Mapping the market thought of the Oil and oilseeds Market by Nagaraj Meda, Chairman & Managing Director, TransGr

1. TransGraph Research Consulting Technology Commodity Price Risk Management solutions Mapping the market thought of the Oil and oilseeds Market by Nagaraj Meda, Chairman & Managing Director, TransGraph Consulting Pvt Ltd 18 Sep 2013

2. Prologue Ladies and Gentleman, I thank the organizing committee, Teflas and this respected wonderful audience for giving me this opportunity, for your blessings and encouragement over a period of time. To share our market analysis today, The biggest quest of an analyst in the current bear market is to spot the turn around, if any and in the process not to go wrong with the bearish trend. Am I seeing the turnaround? Why did I get this question in my mind?

3. BMDCPO 3-Month Active Futures, MYR/MT (Long Term) According to the above shown alternative Elliott wave count prices are considered to be within the Primary wave C of Cycle wave 2. Within the said wave structure possibility of further weakness towards MYR 2000 as Intermediate wave 3 ahead of rebound towards MYR 2600 as Intermediate Wave 4 and turning lower for extended weakness towards MYR 1800 or MYR 1400 as final leg of Primary Wave C of Cycle Wave 2 in the long term.

4. Contd.. • Let us now see if we can get a clue by analyzing the fundamental scenarios of where to end the cycle wave C in Grand cycle 2.

5. Weather Driven U-turn in US soy production !! Source: USDA,TG research 2011/12- 4.6 2012/13- 3.4 US production is almost confirmed at 86 million ton and ending stocks travelled from 8 to 4 million ton –a drop of 50% While focus of trade is likely to shift from US to south America, are global Soy stock projections for 2013/14 exaggerated ?...

6. Contd.. • While production drop is not significant, US stock drop is significant and what signals we are getting on soy beans chart?

7. CME Soybean Futures Continuation, Cents/bu. (Elliott wave analysis) CME Soybean prices, after making historical high of 1794.75 cents in Sep 2012 and placing Primary Wave 1, fell sharply in the last one year as Primary Wave 2 near 1162 cents In Aug 2013. From Elliot wave perspective prices are considered to have concluded Primary wave 1 and 2 and initiated Primary wave 3. with in the same the intermediate wave 1 is considered to have concluded at 1409 cents and witnessing down side correction . Therefore prices are likely to extend further weakness towards 1250/1220 cents ahead of turning positive towards 1550 cents and higher as Intermediate Wave 3 of Primary Wave 3 in the coming months .

8. CME Soymeal Futures Cont., USD/Short ton (Elliott wave analysis) CME Soy-meal futures prices, after making historical high of USD 554.90 in Sep 2012 and placing Primary Wave 1, witnessed downside correction in the last one year . From Elliott wave perspective prices are considered to hove completed Primary Wave 1 and 2 at USD 554.90 and USD345.30 respectively and initiated the Primary wave 3. With in the same Intermediate wave 1 is considered to have concluded at USD 451.20 (or on the verge of completion near USD 460) and initiated Intermediate wave 2 where in weakness towards USD 380 remain open ahead of turning higher as Intermediate wave 3 towards USD 510 and higher in the coming months .

9. Contd.. While stocks are tight in USA, We have good stocks of beans in South America and high crop expectations.

10. South America soy crop- Mover & Shaker henceforth..!! Competitive crop scenario in South America Farmer realizations in both Argentina & Brazil hinting at pro-soybean sowing behavior.

11. Is market factoring record high bean production? Dry weather delaying the corn & sunflower plantings is likely to aid in soybean plantings. However, soybeans would be planted in Oct-Nov period, it is likely that weather would continue to remain crucial.

12. Global Soybean S&D simulation S/C ratio is likely to remain more or less same as that of 2012/13

13. Contd.. • While it is too early to downsize the production in south America, the market as observed in Elliott wave chart is probably factoring this scenario. • As an analyst I always analyze likely scenarios based on the data releases and fortunately do not have the job of releasing the data. • Therefore if s/c ratio is remaining at the same levels of last year, why would prices fall further down below 1200 after coming off from the peak of 1750 cents is the inference.

