Global Economic Outlook for Ethanol Producers

Joe Harroun Advance Trading, Inc (ATI)

Advance Trading, Inc

• Started in 1980, employee owned S Corporation • Experts in the industry to provide advisory and

execution services to agribusiness worldwide. • Well established, profitable firm, low turnover • Top quality personnel with an industry leading

proven track record • Branch office network spans U.S. Cornbelt • Main office in Bloomington IL

Crude oil prices collapse. 10 year treasury notes 2.16%, US Dollar very strong… Market is probing levels that shutter

inefficient crude oil producers.

The breakeven price for every international oil company project through 2020

Source: Ed Morse

EIA Short Term Energy Outlook –Supplies outpace Demand The 2015 global demand forecast was also revised downward by 0.2 million bbl/d to an average of 92.3 million bbl/d, based on weaker global economic growth prospects

for next year.

Source: EIA

Crude Oil WTI Seasonal Chart

Source: HDEA Analytics

Crude Oil Brent Seasonal Chart

Source: HDEA Analytics

ULSD Heating Oil Seasonal Chart

Source: HDEA Analytics

Gasoline Seasonal Chart

Source: HDEA Analytics

Chicago Ethanol ITT Seasonal Chart

Source: Platts

Many will say this simply reflects tightness in front month ethanol for Chicago, yest traded $2.08/g ITT Argo, while CBOB was pegged at $1.53/g, diff $.55/g

Corn Seasonal Chart

Source: CME Group

Ethanol close to RBOB Q1 ’15, by driving season more normal, reflective

nearby Chicago strength in ethanol

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RBOB - Ethanol (CU)

Global Factors Impacting Ethanol Mfg

• Price relationships • Blend economics worldwide • Economic health of key trade partners • Renewable fuel policies globally • Co-product demand • Feedstock supplies

Midwest Corn Gross Cash Crush Ethanol Seasonal

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Anyone can operate a plant. We make it or lose it by buying , selling and converting better than the competition. A plant is a thing we must put up with as an operating base for exercising our procurement, trading and merchandising skills. Economics of Futures Trading, Thomas A Hieronymus, 1971

Chicago In Tank Ethanol Price 12 year average Hi to Low $1.22/g

1.04 1.40 1.77 2.06 2.29 2.62 1.84 2.21 2.89 3.03 2.92 2.85 RBOB 31 41 57 66 72 99 62 79 95 94 98 95 WTI

Source: Platts, CME Group

Chicago In Tank Seasonal Average Monthly Price & Variation

2003-2014

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Source: Platts

Record high Q3 ‘14 Earning Highlights • REX 12/4/14 record third-quarter net income of $23.3 million

– We have not sold out all of our ethanol in the future markets and can take advantage of more favorable spot or index pricing,"

– "We have no long-term hedges out there; everything is either spot or index pricing. Most people in the industry, I imagine, are on index or spot pricing because ... there is no real market to hedge if you look at the futures market,“

• ANDE 11/6/14 Ethanol Group net income for the quarter was $21.3 million, up from $10.9 million LY

– Looking ahead, CFO John Granato told analysts on a conference call that the company has hedged 85% of its anticipated fourth-quarter production and almost half of its anticipated January production. However, those hedges are not locking in the extraordinary profits enjoyed in ethanol and DDGS at times in the last year.

• GPRE 10/29/14 Third-quarter 2014 EBITDA $91.4 million, compared with $37.4 million same period in 2013.

– As Becker explained on a conference call with analysts on Wednesday, for the fourth quarter of this year, the company is approximately 65% hedged as of today, with approximately 50% open for the remainder of November and December.

– "We locked margins away before the current correction, but we are starting to see those margins recover quite nicely and believe the rest of the quarter has excellent market fundamentals to build on," he said.

