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Cargill Risk Management © 2017 Cargill, Incorporated. All rights reserved.CONFIDENTIAL. This document contains Cargill Confidential information. Disclosure, use or reproduction outside Cargill or insideCargill, to or by those who do not have a need to know is prohibited. © 2017 Cargill, Incorporated. All rights reserved.

Risk Management

Cargill Risk Management

October 3, 2017

Cargill Risk Management © 2017 Cargill, Incorporated. All rights reserved.www.cargill.com

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Cargill Risk Management © 2017 Cargill, Incorporated. All rights reserved.

Source: USDA

If realized this would be the third highest yield ever for corn.

4


Source: USDA

1,685 1,673 1,708

1,128

989

821

1,232

1,731 1,737

2,350

2,335

0

500

1,000

1,500

2,000

2,500

07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 Sep

CORN ENDING STOCKSThis would be the second straight year ending stocks could end above the trendline.

5


Source: USDA

12,092

13,092 12,447 12,360

10,755

13,829 14,215 13,602

15,148 14,184

13.9%13.1%

8.6%7.9% 7.4%

9.2%

12.6% 12.7%

16.1% 16.4%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

US CORN PRODUCTION VS STOCKS TO USE

Production Stocks to Use Source: USDA

6


Hedge Fund Corn Position

7

-161615

67073

39802

-17073

-64945

-109723

-200000

-150000

-100000

-50000

0

50000

100000

Week ending8/1/2017

Week ending8/8/2017

Week ending8/15/2017



Week ending9/5/2017

CZ7 closed at $3.56 3/4CZ7 closed at $3.88

Source: CFTC


Corn – Short Term Market FactorsSouth American competition with the U.S. exports along with potential for increased Chinese imports

Year over year increase of U.S. ending stocks on the back of the third highest yield

South American weather; early dryness & initial talk of La Nina

Commodity Funds potential to add to short position or reduce

Farmer profitability

8


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Source: USDA

Record Yield

10


Source: USDA

683.95 687.24

649.46

697.32

658.60

715.08

727.98735.30

753.31743.18

26.6%

31.3%30.5%

28.8%

25.8%

28.2%

31.1%

33.9%34.6%

35.9%

25.0%

27.0%

29.0%

31.0%

33.0%

35.0%

37.0%

39.0%

41.0%

43.0%

45.0%

580.00

600.00

620.00

640.00

660.00

680.00

700.00

720.00

740.00

760.00

780.00

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

GLOBAL WHEAT PRODUCTION VS STOCKS TO USE

Production % Ending Stocks of Domestic Use Source: USDA

11


Source: USDA

2,512

2,209 2,163 1,993

2,252 2,135

2,026 2,062

2,310

1,739

28.7%

48.6%

36.4%33.4%

29.9%

24.2%

37.3%

50.0%53.4%

43.6%

15.0%

25.0%

35.0%

45.0%

55.0%

65.0%

75.0%

0

500

1,000

1,500

2,000

2,500

3,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

US ALL WHEAT PRODUCTION VS STOCKS TO USE


12


Source: USDA

306

657

976

861

743 718

590

753

976

1,184

933

38.1

0.0

10.0

20.0

30.0

40.0

50.0

60.0

0

200

400

600

800

1,000

1,200

1,400

07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18Sep

U.S. Wheat Ending Stocks

ENDING STOCKS Harvested Acres

Less planted acres will lead to lower ending stocks.

13


Hedge Fund Wheat Position

14

12190

-14101

-34236

-66751

-77529-86570

5418748935

34609

2377018060 14985

10808 10708 8159 8724 8119 7442

-100000

-80000

-60000

-40000

-20000

0

20000

40000

60000

80000

Week ending8/1/2017

Week ending8/8/2017




Week ending9/5/2017

WHT (SRW) WHT (HRW) WHT(HRS)

Source: CFTC

Funds have been aggressive sellers of Chicago and Kansas City wheat since the August10 report.