14. Palm complex

15. Palm price review Slow down in stock build up against anticipations

16. Global CPO balance sheet…!! Global CPO stocks growth could be narrow due to picked up demand. USDA and other agencies are yet to revise the global palm oil stocks down!! When will they?

17. Global Veg oil stocks..expanding, yet volatile..!! Though global Veg oil stocks are projected on the higher side in the recent period , slowdown in the palm stock build up is expected to keep the S/C ratio’s hand to mouth in the current season. Going forward, Global Veg oil stocks are going to improve provided weather remain supportive

18. CME Soy Oil-BMD CPO spread analysis Current spread is at $ 224 per ton. historically, CME soy oil- BMD CPO spreads tend to narrow down post- Sep’13 While the spread is expected to narrow down to $ 180-200 , soy oil price of $ 41 would translate in to a CPO price of $ 2308 The spread between soy and olein which is at 120 dollars will come down to around USD 80

19. Palm in discounts to Brent..!! CPO has come in to discounts with Brent crude in the last few months and the same kept the competitiveness intact for palm in bio-diesel segment

20. Crude oil update • While we have analyzed the detailed S&D scenario, it is important for us to understand the impact of stimulus or QE programs for taking a call on the Brent crude oil prices. • Let us look what happened since 2008.. 20 20

21. Stimulus impact on Crude oil prices

22. Stimulus driven markets since 2008! • US leading the global actions following the onset of the recession in 2008. • Majority of stimulus during 2008-09 coming from US while other regions (EU and Japan) seen to increase the stimulus following aggravation of crisis (since 2010-11).

23. Impact of stimulus on commodities markets QE3 failing to generate market optimism with EU playing a major role in stimulus. Investor confidence boosted following the results since QE1. Markets moving on increased optimism from QE

24. Brent Crude Oil Futures Scenario 1 WTI crude oil futures prices are within a downside correction since Feb’11 high of USD 125. According to the Elliott wave Scenario 1 prices are likely to be forming a reverse symmetrical triangle within which the last leg of the correction is underway. Therefore prices are likely to stay below USD 115 and register initial decline towards USD 100 and then USD 92 in the coming 4-6 months time frame.

25. Brent Crude Oil Futures Scenario 2 According to the Elliott wave count scenario 2 ICE Brent crude oil futures prices are within the Intermediate wave Z of a corrective triple combination wave. As a result prices could extend higher towards USD 140 ahead of turning lower in the coming 4-6 months time frame. Trigger for Scenario 2: Closing above USD 118 shall negate Scenario 1 and activate Scenario 2.

26. Contd.. • Palm oil prices are fairly competitive and so it will be very difficult for them to go below 2100 levels

27. BMD CPO 3-Month Active Futures, MYR/MT Scenario I BMD CPO Futures prices are witnessing a bearish phase after placing the Apr’12 high of MYR 3628. From Elliott wave perspective prices are considered to be within final leg of the Primary wave C of Cycle wave 2. Prices are likely to find resistance below MYR 2400 on any minor rebound and extend further weakness towards MYR 2100-2000 as Intermediate wave 5 of Primary Wave C of Cycle Wave 2 ahead of turning positive towards MYR 2600 in the coming 5-7 months.

28. BMD CPO 3-Month Active Futures, MYR/MT Scenario II According to the above shown alternative Elliott wave count prices are considered to be within the Primary wave C of Cycle wave 2. Within the said wave structure possibility of further weakness towards MYR 2000 as Intermediate wave 3 ahead of rebound towards MYR 2600 as Intermediate Wave 4 and turning lower for extended weakness towards MYR 1800 or MYR 1400 as final leg of Primary Wave C of Cycle Wave 2 in the long term.