Chicago In Tank Seasonal Average Monthly Price 2003-2014, ’15 paper

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2015 Chi Platts LT LowLT average Cash Chi ST MIN 2010-2014ST MAX 2010-2014 ST Average 2010-20142004

Source: Platts, CME Group

LT=Long Term, 14y ST= Short Term, 5y

US Ethanol Fundamentals

So if Run-rate expectations of 957kbpd Q1 ’15 are realized AND exports verify at 58 kbpd Q1 ’15, then Inventory builds to 21-22 mln bbls Q1 How might we avoid that build ??? To hold stocks at 18 mln bbls in Q1, presuming stronger NI & limited imports Q1 Run-rates at 927 vs. 909kbpd LY would do it Or Q1 Exports at 88kbpd vs. 64kbpd LY would do it -- After Q1 US driving season and exports may help keep inventories in check

Cash gasoline & ethanol Chicago

Source: Reuters/Eikon

Keeping tabs on US ethanol imports Spike in US ethanol in Nov sparked fuel imports, above and beyond the nominal flow of imports devoted to re-

exported products, < 100 mgy imports expected

286, 44%

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Brazil

United Arab Em

Philippines

Korea

Mexico

Spain

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Tunisia

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Israel

January – October 2014, US Ethanol Exports , Mln G, % ttl

Source: U.S. Census

January – October 2014, US Ethanol Exports , Mln G

Source: U.S. Census

2014 January February March April May June July August September October November DecemberCanada 19,275,522 17,120,880 28,333,956 48,379,086 30,497,880 34,006,056 33,393,822 32,249,700 28,440,846 22,966,650 294,664,398Brazil 23,941,806 12,963,888 13,906,620 9,357,558 5,232,822 0 11,594,688 0 766,626 77,764,008UAE 12,357,408 6,902,658 7,988,904 0 3,891,552 5,016,606 8,241,408 5,046,678 2,558,766 16,336,236 68,340,216Philippines 5,452,020 0 8,684,004 2,728,320 2,715,426 2,662,044 0 5,265,834 7,899,192 16,254,084 51,660,924EU 484,848 13,947,696 2,486,508 429,198 2,960,706 5,632,494 6,360,942 235,536 8,934,912 1,429,764 42,902,604South Korea 1,370,838 3,760,386 4,097,604 3,109,176 4,713,282 2,839,788 49,518 2,714,964 1,066,758 6,860,280 30,582,594Mexico 3,365,124 2,172,366 2,184,546 578,886 2,119,908 5,872,902 3,503,892 2,383,248 2,434,614 3,948,756 28,564,242Jamaica 2,554,482 2,562,000 4,156,278 25,368 17,346 2,504,628 35,070 2,610,804 14,465,976Tunisia 2,770,530 0 0 0 11,268,012 14,038,542Peru 2,112,978 3,286,920 2,091,558 3,243,576 2,049,516 0 12,784,548Spain 4,310,544 4,726,344 3,347,988 12,384,876India 10,725,582 5,544 33,978 11,214 12,558 10,788,876Nigeria 3,172,008 0 3,415,986 0 3,602,214 10,190,208Netherlands 5,344,668 1,277,682 6,622,350China 3,304,266 3,304,266Colombia 1,018,962 1,018,038 1,010,646 0 41,412 3,089,058Singapore 1,028,874 247,002 1,275,8762014 Total gal 86,489,130 62,566,434 79,585,950 66,710,364 55,446,468 64,894,578 67,905,684 54,802,440 63,667,422 81,355,092 85,680,000 78,120,000 847,223,562bpd 67,963 49,164 62,538 52,421 43,569 50,994 53,360 43,063 50,029 63,928 67,327 61,386

If we get strong exports as expected in Nov-Dec, annual exports look to be 850 mln g The concern in the trade is the customers without mandates e.g. UAE, South Korea, Mexico, Tunisia, Nigeria, China will buy on energy and relative octane value to substitutes Like Akylate, MTBE, and others

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GDP YoY change for Key Ethanol Importers Reasonable

Source: World Bank

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Crude Oil Consumption

Canada U.S.

Real per capita GDP projected to grow 1.2 and 1.6% for Canada and US respectively leading to potential increased energy use next year of about 1.3%. If the 35% reduction in crude oil holds, this could double growth rates based on GDP alone

Source: World Bank, ATI

Source: World Bank, ATI

As a basic input to many industries, Copper prices are not indicative of strong economic activity

China Crush Margins despite record soybean imports are not on fire

Source: The Economist

Canada #1 US ethanol market • Actual ethanol blend exceed 5%

federal mandate because of positive blend economics since 2011

• Federal ethanol mandate requires only 528 mln g ethanol

• 2014 estimated consumption 821 mln g ethanol

• 2014 production capacity 461 mln g from corn & wheat feedstocks

• 2014 imports projected 365 mln g • If blend economics turn negative,

will demand revert to 5% federal mandate?

