Agri Commodity Markets Research

Marketing Communication March 218 Agri Commodity Markets Research March 218: Fasten Your Seatbelt Volatility Is On RaboResearch Food & Agribusiness far.rabobank.com Stefan Vogel Head of ACMR +44 2 7664 9523 Carlos Mera Senior Commodity Analyst +44 2 7664 9512 Charles Clack Commodity Analyst +44 2 7664 9756 Trade war concerns bring uncertainty to agri markets China and the EU are looking into retaliation as the US imposed duties on steel imports. Weather across Argentine soy and corn, as well as across US winter wheat takes a toll on crops, but focus will soon shift to Black Sea weather, and US soy and corn plantings, with expectations of a record US soy area. The sugar price will remain under pressure. WHEAT SUGAR Marginal price strength forecast, despite recent ICE #11 Sugar price to remain under pressure volatility The start of the Brazil harvest will provide market Rainfall across the US HRW belt is a welcome sight to guidance deteriorating crops and has spooked the funds to sell White premium seems to have stabilised Black Sea regional conditions have been largely India is having a huge crop next season, which favourable so far a wild card for 218/19 increases market estimates for the coming season Rabobank maintains US 218/19 planted area at 47m acres, up 1.3m acres YOY CORN COFFEE CBOT Corn price forecast remains constructive 217/18 stocks are forecast to erode, both for the US and globally, albeit from record levels Drought prevails in Argentina, while Brazilian safrinha plantings remain delayed US 218 planted acres are forecast at 89.5m acres as price relativities favour soybeans SOYBEANS Price forecast increased in Q3 218 We expect bearish price pressure as the Brazilian arabica harvest comes in The Battle for Espírito Santo rages on The end of La Niña makes a second consecutive record crop in Vietnam less likely COCOA Our CBOT price forecast has been left unchanged, with a more bearish tone into 2H 218 Argentine, Paraguayan, and Uruguayan production lowered; Brazilian production on par with last year Northern hemisphere to soon become a focal point for markets where record-strong US crush rates need to be balanced with bearish tones from forecast record soy plantings and feared trade wars PALM OIL Change of sentiment in the cocoa market Low West African mid-crops ahead Prices will need to go high enough to at least incentivise some increase in internal prices paid in Côte d Ivoire and Ghana Demand is doing better than expected Funds hold largest net long position since August 216. We see a risk for a price break and volatility COTTON Bearish view maintained on palm oil prices, amid continued large production and inventories The increase in Indian palm oil import duties and the end of temporary Malaysian palm oil export tax suspensions weigh on palm oil prices Malaysian and Indonesian March 218 production are expected to be higher month-on-month Bearish new-crop prices, as volatility remains in the front end of the curve Volatility on the ICE #2 falls to playoff between Managed Money longs and unfixed mill positions Global stocks forecast to grow 4m bales outside of China in 218/19 the basis of our bearish outlook US planted area forecast at 13.1m acres, amid strong price relativity vs. soybeans and corn 1/12 RaboResearch Agri Commodity Markets Research March 218

Wheat Marginal price strength forecast, despite recent volatility Rainfall across the US HRW belt is a welcome sight to deteriorating crops and has spooked the funds to sell Poor US winter crop conditions are somewhat reversible if spring weather occurs favourably Black Sea regional conditions have been largely favourable so far a wild card for 218/19 Rabobank maintains US 218/19 planted area at 47m acres, up 1.3m acres YOY Marginal strength is forecast across global wheat futures, despite recent weather volatility. CBOT Wheat traded within a USc 61/bu range through March, as Matif covered a EUR 6/tonne range with meteorological concerns, particularly La Niña s impact in the US Southern Plains, driving a considerable risk premium into the market a factor exaggerated by a 28,946-lot net long Managed Money position across KCBT Wheat. Broad rainfall across the US HRW belt is a very welcome sight to deteriorating crops and has spooked the funds to sell, but further