2.1 Mn T and 24% Other (corn oil, used oil) Biodiesel Use of Major Feedstock (Mn T) 35 others used oils 30 tallow 25 rape oil palm oil 20 soya oil 15 10 5 0 2007 2008 2009 2010 2011 2012 2013 2014 2015F

BIODIESEL: World Production by Country ( Mn T ) J a n u a r y / D e c e m b e r 2015F 2014 2013 2012 2011 EU-28..... 11.40* 12.00* 10.60 9.66 9.32 U.S.A...... 4.30* 4.22 4.53 3.30 3.22 Argentina... 1.80* 2.58 2.00 2.46 2.43 Brazil...... 3.40* 3.00 2.56 2.39 2.35 Colombia....53*.52.50.49.44 Singapore...70*.74.79.73.48 Indonesia... 2.40* 2.90 2.60 1.91 1.40* Malaysia....80*.62.47.25*.17 Thailand.....92*.98.95.92*.79* Oth. ctries... 2.70* 2.89* 2.65* 2.20 1.95 Total...... 28.95* 30.45 27.65 24.31 22.55 Change in ( Mn T ) -1.50* +2.80 +3.35 +1.76 +4.04 35 30 25 20 15 10 5 World Production of Biodiesel (Mn T) 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

In the short and medium term, palm oil can hardly react to declining prices High price volatility of vegetable oil prices in the past 15 years But producers of sun oil and rape oil have done that (farmers and crushers resonding) Supply response 2050 1900 1750 1600 1450 1300 1150 1000 850 700 550 400 250 100 Monthly Prices of 4 Oils (in US-$/T) SB O D utch Su n oil EU '98 '99 '00 '01 '02 '03 R ap e oil D utch C PO cif R'd am '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 January 1998 until July 2015

Soybeans: World Stocks as of end-august (Mn T) 100 World stocks of soybeans likely to rise to a record 88-89 Mn T at the end of 2014/15 season Are we at the beginning of a longer period of surplus stocks and depressed prices? Farmers haver started to react to the low prices 80 60 40 20 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Soybeans: World Stocks as of end-august (Mn T) 100 We are probably close to a turning point: After 3 years of sharp increases, world stocks of soybeans will probably decline slightly in 2015/16 Ongoing strong global demand for soybeans & products Shortage of other oilseeds 80 60 40 20 0 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

10 Oilseeds: World Area and Production 580 Production (Mn T) World production of 10 oilseeds doubling in the past 20 years. Is this trend sustainable? Strong demand Most recently, protein demand much stronger than that of oils Production falling in 2015/16 540 500 460 420 380 340 300 260 220 180 140 Area (Mn ha) 88/89 91/92 94/95 97/98 00/01 03/04 06/07 09/10 12/13 15/16

Monthly Prices of Soybeans, US (in US-$/T) 700 650 600 550 500 450 400 there 350 somebody to pick me up tomorrow at the 300airport 250 200 S oyb ea ns, US, cif R'd m 150 100 2004 1 0-yea r a ve ra ge (20 0 5-2 01 4) 20052006200720082009 20102011201220132014 January 2004 until July 2015

1100 CBOT: Daily Soybean Futures (c/bu) 1050 1000 950 900 850 Aug 2015 position Nov 2015 position Nov Dec Ja15 Feb Mar A pr May Jun Jly Daily futures from 1 Nov 2014 until 30 July 2015

1100 CBOT: Daily Soybean Futures (c/bu) 1050 39 CBOT: Daily Soya Oil Futures (c/lb) 1000 950 36 900 Aug 2015 position Nov 2015 position 33 850 Nov Dec Ja15 Feb Mar A pr May Jun Jly Daily futures from 1 Nov 2014 until 30 July 2015 30 27 Aug 2015 position Dec 2015 position Nov Dec Ja15 Feb Mar A pr May Jun Jly Daily futures from 1 Nov 2014 until 30 July 2015

SOYBEANS World Production (Mn T) and Area (Mn ha) Soybeans: setback in world production in 2015/16 (- 6 Mn T) BUT: Opening Stocks +23 Mn T 320 280 240 200 160 120 Production 80 40 Harvested Area 95 /96 97 /98 99 /00 01 /02 03 /04 05 /06 07 /08 09 /10 11 /12 13 /14 15 /16F

200 180 160 140 120 100 80 60 40 20 0 Mn T Soybean Crop Trend U.S.A. Argentina, Brazil & Paraguay 85/86 91/92 97/98 03/04 09/10 15/16F 82/83 88/89 94/95 00/01 06/07 12/13

In China farmers shift more land into corn and other crops Chinese soybean imports continue to rise CHINA, P.R. : Soybean Area and Production 18 17 16 15 14 13 12 Production (Mn T) 11 Harvested Area (Mn ha) 10 9 8 7 6 5 90/91 93/94 96/97 99/00 02/03 05/06 08/09 11/12 15/16F