• Big focus on advance renewable fuel from indigenous Canadian industries

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Canadian Ethanol Blend Rate

• Due to NAFTA no tariff on US ethanol, while Brazil has a 5c/liter tariff

World Renewable Fuel Stakeholder

• Brazil - Sugarcane and soon corn ethanol producer – While Brazil’s sugar/ethanol industry profits are limited,

the fact remains that October 2014 Center / South inventories are 66.5 mln bbls, up from 52.0 mln bbls LY.

– Sugar mills can shift 10% between sugar and ethanol, this allowed Brazil to build huge inventories despite a short crop of sugarcane

– 70% of Brazil’s power comes from Hydro, electricity prices vary widely, due to drought $.3/KW-Hr, therefore Begasse (cane residue left after sucrose extraction is valuable. Begasse powers the entire plant and puts power back on the grid

World Renewable Fuel Stakeholder

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Total BRAZIL Sugar cane Production

10% grown in north east – Sep – March 90% grown in center/south – April - November

Brazil – Renewable fuel policies Dilma reelection means a few bones thrown to sugar/eth

– Blend rate changes from 25 to 27.5% by May 1, 2015, raising demand approx 1.1 Bln liters/291 mln g or 6.9 mln bbls or 1.84 mln mt of VHP sugar.

– CIDE Taxes may be reinstated. These taxes would impact gasoline, which if confirmed may help the domestic hydrous ethanol demand slightly

– No changes expected in ICMS taxes which complicate the movement of ethanol between states and limit moves to the 3 wholesalers that run 80% of the 40 B gal gasoline market in Brazil, of which about 6B is ethanol, 50/50 hydrous/anhydrous

– Investments in 2nd generation and corn etoh just starting – Weak currency aides exports

Cane Harvester

Source: AT Educational Excursion September 2014

Cane Harvester

Source: AT Educational Excursion September 2014

Cane transportation

Source: AT Educational Excursion September 2014

Transportation Equipment

Source: AT Educational Excursion September 2014

Asian Ethanol Policies Key to US Ethanol Exports

• The Philippines – Gasoline use 1.2Bgy – @10% = 120 mgy – Domestic production 46mgy – Imports 77 mgy – Weather / Typhoon impacts

• Thailand – Gas demand 2.2 Bgy – @13.4% = 300 mgy – molasses 55%, Cassava 30%, 15% sugarcane – Zero imports of ethanol – Growth in E20 and E85 may limit exports – Exports: 2009 4mgy, 2010 12, 2011 44, 2012 80, 2013 17 mgy

Philippine Ethanol Imports Mln gCountry of Origin Jan - Oct

2011 2012 2013 2014USA 15 2 20 52Brazil 0 0 12Subic Freeport 18 25 13Thailand 6 23 10Vietnam 3 2 7Australia 0 7 5Indonesia 1 0 2Singapore 5 6 1Korea 10 1 1Others 0 0 9Totals 57 66 79

U.S. - Renewable Fuel Policies • Status quo – limited to no growth policies • Obligated parties yet to turn in 2013 RINS • Obligated parties yet to know RVO for 2014

maybe buy April 2015? • Obligated parties continue to buy cellulosic

waiver credits in lieu of buying cellulosic because the cost 25c/rin g plus inflation since 2008, and if cellulosic mandates are revised lower obligated parties are refunded full value of waiver credits… this kill’s commercial activity dependent on cellulosic (D3) rins.

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SON DJF MAM JJA

Producer Marketing Corn History 2015 suggests slow start, and cash basis has been firm suggesting we may seem a merchandising 101 axiom to create movement 1) basis rallies, 2) futures spreads firm or narrow 3) flat price rallies – we are not far from $4.00 cash corn today

Corn Supply & Demand

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