relief is required to alleviate drought. This currently looks possible in the 14-day period. For us, the big question is as to whether La Niña has come to an end. Australia s Bureau of Meteorology recorded ENSO-neutral conditions, with others (NOAA) highlighting a shift to normal conditions this spring. Drought has degraded US crop conditions and hiked abandonment, but this is somewhat reversible if spring weather occurs favourably expect spring markets to trade weather. Furthermore, soil moisture in the Black Sea Region has been reported as ideal for spring plantings improving production prospects in 218/19. Rabobank maintains a supportive wheat outlook, as eroding US supplies and improved EU demand in 218/19 drive support. We forecast CBOT Wheat and Matif at USc 48/bu and EUR 17/tonne, respectively, by Q4 218. Managed Money built a 28,946-lot net long position in KCBT Wheat YTD amid US southern plains drought Global wheat forecasts maintained CBOT USc/bu 457 424 449 48 47 47 475 48 Matif EUR/t 164 161 159 17 168 173 175 175 The Black Sea Region will again be a wild card in 218/19 so far, regional conditions have been favourable, just as ideal conditions emerge for spring plantings. Furthermore, recent cold weather is unlikely to have caused sizeable damage, only the potential to delay plantings. Using a trend yield, expectations are for Russian output to reach 73m tonnes down 11.5m tonnes YOY to erode domestic stocks in 218/19. Black Sea exports should remain at a high level in 218/19, as swelling stocks this season will partly be exported next season. An unlikely return to 217/18 yields (at 3.1 tonnes/ha) could deliver another +83m-tonne crop something which would inject a very bearish influence into 218/19 global markets if realised. Rabobank maintains US 218/19 planted area at 47m acres, up 1.3m acres YOY, owing to both additional spring and winter acres up 7% and 2% YOY, respectively. This compares with the USDA s 46.5m-acre figure, as released at the 218 Outlook Forum. Despite the acreage rise, Rabobank expects the US 218/19 balance sheet to tighten for the second consecutive year taking ending stocks to a still-comfortable 81m bu. New-season US exports are expected to remain under pressure, as heavy Russian stocks allow the region to dominate global trade any Black Sea trade disruption will favour Argentine and EU exports before the US. Russian stocks are expected to decline marginally, by 1.6m tonnes, through 218/19, as a trend yield emerges 16 8 9 14 6 8 12 Thousand Contracts 4 2 7 6 5 US / bushel Million tonnes 1 8 6 4-2 4 2-4 Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16 Jan 17 Jul 17 Jan 18 3 Managed Money Net Length KCBT Wheat (RHS) Source: CFTC, Bloomberg, Rabobank 218 Source: USDA, Rabobank 218 2/12 RaboResearch Agri Commodity Markets Research March 218 Ending Stocks

Corn CBOT Corn price forecast remains constructive CBOT Corn price forecast maintained Corn USc/bu 359 346 362 37 39 37 38 385 217/18 stocks are forecast to erode, both for the US and globally, albeit from record levels Drought prevails in Argentina, while Brazilian safrinha plantings remain delayed US 218 planted acres are forecast at 89.5m acres down.7m acres YOY as price relativities favour soybeans Proposed EU duties on US corn imports to have little impact on global pricing A supportive CBOT Corn outlook is maintained, despite a volatile month, with Rabobank forecasting prices to average USc 39/bu during Q3 218. Fundamentally, 217/18 stocks are forecast to erode, both for the US and globally, albeit from record levels. This tightening assisted by current weather and price drivers is expected to assist the CBOT higher until the northern hemisphere harvest extends price pressure. Expect volatility to persist in the near term, amid speculative reactions to South American weather and renewed focus on US 218 planted acres. South America yields remain a key concern, driving the USDA to cut combined Brazilian and Argentine 217/18 output by 3.5m tonnes MOM. Drought prevails in Argentina, with crops varying between grain-filling and harvest crops are rated 75% to 86% poor/very poor. Additional rainfall may still benefit younger crops but on the whole, the damage is done. Rabobank has revised Argentine 217/18 output to 33m tonnes, down 3.5m tonnes MOM. For Brazil, safrinha