29. CME Soy Oil Futures Continuation, Cents/lbs. (Scenario 1) CME Soy oil futures prices after making high of 58.24 in sep 2012 are witnessing continuous decline on gradual note . From Elliott wave perspective prices are currently within the Intermediate Wave 3 of the Primary wave C whereby possibility of further weakness towards 40 cents remains open ahead of rebound towards 45/46 cents as Intermediate wave 4 and turn lower as final leg of Primary wave C of Cycle wave 2 in the medium term.

30. CME Soy Oil Futures Continuation, Cents/lbs. (Scenario 2) According to Elliott wave analysis scenario II prices are likely to remain weak towards 40 cents as Primary Wave 2 ahead of turning higher as Primary Wave 3 in the medium term.

31. Contd.. • Therefore in short and medium term, down side for palm oil is relatively limited probably to 2100 and we will see during the Q1 of 2014 price rallying to 2600-2700 RM/ton. • If there is a very good crop in S. America, we might see palm second grand cycle extending below 2000 in Q3 of 2014. • Otherwise, price will trade 2100 – 2600 range for next 5-6 months and rally higher.

32. Indian Edible Oil outlook

33. Loss in M.P is Gain in Maharashtra..!! Water Logging in Dewas, M.P Low Pod Count in Shajapur Damaged Crop in Hoshangabad Healthy standing crop in Akola 45 pod count In Buldhana Damaged crop in Wardha

34. Indian Soybean production • Indian soybean production is likely to post a nominal growth of 5% from the previous year mainly contributed by higher yields in Maharashtra

35. Soybean -2013/14...another year of restrained selling..!! • Restrained selling could be seen in the current year as lower crop in M.P might ease off the pressure on the farmers to sell the material • However, large crop from Maharashtra might put some pressure on the over all price action during peak arrival season

36. Soy meal Scenario..competitive Indian selling..!! • Y-o-Y higher crush & Weak rupee likely to aid in higher exports for the consecutive year • Demand from Iran is likely to continue and Non-GMO material demand is likely to be served by India • Current discounts to Argentina is likely to aid in further bookings going forward

37. Kharif Oil seed snapshot..! Kharif oil seed output is likely increase by 5-6% majorly contributed by Soybean & Groundnut

38. Indian Veg Oil balance sheet..Higher imports to continue..!! • Edible oil imports likely to remain higher for the consecutive season mainly due to lower than anticipated soybean production & Crush

39. NCDEX Soybean Futures Cont., INR/ P. Qtl (Elliott Wave Analysis) NCDEX Soybean futures prices after making historical high of INR 5064.50 in July’12 and placing Primary Wave 5 are witnessing a down side correction in the last one year. From Elliott wave perspective the recent corrective prices action is considered to have concluded as the Primary corrective wave A and initiated Primary Wave B. Within the same prices could extend further weakness towards INR 3200 as seasonal Bottom in Oct’13 ahead of turning higher towards INR 3800 and higher as the Primary Wave B in the coming 5-6 months.

40. NCDEX Soy Oil Futures Cont., INR/ 10Kg (Elliott Wave Analysis) NCDEX Soy oil futures prices, after making historical high of INR 821.20 in Aug’12 and placing Primary wave 5, are witnessing down side correction exhibiting a weak trend. According to Elliott wave analysis prices are considered to have completed Primary wave A at INR 630 in July 2013. Prices are likely to re-test the lows of INR 630 and turn higher towards INR 700-720 as Primary Wave B in the coming 4-6 months.

41. Soymeal FOR Kandla ,INR/ PMT Soy meal FOR Kandla prices are witnessing downside correction after posting historical high of INR 45000 in July 2012 keeping the bearish momentum intact. As per Elliot Wave Count prices are in corrective wave and considered to have concluded Primary wave A at INR 29800 in July 2013 . Prices are likely to find support near INR 30000 ahead of turning higher towards INR 37000 as Primary wave B in the coming 5-7 months.

42. Price Outlook and summary (4-6 Months) Global and Indian oil and oilseed complex is likely to witness initial weakness and turn positive.