ASX Commodities: Grains

July 2015

Kristen Hopkins

Disclaimer

2Commercial in Confidence

This material contains information only. The information is for education purposes only and any

advice should be sought from a professional adviser. If you are seeking advice (including a

recommendation or opinion) about a financial product you should consult an Australian Financial

Services Licensee.

To the extent permitted by law, no responsibility for any loss arising in any way (including by way

of negligence) suffered by anyone acting or refraining from acting as a result of this material is

accepted by ASX. This disclaimer extends to any private discussions or correspondence with the

presenter of this information.

© 2014 ASX Limited ABN 98 008 624 691

Basis

3Commercial in Confidence

What is basis? Why does basis matter?

• Basis is the difference between the physical grain price and futures price.

• More commonly, basis is any traded relative value spread by location, quality, physical or derivative.

Brisbane APW1 Track(Dec15-Jan16)

Basis

ASX NSW Wheat Futures

(Jan16)

Factors that influence basis;

• Local market supply and demand

• Logistics

• Weather and crop conditions

• Seasonality

• AUD/USD volatility

$315 MT

+$17 MT

$298 MT

When using futures to hedge traders are still exposed to basis risk, i.e. movements in basis determine the effectiveness of a hedge.

Hedging Australian Wheat using offshore Futures

4Commercial in Confidence

ASX NSW Wheat Versus CME Chicago SRW Wheat

Hedging Australian wheat using CME Chicago SRW wheat futures exposes your overall hedged position to moves in basis:

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1-Jul-14 1-Aug-14 1-Sep-14 1-Oct-14 1-Nov-14 1-Dec-14 1-Jan-15 1-Feb-15 1-Mar-15 1-Apr-15 1-May-15 1-Jun-15 1-Jul-15

AU

D /

MT

US

c /

bu

Jan '16 NSW Wheat basis Dec '15 Chicago SRW Wheat

27 USc/bu

13 AUD/MT

139 USc/bu

70 AUD/MT

D 112 USc/bu

D 56 AUD/MT

Hedging Australian Wheat using Offshore Futures

5Commercial in Confidence

ASX NSW Wheat Versus CME Chicago SRW Wheat

Using ASX Wheat Futures is an efficient way to get exposure to Australian Wheat basis Chicago Wheat.

Example

• Exporter at Harvest

• Getting long 2,000MT Australian Wheat basis

• Buying Jan-16 ASX NSW Wheat at 106USc/bu over Selling Dec-15 CME SRW Wheat

• Notional contract value: 596,000 AUD (2000MT x 298 AUD/MT)

• Converting to USc/bu: 621.25 USc/bu = (298 x 0.7660 x 100) / 36.7437

• Calculating Basis: 621.25 – 515.25 = 106 USc/bu

LegLong

@106USc/bu

..if you want to Short@106USc/bu

100 lots January 2016 ASX NSW Wheat @ 298 Buy Sell

15 lots December 2015 CME SRW Wheat @ 515.25 Sell Buy

FX Forward: 596,000 AUD @ 0.7660 Buy Sell

Hedging Track Markets - Brisbane

6Commercial in Confidence

ASX Vs CME Grain Futures

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Brisbane APW Track Basis ASX

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Brisbane APW Track Basis CME

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2011-2015 2012 2013 2014 2015

Brisbane Track Price Correlation

ASX CME

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2012 2013 2014 2015

AU

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10th to 90th Percentile Ranges

ASX CME

Hedging Track Markets - Newcastle

7Commercial in Confidence

ASX Vs CME Grain Futures

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Newcastle APW Track Basis ASX

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Newcastle APW Track Basis CME

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2011-2015 2012 2013 2014 2015

Newcastle Track Price Correlation

ASX CME

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10th to 19th Percentile Ranges

ASX CME

Hedging Track Markets – Port Kembla

8Commercial in Confidence

ASX Vs CME Grain Futures

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Port Kembla APW Track Basis ASX

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Port Kembla APW Track Basis CME

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2011-2015 2012 2013 2014 2015

Port Kembla Track Price Correlation

ASX CME

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AU

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10th to 90th Percentile Ranges

ASX CME

Hedging Track Markets - Geelong

9Commercial in Confidence

ASX Vs CME Grain Futures

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Geelong APW Track Basis ASX

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Geelong APW Track Basis CME

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2011-2015 2012 2013 2014 2015

Geelong Track Price Correlation

ASX CME

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2012 2013 2014 2015

AU

D /

MT

10th to 90th Percentile Ranges

ASX CME

New Eastern Australia Wheat Contract

10Commercial in Confidence

• Expanded delivery arc to include extra port zones of Brisbane, Melbourne and Geelong in addition to existing port zones of Newcastle and Port Kembla.

• Improved flexibility with an increased confidence to be able to deliver the current grain specification anywhere across the east coast.

• The contract will price where there is most supply adding to correlations with export parity and making the contract more relevant to exporters and a wider array of end users both domestically and abroad.

Want to know more?

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This document provides general information only and may be subject to change at any time without notice. ASX Limited (ABN 98 008 624 691) and itsrelated bodies corporate (‘ASX’) makes no representation or warranty with respect to the accuracy, reliability or completeness of this information. To theextent permitted by law, ASX and its employees, officers and contractors shall not be liable for any loss or damage arising in any way, including by way ofnegligence, from or in connection with any information provided or omitted, or from anyone acting or refraining to act in reliance on this information.

Contact Us

Kristen HopkinsManager, Commodities Sales

Kristen.hopkins@asx.com.au

+61 (2) 9227 0197

+61 (0) 417 367 443

www.asx.com.au/grainfutures

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Thank you