plantings remain heavily delayed. High domestic premiums drive safrinha plantings to 92% complete, down 4% YOY, despite concerns that later-planted safrinha will see lower yields and higher frost risk. Either additional plantings face poor yields or, alternatively, are abandoned and yield zero Rabobank forecasts Brazilian production at 85.5m tonnes, down from last year s record of 98.5m tonnes. The US enters a second consecutive deficit year in 218/19, as planted acres are forecast at 89.5m acres down.7m acres YOY with price relativities favouring soybeans this coming spring. US stocks have largely been anticipated to build in 217/18, before competitive price positioning drove up US export expectations now at a near-record 2.2bn bu to shift US supplies into deficit. This stock erosion is forecast into 218/19, amid lower year-on-year US acres and a projected trend yield a bullish trend for prices. 218/19 stocks erode, but only to comfortable 215/16 levels, with stocks-to-usage touching four-season lows. The EU has proposed potential duties on US corn imports as a response to steel and aluminium tariffs introduced by Washington. This appears bearish at face value, but historical trade volumes suggest otherwise. The EU imported just over 1m tonnes of US corn in 216/17, a fraction of total US corn exports of +58m tonnes for the season. As the US maintains tariff free access to much larger import markets, Rabobank expects any potential EU duties on US corn imports to have little impact on prices unless EU/US trade conflicts intensify, and perhaps shift into other products. Brazilian and Argentine 217/18 production prospects dip MOM, as unfavourable weather takes a stronger hold US ending stocks erode for the second consecutive year in 218/19, amid strong exports and a YOY fall in acreage 16 2.5 25% 14 12 2. 2% Million tonnes 1 8 6 Billion bushels 1.5 1. 15% 1% Stocks/Usage 4.5 5% 2. % Brazil Argentina Ending Stocks Source: USDA, Rabobank 218 Source: USDA, Rabobank 218 Stocks/Usage 3/12 RaboResearch Agri Commodity Markets Research March 218

Soybeans Our CBOT price forecast has been left unchanged, with a more bearish tone into 2H 218 Argentine, Paraguayan, and Uruguayan production lowered, while Brazilian production seen on par with last year s record Northern hemisphere to soon become a focal point for markets where record-strong US crush rates need to be balanced with bearish tones from forecast record soy plantings and feared trade wars Outlook for US soybean yields crucial to meet our bearish price outlook Our forecast continues to be bearish into the latter half of this year. We anticipate record US soybean plantings, combined with continued high yields, to add some price pressure to markets. However, weather risks remain a concern, and the bearish move will probably only take place once the growing season provides markets with enough certainty of favourable US yields. Worst drought in four decades across Argentina cuts soybean production below 4m tonnes the lowest levels in six years as hot and dry weather continues to hurt the crop. We have lowered our production forecast, from 46m tonnes last month and 18m tonnes YOY. This revision takes forecast further dry conditions through most of this month into account. This will force the Argentine soybean crush down and lower the country s soymeal export potential to the lowest since 214/15. Global soymeal exports will thus fall to a fouryear low. The last time Argentine crush and meal exports declined year-on-year was in the drought year 212 and at that time, the shortfall was offset by a significant rise of soybean exports out of the US and Brazil, as well as a rise in soybean crush in destination markets like the EU and Asia. We expect a similar market reaction this year. In addition, the world then also benefited from a significant rise in global rapeseed and sunflowerseed production and processing, a situation we currently do not expect to see repeated in 218. US soybean plantings to reach record high, but good yields required to meet global demand CBOT Soybean forecast cut marginally in the near-term Soybeans USc/bu 965 977 1,5 1,3 1,25 1, 98 98 Brazil s soybean production forecast slightly above last year s 114m tonnes, which will help to supply some of the shortfall of Argentina. However, the harvest is slowed