USA (42%) Soybean Trade Flows in 2014 China (62%) EU-28 (12%) Brazil (39%) Mexico (3%) Paraguay & Uruguay (7%) Argentina (6%) Exports Imports

RAPESEED & CANOLA World Production (Mn T) and Area (Mn ha) 68 64 60 56 52 Production 48 44 40 36 32 28 Harvested Area 24 20 16 93 /9 4 95 /9 6 97 /9 8 99 /0 0 0 1/0 2 0 3/0 4 0 5/0 6 0 7/0 8 0 9/1 0 1 1/1 2 13 /1 4 15 /1 6F 92 /9 3 94 /9 5 96 /9 7 98 /9 9 00 /0 1 0 2/0 3 0 4/0 5 0 6/0 7 0 8/0 9 1 0/1 1 12 /1 3 14 /1 5

CANADA : Supply & Demand of Canola ( Mn T ) A u g u s t / J u l y 15/16F 14/15 13/14 12/13 11/12 Op. stocks 1.60* 2.44.59.75 2.19 Output...... 13.60* 15.75* 18.28* 14.02* 14.61 Imports......11*.07*.07.13.10 Exports..... 7.40* 9.04* 9.18 7.27 8.76 Crushings... 7.00* 7.30* 6.98 6.72 7.00 Other use....28*.32*.34.32.39 End.stocks...63* 1.60* 2.44.59.75 540 520 500 480 460 440 420 ICE : Daily Canola Futures (Can-$/T) November 2015 position 400 Jun14 Jly Aug Sep Oct Nov DecJa15 Feb Mar Apr MayJun Jly Daily futures from 4 June 2014 until 30 July 2015

Rapeseed Crush in Key Countries (Mn T) 24 21 18 15 EU-28 China Canad a India 12 9 6 3 0 95/96 97/98 99/00 01/02 03/04 05/06 07/08 09/10 11/12 13/14 15/16F J u l y / J u n e

Mn 2,5T 1,5 0,5-0,5-1 -1,5 Rapeseed Oil: Change of World Production 3 2 1 0-2 01/02 03/04 05/06 07/08 09/10 11/12 13/14 15/16

44 40 SUNFLOWERSEED World Production (Mn T) and Area (Mn ha) Production 36 32 28 24 20 Harvested Area 16 93 /94 95 /96 97 /98 99 /00 01 /02 03 /04 05 /06 07 /08 11 /12 09 /10 15 /16F 13 /14

Growing global dependence on soybeans due to insufficient supplies of softseeds Oct/Sept 2015/16: Crush of soybeans +16 Mn T of other oilseeds -4 Mn T 300 280 260 240 220 200 180 160 140 120 100 80 10 Oilseeds : World Crushings (Mn T) Soybeans 9 other seeds 97/98 00/01 03/04 06/07 09/10 12/13 15/16F O c t o b e r / S e p t e m b e r

World Production of 12 Oilmeals 2015/16 -- 329.8 Mn T 1995/96 -- 168.3 Mn T Soya meal 64,9% Soya meal 52,7% Others 17,5% Rape meal 10,8% Sun meal 6,3% Others 26,3% Rape meal 11,0% Sun meal 5,2% Fish meal 1,4% Fish meal 3,9%

Price implications of sharply rising soya meal supplies again in 2015/16 14 12 10 8 6 4 2 0-2 -4-6 12 OILMEALS : World Production Change from Previous Season (in Mn T) Soyameal 11 Other Meals 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16F

38 CBOT : Daily Soya Oil Share in % of total product value 36 Soya oil will have to finance a larger share of the crush value in the 2015/16 season 34 32 30 28 26 24 Nearest forward position Jan14 Feb Mar Apr MayJun Jly Aug Sep Oct Nov DecJan15Feb MarApr May Jun Jly Daily share from 1 Jan 2014 until 29 July 2015

70 17 OILS & FATS : World Production (Mn T) Dominance of Palm Oil: In 2014/15 PO & PKO account for 33% of world output (68 Mn) 62% of exports (49 Mn) On only 6% of the area 60 50 40 30 4 Animal Fats 20 10 Palm oil Soya oil 9 Other oils Rape oil Sun oil 0 93/94 96/97 99/00 02/03 05/06 08/09 11/12 14/15F

PALM OIL : Exports of Key Countries (Mn T) 50 Malaysia Indonesia 40 Rest of W orld 50 40 SOYA OIL: World Exports (Mn T) 30 20 10 there somebody to pick me up tomorrow at 20 the airport 30 10 0 00/01 02/03 04/05 06/07 08/09 10/11 12/13 14/15 O c t o b e r / S e p t e m b e r 0 00/01 02/03 04/05 06/07 08/09 10/11 12/13 14/15F O ctober/septem ber

