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CHS Presentation ACE Ethanol Annual Conference Ethanol & DDG Exports Max Thomasson & Sean Broderick CHS August 2018 © 2014 CHS Inc. Farmer-owned with global connections. 2017 WHO IS CHS? • USA’s leading cooperative, owned by farmers, ranchers and co-ops • Global energy, grains and foods business • Helping producers, co-ops and customers grow their businesses SERVING U.S. AND THE WORLD • Supplying grain and other products to customers in 70 countries • Employing more than 12,500 people in the U.S. and 24 other countries • Serving U.S. farmers, ranchers and rural America for more than 85 years • Committed to global grain and agronomy CHS GLOBAL OPERATIONS CHS RENEWABLE FUELS GLOBAL FOOTPRINT Winnipeg Geneva Kiev Duluth/Superior Amsterdam Barcelona Seoul Minneapolis Mumbai Tokyo Romania, Amman Myrtle Grove Hungary, Shanghai Bulgaria, Hong Kong Taiwan Serbia Pipavav Nhava Sheva Ribeirao Subic Bay Preto Singapore Brazil Sao Paulo Australia Argentina TALKING POINTS • CURRENT GLOBAL MARKETS • US EXPORT DESTINATIONS • OPPORTUNITIES • THREATS WORLD ETHANOL PRODUCTION 2017 (MILLION GALLONS) Canada 450 Winnipeg Kiev Europe China Duluth/Superior USA 1,415 875 15,800Barcelona Wheat / Beet Seoul Corn/Cassava Corn PakistanTokyo Romania, Amman Myrtle Grove Corn Hungary, 128 Molasses Bulgaria, Hong Kong Taiwan India Serbia 280 Molasses Thailand 395 Colombia Molasses / Cassava 123 Brazil Brazil 7,060 Australia South Afirca Sugarcane / Molasses Australia 103 Argentina 71 Argentina 310 Source: RFA GLOBAL SUPPLY / DEMAND BALANCE 2018 Source: GreenPool 10 US NAMEPLATE CAPACITY Source: EIA US DOE FUEL ETHANOL TOTAL PRODUCTION (MILLION GALLONS/DAY) Source: Bloomberg US ETHANOL PRODUCTION EST. 2018 PRODUCTION (000 GAL/YR) TOTAL NAMEPLATE CAPACITY 15,505 PRODUCTION ABOVE NAMEPLATE 310 CAPACITY ADDITION/EXPANSION 2018 287 ESTIMATED TOTAL PRODUCTION FOR 2018 16,102 13 DOE TOTAL FUEL ETHANOL INVENTORY (MILLION GALLONS) Source: Bloomberg US ETHANOL BALANCE SHEET-ANNUAL MILLION GALLONS Need additional Predicting record export demand exports for 2018, but a more modest increase expected after trade issues with China TALKING POINTS • US EXPORT DESTINATIONS ANNUAL U.S. EXPORTS 2018 estimated TOP MARKETS FOR US EXPORTS IN 2017 Canada Winnipeg 24% Kiev Europe Duluth/Superior 2% Korea Barcelona Rest of Seoul 3% the World China UAETokyo Romania,5% Amman Myrtle Grove Jamaica 3% 2% Mexico Hungary, 1% Bulgaria, India 2% Hong Kong Taiwan Philippines Serbia 13% Colombia 5% Nigeria Singapore 1% 2% 2% Peru 3% Brazil Brazil Australia 34% Argentina Source: RFA U.S. EXPORTS 2018 YTD (MILLION GALLONS) Source: EIA U.S. EXPORTS COMPARISON (MILLION GALLONS) Source: Census GLOBAL ETHANOL FLOW 2017 Canada 264 MYG Fuel Grade Europe 80 MYG China 13 MYG USA Hydrous Grade Fuel Grade 250 MYG Fuel Grade Japan & Korea 185 MYG Grade B (+80 MYG Fuel Grade Pakistan 2018) Guatemala, India 158 Taiwan Peru, Bolivia MYG Fuel Singapore 3 MYG Grade 10 MYG Hydrous Hydrous Vietnam Africa Philippines 10 MYG Fuel Grade 117 MYG 122 MYG Brazil Fuel Grade 267 MYG Fuel Grade Source CHS TALKING POINTS • OPPORTUNITIES BLENDING OCTANE RATING OF GASOLINE COMPONENTS 23 BLENDING COMPONENT PRICE COMPARISON 24 IN 2020, CHINA E10 POLICY WILL BE APPLIED NATION WIDE 2016 