by ongoing rains, and so is the planting of safrinha corn. In addition, the soybean crop in neighbouring countries Paraguay and Uruguay is also reduced, as dry conditions have also impacted crops there. Market focus now turns to the northern hemisphere, where record-strong crush rates are bullish, while forecast record soy plantings and feared trade wars are bearish. We forecast record-large US soybean plantings of close to 91m acres in 218, up 1% YOY. However, growth will be limited by expansions of other crops like cotton. Still, private analysts recently showed survey-based forecasts of more than 92m acres. Soybeans might get dragged into US/Chinese trade wars, which would potentially be bearish for CBOT prices. Market participants will have to prepare for potential volatility, with funds heavily long and upcoming USDA planting numbers by the end of this month. With the shortfall of South American production and strong US crush, large northern hemisphere plantings and favourable weather will be crucial. Currently, the three-month outlook for US is favourable. US long-term outlook calls for limited drought in traditional soybean-producing areas Source: USDA, Rabobank 218 Source: NOAA, Rabobank 218 4/12 RaboResearch Agri Commodity Markets Research March 218

Soymeal and Soy Oil Soymeal forecast left almost unchanged, as the shrinking Argentine crop is priced in, while pressure looms from record US acreage and soymeal output US crush margins are favourable, supporting outlook for record US soymeal production and exports Argentine soymeal production and exports to fall to a three- to four-year low due to drought-reduced soybean crop Soy oil to remain range-bound due to record US supply forecast and pressure from high palm oil availability CBOT Soymeal prices expected to top out, despite an ongoing worsening of the Argentine crop. Argentine soybeans, now forecast at below 4m tonnes, will force a reduction in the country s soybean crush and soymeal exports. We forecast Argentine soymeal exports to decline to the lowest in three to four years. Still, CBOT is expected to soon focus more on record US crush rates, heavy US meal supplies, and expected record plantings, which will keep a ceiling on soymeal prices. A well supplied US soymeal market and weak US basis levels might take a toll on CBOT futures. US soybean crush runs at record strong levels due to favourable margins, both for nearby and throughout the year. We agree with USDA that the US soybean crush in 217/18 will show the largest increase in three years, but see room for an even larger number than USDA s 196m bu. Also USDA s export forecast for US soymeal seems reasonable considering the export pace and sales so far, but could also be even larger. Despite a very strong US soymeal demand, the record US crush might result in a glut of soymeal and potential price pressure on soymeal futures. The global supply of alternative protein meal is not expected to improve sizeably in 218, providing limited opportunities to substitute the Argentine shortfall of soymeal. With continued rising global livestock production, the demand for soymeal as one of the primary vegetable proteins will grow Argentine soymeal exports to fall in 217/18 and to also stay suppressed in 218/19 CBOT Soymeal and Soy oil forecasts left almost unchanged Unit Q3'17 Q4'17 Q1'18 Q2'18(f) Q3'18(f) Q4'18(f) Q1'19(f) Q2'19(f) Soy oil USc/lb 33.9 33.7 32.2 32.2 33. 32.5 32.5 33. Soymeal USD/tn 39 318 354 355 345 33 325 32 further, requiring more meal production in destination markets like Europe and Asia from exported US or Brazilian soybeans. CBOT Soymeal prices might react bearish if soy also gets dragged into the US/Chinese trade wars. If China introduces import duties on US soybeans, the resulting bearish impact on CBOT Soybeans will likely also pressure CBOT Soymeal. Physical prices of South American soybeans and meal, however, are expected to rise the higher a potential duty, the higher the expected price increase in South America, and the more bearish CBOT is forecast to react. Soy oil prices to remain rangebound, as record US crush in 217/18 and healthy supplies of alternative oils keep a lid on prices. Lower Argentine soy oil production is more than offset by plentiful supplies of alternative oils mainly palm oil and potentially reduced soy oil