HOW CAN WE DEAL WITH VOLATILITY IN THE FUTURE?

Feb 2016

Liam Fenton

INTL FCStone Ltd.

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DISCLAIMER

INTL FCStone Ltd Registered in England and Wales Company No. 5616586

Authorised and regulated by the UK Financial Conduct Authority [FRN: 446717]

In Ireland, the activities of INTL FCStone Ltd are subject to the supervision of conduct of business rules by the Central Bank of Ireland.

Past performance may not be a reliable guide to future performance. Mention of specific commodities should not be taken as a recommendation to buy or sell these commodities. Commodity Trading is risky and INTL FCStone Ltd and FCStone Group LLC assume no liability for the use of any information contained herein. Past financial results are not necessarily indicative of future performance. Information contained herein was obtained from sources believed to be reliable, but is not guaranteed as to accuracy. Any examples given are strictly hypothetical and no representation is being made that any person will or is likely to achieve profits or losses similar to those examples. References to and discussions of OTC products are made solely on behalf of INTL FCStone Ltd. Neither this information, nor any opinion expressed, constitutes an investment advice or a solicitation to buy or sell futures or options or futures contracts, or OTC products. Any distribution of this material to the public or a person other than the intended recipient is unauthorised. All rights reserved.

Oct 2015

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Presentation Agenda

1. Brief Introduction to INTL FCStone

2. How Volatile is Dairy?

3. How volatility is managed in the US?

4. Could it work here in Europe?

5. How Can Europe Help develop these tools

6. Conclusion

INTL FCStone Dairy

• Leader in Dairy risk management

• Involved in US Dairy markets since their inception

• Leading International Dairy Economists on staff

• Participant in much of the CME dairy product development

• Leading futures/option brokerage firm in Milk / Butter / Powders

• Establishment of the Cash Settled butter market

• First clearing member of the NZX

• Majority of trading volume on EEX Dairy contracts in Europe

40 offices | 1200 employees | 20,000 customers in more than 100 countries

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Offices

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How Volatile is Dairy?

7 Source: Reuters

Click to edit Master title style

Source: EEX, Eurex, Atla, ZuivelNl, Kempten

Click to edit Master title style

Source: EEX, Eurex, Atla, ZuivelNl, Kempten

Reduction of price supports in the US market resulted in increased volatility

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$10

$12

$14

$16

$18

$20

$22

$24

Jan-80 Jan-85 Jan-90 Jan-95 Jan-00 Jan-05 Jan-10

$/

cwt.

Class III Milk Price

Class III Support

11 Source: EEX, Eurex, Atla, ZuivelNl, Kempten

Main aim of Risk management

Margin Management

Reduce Volatility

Secure Income over

Costs

Non Independent Risk Management is Difficult

Producers Want to Hedge When

Prices are High (or expected to fall)

End Users Want to Hedge When

Prices are Low (or expected to rise)

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How hedging works in the US?

Hedging via a co-op

• Farmer/End Users can receive the variable market price every month

OR VOLUNTARILY

• Can call their co-op and lock in the future market price when they feel it is enough to secure a profit for their future production

Source: Reuters, CME

Hedging via a co-op • Farmer Receives Class Based Milk Price

Source: USDA

Hedging via a co-op • If they hedge they are committed to deliver milk / receive product at the

fixed price

Source: NASS, CME

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Could it work here in Europe?

Where could Farmers have hedged milk?

Where could farmers have hedged milk?

A Farmer who hedged at this time would have been about €5.6 c/Kg better off and would

have probably protected their margin

Index Example: Index Link to AMPE

AHDB AMPE 2014 vs UK Milk Futures Equivalent

UK MFE AHDB AMPE 2014 Source: AHDB

• Not Enough Liquidity on Screen

Liquidity Challenges

This is not all the potential liquidity

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How the EU can help?

• Education/Training

Co-Op/Processor level

Farm Organisations/Advisors

• Regulation

Realistic regulation for Commercial companies

• Real time Data

What prices are trading in the past 7-10 days

Accurate Pricing

Stock reporting/Supply and Demand numbers

• Possible short term tax breaks on hedging for Farmers or Processors on

hedging programs to foster initial programs

Conclusion

• Increased volatility calls for more methods to protect

farmers/processors profitability

• Hedging is not intended to be the full solution but in other markets is a

key part of the solution

• Milk Price Hedging is Currently Possible for Farmers but Challenging

• Hedging via Co-ops is likely the best solution for farmers who want the

ability to lock in future prices

• Any initiative should be voluntary and fair to all members of the

supply chain

Liam Fenton Commodity Risk Manager liam.fenton@intlfcstone.com Tel: +353 1 6349140

Thank you!