22 olam is a leading global integrated supply chain manager and processor of agricultural products...
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Olam is a leading global integrated supply chain manager and processor of agricultural products and food ingredients
Presence across 16 platforms, 5 agri-commodity segments across 4 value chain steps
Over 18,000 employees operate in over 65 countries delivering to over 12,300 customers worldwide
Olam is listed on the Singapore Stock Exchange
In 2007 Olam purchased Qld Cotton
Cotton:
#1 private ginner
#2 merchant globally
Who is Olam?
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1989 Start-Up1 product - Cashews1 country - Nigeria1 end Market4 customers2 employeesS$0.15m Book ValueS$0.15m Mkt. Value
FY 201320 products65 countries 50 end markets12,300 customers18,000 employeesS$15.7 bn turnoverS$444.6 mm PATS$6.3 bn Mkt. Cap
Transitioned from a Trader to an Integrated Supply Chain Manager
Sales CARG of 51% and PAT CAGR of 48% over the last 21 years
History of Olam
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CU
ST
OM
ER
Managing Risk at Every Stage
Integrated from farm to factory gate
OR
IGIN
End-to-end Supply Chain Capability
MarketingSolutions& Services
Farming Origination Logistics ProcessingTrading &Distribution
Our Business: Supply Chain Manger of Agricultural Raw Materials
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A$513 per bale
Futures
Exchange RateBasis
Components of the cotton price
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A Futures contract is a contract between two
parties to buy or sell a specific quantity and
quality of a product at a given price for delivery
at a specified time
Futures contracts were originally used solely by
producers and consumers for hedging. They are
now also used for speculating by individuals and
large companies
Futures Contracts
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Futures Contracts
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• Cotton Futures are the most volatile of the three components of the price and therefore needs to be the most closely monitored
• Every cent movement in the Futures price will change the cotton price by approximately $5 per bale
• The Australian $/bale price is calculated using the closing price of the May contract - if this is not available we use July or December
Impact on Cotton Price
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• Basis is the difference between the cash price and the futures price.
• It occurs due to differences between the product that the Futures contract represents and the worth of the product in the marketplace
• This is a variable cost
Basis
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Example:July 2014 Futures 85.61 US cents/lbQC 2014 Cash Price 90.36 US cents/lb
2014 Buy Basis = Cash price - Futures = 90.36 – 85.61 = 4.75 US cents/lb This is referred to as a basis of 475 pts ‘on’
Calculation of Basis
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• A basis will generally strengthen (increase) on weaker NYF price
• A strengthening of basis generally signals improving demand in the export market – this generally occurs in a weaker market
• A basis will generally weaken (decrease) in a firm NYF price. This generally indicates a lack of demand in the export market.
Relationship between Basis and Futures
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• The exchange rate is the value of one currency relative to another - eg 1 AUD equals 0.8915 USD
• The exchange rate trades 24 hours a day starting the day in New Zealand and then moving to Australia, London and then New York
• The exchange rate can be traded with all banks
Exchange Rate
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Exchange Rate
High @ 1.0545 (11th April 2013)Low @ 0.8684 (24th January 2014)Average @ 0.9548 V Today @ 0.8965
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Price = (Futures price +/- Basis ) x 500 lb/bale Exchange Rate
= (0.8561 + 0.0475) x 500 lb/bale 0.8867
= A$510 / bale
Calculation of Cotton Price
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1. Cash Fixed Bales•1,000 bales @ AU$510/bale•14 days after ginning payment OR•Call Pool payment (75% July/25% Dec)
2. On-Call Fixed Bales• 1,000 bales @ 90.65 US c/lb• FX to be fixed prior to FND • 14 days Payment OR Call Pool Payment
3. Balance of Crop• Flexibility regarding number of bales • Discounted from cash price
Marketing Contract Types
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Production
Price
Managing Risk
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Thank you!
Elissa Wegener0400 681146
Luke Chappel0428 799 446
Meg Laidlaw0427 816 315