35 INDONESIA: Palm Oil Production & Exports (Mn T) 30 25 20 Production Exports 15 10 5 there somebody to pick me up tomorrow at the airport 0 2001 2003 2005 2007 2009 2011 2013 2015F 2000 2002 2004 2006 2008 2010 2012 2014 J a n u a r y / D e c e m b e r

22 20 MALAYSIA: Palm Oil Production & Exports (Mn T) P roductio n E xports 18 16 14 12 10 there somebody to pick me up tomorrow at the airport 8 6 20 01 20 03 20 05 20 07 20 09 20 11 20 13 20 15F 20 00 20 02 20 04 20 06 20 08 20 10 20 12 20 14 J a n u a r y / D e c e m b e r

PALM OIL: Market Share in Sel. Countries 50 40 in % of 17 Oils & F ats China India EU-28 30 20 10 0 94/95 98/99 02/0 3 06/0 7 10/11 14/15 92/93 96/97 00/0 1 04/0 5 08/0 9 12/13

INDIA: Oilseed Crops and Imports of Oils (Mn T) 40 14 36 13 32 12 Crops 28 11 24 10 20 9 16 8 Imports of Oils 12 7 8 6 4 5 0 4 00/01 04/05 08/09 12/13 98/99 02/03 06/07 10/11 14/15F

14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 IN DIA: Imports of 17 Oils & F ats (M n T) Others Soya oil Palm oil 00/01 02/03 04/05 06/07 08/09 10/11 12/13 14/15F 99/00 01/02 03/04 05/06 07/08 09/10 11/12 13/14

12 10 CHINA: Imports of 17 Oils & Fats (Mn T) Others Soya oil Palm oil 8 6 4 2 0 0 0/01 0 2/03 0 4/05 0 6/07 0 8/09 1 0/11 1 2/1 3 1 4/1 5 F 9 9/0 0 0 1/02 0 3/04 0 5/06 0 7/08 0 9/10 1 1/12 1 3/1 4

In 2014/15 below-average growth in supplies in the 2nd consecutive year - Result in rel. high price premiums of palm oil over crude mineral oil - Higher seed oil output required, most of which has to come from soybeans (a meal seed) 5,5 5 4,5 4 3,5 3 2,5 there somebody to pick me up tomorrow at 2 the airport 1,5 1 0,5 0 PALM OIL : World Supplies Annual Change (Mn T) 00/01 02/03 04/05 06/07 08/09 10/11 12/13 14/15 O c t o b e r / S e p t e m b e r

250% INDONESIA: Average Rainfall in % 200% 150% 100% normal 50% 0% JULY 2015 JUNE 2015 MAY 2015 SUMATERA UTARA RIAU SUMATERA SELANTAN KALIMANTAN BARAT JAMBI ACEH SUMATERA BARAT

160% MALAYSIA: Average Rainfall in % 140% 120% 100% normal 80% 60% 40% 20% 0% JULY 2015 JUNE 2015 MAY 2015 SABAH JOHOR PAHANG PERAK SARAWAK SELANGOR KELANTAN

Palm Oil Trade Flows in 2014 EU-28 (16%) China (13%) India (13%) Malaysia (39%) Indonesia (52%) Exports Imports

World Production of 4 Major Oils 4 Change on Year in Mn T 3 2 1 0-1 -2 Palm Oil Sun Oil Soya Oil Rape Oil 10/11 11/12 12/13 13/14 14/15 15/16 O c t o b e r / S e p t e m b e r

Daily Prices of 3 Oils in Rotterdam (US-$/T) 1600 1400 1200 1000 there somebody to pick me up tomorrow at the airport 800 600 Coconut oil,phil/indo,cif Rott Palmkern oil, Mal./Indo., cif Rott. Palm oil crude, cif N.W. Eur Feb13 Jun Aug Oct Jan14 Apr Jun Aug Oct Ja15 Mar May Jly Daily prices from Febr 2013 until 29 July 2015

8 7 6 LAURIC OILS : World Production & Exports (Mn T) PKO exports CNO exports Palmkern oil production 5 4 3 2 1 0 Coconut oil production there somebody to pick me up tomorrow at the airport 99/00 01/02 03/04 05/06 07/08 09/10 11/12 13/14 15/16 O c t o b e r / S e p t e m b e r

700 600 500 400 300 200 100 0-100 Coconut Oil Premiums/Discounts of average prices in Rotterdam US-$/T vs Palm Oil vs Palmkernel Oil 2002 2004 2006 2008 2010 2012 2014 14 15 January / December Ja/Jly Philippines: Use of Coconut Oil & Palm Oil 1200 Thd T 1000 800 600 400 200 palm oil consumption CNO consumption 0 00/01 02/03 04/05 06/07 08/09 10/11 12/13 14/15

Trade of 17 Oils & Fats in 2014 EU-28 (14%) USA (6%) North Africa (5%) Russia & Ukraine (9%) China (12%) India (16%) Malaysia (24%) Indonesia (33%) Argentina (6%) Exports Imports

Substantial Growth in World Demand of the Oils/Fats!!