14


Wheat – Short Term Market FactorsReductions in U.S., Australian, & German crops offset by record Russian Production

Russian export flows limited by capacity constraints & competition for corn and barley exports

US stocks reducing off of last year’s highs due to the lowest planted acres in over 100 years, Spring Wheat high protein crop a supply concern

Commodity Funds increased short position in Chicago and maintain long position in Kansas City and Minneapolis

Growing season weather in Southern Hemisphere and winter conditions in North

15


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Source: USDA

398,979

447,518 461,144 447,637475,568

504,222537,580

521,350

572,526 578,598

14.1%

17.6%19.1%

14.3% 14.5%15.8%

17.9% 17.3%

19.6% 19.1%

8%

13%

18%

23%

28%

200,000

250,000

300,000

350,000

400,000

450,000

500,000

550,000

600,000

WORLD OILSEED PRODUCTION VS STOCKS TO USE

(COPRA, COTTONSEED, PALM KERNAL, PEANUT, SOY, SUNFLOWER)


17


Source: USDA

134,943142,436

149,080158,415 161,614

171,802177,184 176,687

185,750195,093

12.0% 12.1%13.4%

14.9% 13.9% 14.5% 14.2%11.4% 10.2% 10.8%

5%

10%

15%

20%

25%

30%

35%

40%

100,000

120,000

140,000

160,000

180,000

200,000

220,000

World Vegetable Oil Production vs Stocks to Use

(Coconut, Cottonseed, Olive, Palm, Palm Kernal, Peanut, Rapeseed, Soy, Sunflower)


18


3,274 4,896

63,191

5,794

29,415

55,742

17,007

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Coconut OilConsumption

Cottonseed oilConsumption

Palm OilConsumption

Peanut OilConsumption

Rapeseed OilConsumption

Soybean OilConsumption

Sunflowerseed OilConsumption

MM

TGlobal Consumption

2013/2014 2014/2015 2015/2016 2016/2017 2017/2018


48,61351,894

55,66358,567 61,070

58,08361,557

66,855 66,8553788

3175

24382659

22662485

3109

2737 2737

0

500

1000

1500

2000

2500

3000

3500

4000

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Thou

sand

Met

ric T

ons

Palm Oil Global Production/Consumption

Total Production Total Consumption Futures

20


Source: USDA

205

138151

215

169

141

92

191 197

345

475

0

50

100

150

200

250

300

350

400

450

500

07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18

US Soybean Ending Stocks 2017/18

The highest ending stocks since 2006/07 - 573 million bushels

21


Source: USDA

Record Yield

Could be the second largest yield (If realized).

22


Hedge Fund Soybean Position

23

39795

12913

-14399

-23394-28367

-11944

-40000

-30000

-20000

-10000

0

10000

20000

30000

40000

50000

Week ending8/1/2017

Week ending8/8/2017




Week ending9/5/2017

The funds switched to a short position after the USDA raised the estimated yield surprising the market on the August 10 report.

Source: CFTC


Hedge Fund Soybean Oil Position

24

6791365015

46030 44604

66871

88634

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

Week ending8/1/2017

Week ending8/8/2017




Week ending9/5/2017

This is their longest position since January 2017

Source: CFTC


Vegetable Oils – Short Term Market Factors

10 year production high for 6 major oilseed crops

Palm oil production led by Indonesia and Malaysia at multi year highs

Strong South American crop last year followed by a strong US crop

South American weather and early prognosis for La Nina a swing factor

Biodiesel policies in US, South America and Europe a demand swing factor

25


• Align to business objectives

• Manage exposure based on robust risk measures

• View this as a competitive advantage

Cargill Risk Management © 2017 Cargill, Incorporated. All rights reserved.27

• Defend market share (prevent lost ground to competition)• Protect margins (maintain profit margins in the face of

pricing pressure)• Secure budgets (achieve a more predictable and

profitable future)• Stabilize pricing (mitigate swings in commodity prices)• Eliminate surprises (avoid being caught off guard by the

unknown)• New avenues of business (engage in new opportunities)

Where others see risk we see opportunity


Audit

Risk Management: It’s a balancing act


EFFECTIVE HEDGING STRATEGY29

Hedging strategies should involve a diverse set of components and scaling into positions.

Cargill Risk

ManagementTailored

Solutions%

Cargill Risk

ManagementVanilla

Options%

Other Pricing

Mechanisms%

Portfolio Diversification


1. The non-correlated behavior of different tools.

2. Reduces cost and volatility.

3. Outcome of each tool is different, complements each other’s weaknesses.

Why this combination of tools?

30


Risk management collaboration

31

•Regular face to face meetings

•Regular conference calls to align market opportunities with gameplans

•Swaps, Options, and Cargill Risk Management Instruments

•Understand customer objectives

•Continue to stress & calibrate against plan

•Daily valuation of positions

•Monthly statements

Tracking Planning

CommunicationExecution


1. Design a hedging policy. Establish boundaries, rules and limits to guide work objectives.

2. Establish a Risk Committee. Representatives from commercial, trading, credit, control and treasury should meet regularly and deliberate about positions, results, stress testing, portfolio concentration, sudden changes in market conditions and limits.