China mandatory region for biofuel 2020 China mandatory region for biofuel Provinces having ethanol consumption mandatory Provinces having ethanol consumption mandatory Provinces with some cities having ethanol mandatory No ethanol mandatory Source: CHS analysis CHINA GASOLINE AND ETHANOL CONSUMPTION BY 2020 China consumption of gasoline vs. ethanol (000 MT) 167,000 Gasoline consumption Ethanol consumption 113,685 x% Ethanol percentage of gasoline 97,764 93,664 81,409 73,960 68,862 61,455 61,727 55,191 Fuel consumption Growth CAGR: 9% 10% (E10 requirement) 16,700 3% 3% 3% 3% 2% 2% 2% 2% 2% 1,660 1,710 1,720 1,820 1,770 1,620 1,700 1,900 2,300 2007 2008 2009 2010 2011 2012 2013 2014 2015 2020 (Estimated) • In the past 8 years, China ethanol consumption is less than 3% of its gasoline consumption; • If E10 policy is enforced and fuel consumption growth rate at 8%, to reach this target in year 2020, there will be a 16.7 million tons demand of ethanol product. Source: China Statistic Bureau report 2015, China Renewable Energy Center CHINA - “E10 POLICY” China Ethanol policy: Enforcing 10% ethanol added into gasoline nationwide in 2020 16,700 Implementation of E10 will accelerate China Ethanol consumption ('000 MT) ethanol expansion in China in the coming 3~5 years Growth CAGR: • In 2020, gasoline should contain 10% of 185% ethanol nationwide – today demand of gasoline containing bio-fuel in the mandatory region only accounts for 1/5 Growth CAGR: 4% of the country. 2,300 • If the policy is fully implemented before 1,660 2020, ethanol demand will be 16.7 million MT, a 13.5 million MT increase compared with 2016; 2007 2010 2015 2020 Source: China Renewable Energy Center GAP IN ETHANOL DOMESTIC SUPPLY: CHINA CURRENT CAPACITY IS ONLY 2.8 MILLION TONS, 3 MILLION TONS TO BE ADDED China major ethanol producers Heilongjiang (1.62 million China alcohol and ethanol capacity MT) Inner Mongo (0.33 million MT) COFCO: 500 K (already built) and output (estimated) Zhongxing: 30 K Guotou/xiangyu: +600 K in 2017 (‘000 MT) Liniu: 150 K + 150 K Shenglong: 70 K (+150 K) Hongzhan: +300 K Alcohol 95% Absolute Ethanol Henan (0.6 million type alcohol alcohol MT) Jilin (0.6 million MT) Tianguan: 600 K Jilin Ethanol: 600 K Liaoning (0.6 Capacity 2,800 12,150 2,000 million MT) Hubei (0.1 million Guotou: +600 K MT) Output 2,500 5,600 1,000 Honghu: +100 K Shandong (0.2 million Jiangxi (0.1 million MT) MT) Anhui (0.45 million Longli: 50 K China Ethanol capacity built and Yufan: +100 K MT) FuEn: +150 K COFCO: 450 K planned (‘000 MT) Guangxi (0.2 million Jiangsu (500 K MT) Being Year 2014 Year 2017 Planned MT) Hongzhan: +100 K Zhejiang (0.3 million constructed COFCO: 200 K Lianhai: +300 K MT) Kailin: +100 K Zhejiang Fuel: +300 K Guangdong (0.15 2,330 2,800 1,850 1,200 million MT) Hainan (0.1 million Guotou: 150 K MT) Yedao: +100 K These are the key measures to watch * Capacity for liquor (drinks) production and blending are not listed Source: China JCI report, China Renewable Energy Center report, COFCO report INDIA – PROJECTED ETHANOL DEMAND (MILLIONS OF GALLONS) • India Gasoline demand predicted grow 5% yoy • Current demand 9.2 billion gallons • Current blending is E2.5% (230 MYG) target E10 • E10 Equates to ethanol demand of 920 MYG • Total Ethanol Production India 870 MYG • Ethanol production available for blending 340 MYG • 580 MYG deficit (potential for imports and growing) (All in Gallons) 2016 2017 2018 2019 2020 2021 2022 2023 2025 2026 Gasoline Projected Demand 8,561.6 9,223.9 9,937.1 10,705.9 11,534.1 12,426.2 13,387.2 14,422.8 16,740.1 18,035.1 10% Ethanol Blend 856.2 922.4 993.7 1,070.6 1,153.4 1,242.6 1,338.7 1,442.3 1,674.0 1,803.5 Ethanol Available via Molasses Route (assumes 26 MGY supply growth) 317.0 343.4 369.8 396.3 422.7 449.1 475.5 501.9 528.3 554.8 Ethanol Deficit 539.2 579.0 623.9 674.3 730.7 793.5 863.2 940.3 1,145.7 1,248.7 29 FUTURE OF INDIAN ETHANOL • National Biofuel Policy set out a E20 Target by 2017 which works out to 1.45 Billion Gallons; Unrealistic Scenario but underscores the Indian Government’s support of the Fuel Program • E10 is unlikely without changes in import policy for government owned oil marketing companies • Imports for Industrial use will continue, while domestic producers support the Ethanol Blending Program but only while margins and domestic feedstock prices support that arbitrage. EXPORT GROWTH • China - E10 by 2020 means 5.6 BYG of demand (currently produces 875 MYG), potential is huge • Brazil - (20% TRQ), but Ottocycle demand is back in positive territory and domestic production continues to decline (264 MYG exports predicted 2018) • India - (E10 – 920 MYG annual demand [580 MYG imports]) growing 5% yoy • Japan - (start taking ETBE made from US ethanol = 92 MYG incremental demand) • Philippines - (E20 target [E10 today] – 80 MYG incremental demand) • Vietnam - E5 by 2018 (76 MYG), E10 by 2020 (153 MYG) • Europe ? • Phase out of Petrol and Diesel by 2040 – impact on ethanol consumption? • Mexico (E10 – 1.2 billion gallons demand) • TOTAL DEMAND GROWTH has real potential. 31 EXPORT OUTLOOK • China – Favorable pending trade talks – in the hands of politicians now • Brazil – favorable outlook as their balance sheet remains tight and will take beyond quota. Stocks forecasts have increased of late. • Philippines – business as usual • India – Increased blending w/gas this year (6% vs 2.6%) will increase opportunities • Canada – Clean fuel standard should increase blending starting 2019 • SE Asia – seeing growth • Arab Gulf- Gas/ethanol spread favorable 32 SUMMARY • Brazil domestic production challenged • Global demand continues to grow, mandate driven • Sleeping giants China, India and Mexico • Demand for low greenhouse gas biofuels will grow • Cleaner air and energy independence – solid premise • Population growth (middle class in Asia) • Lack of investment in new production facilities GLOBAL INVESTMENT IN BIOFUELS (BILLIONS US$) Source: Statista TALKING POINTS • THREATS THREATS • USA surplus production • US Administration policy direction change • Global Mandates revoked • Global uncertainty – financial, economic, social turmoil • Can US market access keep pace with export demand? • Funding incremental cost of producing export grades in a low margin environment U.S. MONTHLY EXPORTS 37 US DDGS U.S. DDGS PRODUCTION VS U.S. EXPORTS 45 100.00% 40 90.00% 80.00% 35 70.00% 30 60.00% 25 50.00% 20 40.00% Export % Per Million MT 15 30.00% 10 20.00% 5 10.00% 0 0.00% 2011 2012 2013 2014 2015 2016 2017 2018 (YTD) U.S.
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