220 200 180 160 140 120 100 80 60 40 20 0 17 Oils & Fats : World Consumption biofuel Total Usage in Mn T food and other 89/90 92/93 95/96 98/99 01/02 04/05 07/08 10/11 15/16F

17 Oils & Fats 4 3 2 Growth of World Consumption (Mn T) to co ve r P op ulation G ro w th a dditiona l pe r c a put fo od u se for B iofue ls 1 0-1 -2 96/97 01/02 06/07 08/09 10/11 12/13 15/16F

8 VEGETABLE OILS: World Balance ( Mn T ) O c t o b e r / S e p t e m b e r 15/16F 14/15 13/14 12/13 11/12 Op g stocks 24.24* 23.98 22.28 21.98 19.57 Production 173.62* 168.69* 165.59 155.38 152.34 Change +2.9% +1.9% +6.6% +2.0% +5.4% Imports....... 76.84* 73.64* 70.97 69.89 66.14 Exports...... 76.99* 74.07* 71.11 69.76 66.29 Consumption 173.38* 167.99* 163.76 155.21 149.77 Change +3.2% +2.6% +5.5% +3.6% +4.5% End g stocks 24.33* 24.24* 23.98 22.28 21.98 Stocks/use ratio 14.0% 14.4% 14.6% 14.4% 14.7%

Future Challenges, Potential Risks & Opportunities

The Success Story of the past 30 Years Substantial growth in world production of palm oil In 1980: 4.6 Mn T or 8% of 17 oils & fats In 1990: 11.0 Mn T or 14% In 2000: 21.9 Mn T or 19% there somebody to pick me up tomorrow at the airport In 2010: 46.2 Mn T or 27% In 2012: 53.9 Mn T (plus 5.9 Mn T of Palmkern oil) In 2015: 62.1 Mn T or 30% (only 6% of area) In 2025 at least 90 Mn T of palm oil required

Oil palms the by far most productive crop How quickly can yields be raised? To produce 1 Tonne of soya oil requires 8 times as much acreage than in the case of palm oil 4 3,5 3 2,5 2 1,5 1 0,5 0 World Average Oil Equivalent (a) in Tonnes per Hectare Palm Oil Sun oil Rape oil Soya oil 10 years to 1995 10 years to 2005 10 years to 2015 (a) Calculated based on average crush and seed yield

World Production Growth of 4 Oils 30 25 20 15 Palm Oil Rape oil Cumulative Growth in Mn T Sun oil Soya oil 10 5 0 10 years to 2005 10 years to 2025 10 years to 1995 10 years to 2015

Acreage limitations. It will be increasingly difficult to expand oilseed and grain production into new areas. Biggest growth is likely to occur in Brazil, Russia and, possibly, on the African Continent. Yield improvement essential Further growth in palm oil plantings in Indonesia, Africa, Brazil and Central America, but little potential for expansion into new areas in Malaysia, Thailand and Papua New Guinea. Labour shortage could become an issue Water is another limiting factor. The big challenge for the future is to raise yields per hectare (oilseeds, grains, tree crops). But how quickly can yields (in the field) be increased? Replantings in Malaysia sharply behind requirements. Logistics, logistics, logistics. Summary

Price Prospects - - amidst many uncertainties: Prices have to be suffiencently attractive for marginal producers -- to generate the required supply growth in the years ahead Fluctuating, but downward potential for veg oil prices is limited Veg.oil prices are likely to continue to divorce from mineral oils (as long as mineral oils are offered below US-$ 70-75 per barrel). In the next twelve months likely downward pressure in meal to become bullish for oil. Seed oils will have to finance a larger share of the crush value (rising oil share). Key uncertainties: Weather and crop development ( duration & magnitude of the current El Niño), farmer selling, currencies, politics,

Palm oil prices may soon bottom out - - getting support from rape oil and soya oil (rising oil share) Upward potential in Oct/March 2015/16 and beyond Assuming some yield losses from El Nino, I expect upward potential of fob export prices for crude & processed palm oil by 50-100 US $ in the next 6-7 months, mainly in Jan/March 2016 1400 1300 1200 1100 1000 900 800 700 600 500 400 300 Monthly Prices of Palm Olein fob (US-$/T) R BD palm olein, fob M alaysia 10-year average from Jan 2 005 until D ec 2014 Jan04 Jan05 Jan06 Jan07 Jan08 Jan09 Jan10 Jan11 Jan12 Jan13 Jan14 Jan15 Monthly prices from Jan 200 4 until July 20 15

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