3. Identify and hire the right talent. A combination of experienced talent from within the organization and individuals from outside the confines of the company can create a complementary and fresh approach.

4. Set up a recurring review schedule. Establish weekly meetings to review exposures, trends, market data, policy, proposals and exceptions.

The 8-Step Checklist


5. Define the max concentration of each tool within your hedging portfolio. Every tool within your portfolio needs to have a defined goal of why is it used and how it helps achieve specific objectives--as well as its downsides. Define a max concentration limit for each tool to avoid excesses.

6. Practice recurring stress testing. Put the team and company through the paces of different financial scenarios (i.e., “stress testing”) and share the results at the weekly committee meetings.

7. Set up schedules for annual external reviews and benchmarks. Bring in an independent financial consultant/firm to review results from the prior year, assess risks, and help create benchmarks to measure against in the year ahead.

8. Set strict limits for exception approvals. Create a short list of executives within the organization who can approve exceptions.

The 8-Step Checklist


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DISCLAIMERThese materials have been prepared by personnel in the Sales and Trading Departments of Cargill Risk Management, a business unit of Cargill, Incorporated based on publicly available sources, and is not the product of any Research Department. These materials are not research reports and are not intended as such. These materials are for the general information of our customers and are a "solicitation" only as that term is used within CFTC Rules 1.71 and 23.605, as promulgated under the U.S. Commodity Exchange Act. These materials are provided for informational purposes only and are not otherwise intended as an offer to sell, or the solicitation of an offer to purchase, any swap, security or other financial instrument. These materials contain preliminary information that is subject to change and that is not intended to be complete or to constitute all of the information necessary to evaluate the consequences of entering into a swap transaction and/ or investing in any securities or other financial instruments described herein. These materials also include information obtained from sources believed to be reliable, but Cargill Risk Management does not warrant their completeness or accuracy. In no event shall Cargill Risk Management be liable for any use by any party of, for any decision made or action taken by any party in reliance upon, or for any inaccuracies or errors in, or omissions from, the information contained in these materials and such information may not be relied upon by you in evaluating the merits of participating in any transaction. All projections, forecasts and estimates of returns and other “forward-looking” information not purely historical in nature are based on assumptions, which are unlikely to be consistent with, and may differ materially from, actual events or conditions. Such forward-looking information only illustrates hypothetical results under certain assumptions. Actual results will vary, and the variations may be material. Nothing herein should be construed as an investment recommendation or as legal, tax, investment or accounting advice. Cargill Risk Management is a provisionally registered Swap Dealer and operates under “Order of Limited Purpose Designations for Cargill, Incorporated and an Affiliate.”

Any indicative prices are provided for information purposes only, they do not represent a commitment from Cargill Risk Management to transact at those prices, or at any price, in the future, and are intended solely for your use. Any indicative prices were created as of a specific time and market condition and do not represent (i) the actual terms at which new transactions could be entered into, (ii) the actual terms at which existing transactions could be liquidated or unwound, or (iii) the calculation or estimate of an amount that would be payable following the early termination of transactions pursuant to any master trading agreement to which we are parties.

Cargill Risk Management expressly disclaims any responsibility for (i) the accuracy of the models or estimates used in deriving the prices, (ii) any errors or omissions in computing or disseminating the prices, and (iii) any uses to which the prices are put. The indicative prices do not take into account any specific ISDA credit terms, client credit ratings or credit reserves or charges that might be relevant to a dealer negotiating a firm pricing level. Note that the transaction that is the subject of these indicative prices does not have Cargill Risk Management credit approval. These materials are not intended as investment or other advice or as a recommendation that you, any of your affiliates or any other person participate in any transaction.

Cargill Financial Services Europe Limited is authorized and regulated by the Financial Conduct Authority (“FCA”) in the United Kingdom. For the European Economic Area (“EEA”), this information is directed at clients (actual or potential) who meet the definition of a Professional Client or an Eligible Counterparty under the Markets in Financial Instruments Directive (“MiFID”), and any products or services described in this information which fall within the scope of MiFID are only available to such clients. Any research recommendations contained in this email are deemed to be non-independent research. Accordingly, they have not been prepared in accordance with legal requirements designed to promote the independence of investment research. In addition, whilst we have internal dealing restrictions, this document is not subject to any prohibition on dealing ahead of the dissemination of investment research. This email is a marketing communication within the meaning of MiFID.

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