demand for Argentine biodiesel. Funds cut their CBOT positions, but remain heavily long CBOT Soymeal and extend their net short CBOT Soy Oil. Soymeal/soy oil spread trading has been a common feature over the past month, due to the Argentine drought. However, recent worries about potential trade wars, which could involve soy, seem to limit fund-buying. Potential Chinese trade retaliation on imports for US soybeans would also impact CBOT Soymeal prices Chinese Soybean Imports (mln t) 1 9 8 7 6 5 4 3 2 1 21 211 212 213 214 215 216 217 Brazil US Argentina others Source: USDA, Rabobank 218 Source: USDA, Rabobank 218 5/12 RaboResearch Agri Commodity Markets Research March 218

Palm Oil Bearish view maintained on palm oil prices, amid continued large production and inventories The increase in Indian palm oil import duties and the end of temporary Malaysian palm oil export tax suspensions weigh on palm oil prices Malaysian and Indonesian March 218 palm oil production are expected to be higher month-onmonth High-consumption period of Ramadan will limit palm oil price declines in Q2 218 Palm oil prices affected by the increase in Indian palm oil import duties and the end of temporary Malaysian palm oil export tax suspension. In early March 218, the Indian government implemented another round of palm oil import duty hikes, while maintaining import duties for soft oils. Effective import duty on CPO increased from 33% to 48.4%, whereas effective import duty on RBD olein increased from 44% to 59.4%, which narrows the spread between landed palm oil and soft oil prices in India. The spread between landed prices of soft oils and Malaysian palm oil in India will become even narrower in April 218, as the temporary suspension of Malaysian palm oil export taxes ends. We expect Indian palm oil import demand to be negatively affected in the short term, which will add more pressure to palm oil prices. Malaysian and Indonesian March 218 palm oil production expected to rise month-on-month due to seasonality. According to the MPOB, Malaysian February 218 palm oil production decreased by 15% MOM, to 1.3m tonnes, and exports by 13% MOM, to 1.3m tonnes. Even though Malaysian February 218 palm oil inventories decreased by 3% MOM, to 2.5m tonnes, they are still 7% above the level seen a year ago. Similarly, GAPKI reported that Indonesian palm oil inventories, at 3.6m tonnes in January 218, were 1% down on the month, but 27% up on the year. We expect palm oil inventories in Malaysian CPO production continues at a record pace, also in February 218 Palm oil price forecast lowered marginally in Q3 218 Palm Oil MYR/t 2,692 2,66 2,522 2,5 2,42 2,4 2,4 2,4 Malaysia and Indonesia to remain high in March 218, on the back of expectations of rising seasonal palm oil production. High consumption during Ramadan will limit a palm oil price decrease in Q2 218. Ramadan begins in mid-may this year and typically sees higher demand for palm oil used in cooking. We expect the pace of palm oil inventory building that was noted over the past months in Malaysia and Indonesia to slow in Q2 218 due to this high-demand season, which will provide support for palm oil prices. Due to the drop in palm oil prices in early March 218, we have lowered our Q1 218 price forecast to an average of MYR 2,5/tonne, while maintaining our view of MYR 2,4/tonne for late 218 and early next year. Indonesia delayed new regulations on palm oil shipments, which were issued in October 217. These regulations initially required Indonesian palm oil exporters to only use Indonesian flagged vessels and Indonesian insurance companies from April 218 onwards, but the start date has recently been postponed by a year. The law, if implemented, could have a negative impact on palm oil export volumes from Indonesia due to the limitation of Indonesian-flagged tanker availability but for the next 12 months, this won t impact Indonesian palm exports and prices. Palm oil inventories in Malaysia and Indonesia remain well above those of a year ago, maintaining pressure on prices Million tonnes 2.2 2 1.8 1.6 1.4 1.2 1.8 Million tonnes 4.5 4 3.5 3 2.5 2 1.5 1.5 5-year high 5-year average 16/17 17/18 Indonesia Malaysia Source: MPOB, Bloomberg, Rabobank 218 Source: MPOB, GAPKI, Bloomberg, Rabobank 218 6/12 RaboResearch Agri Commodity Markets Research March 218

Sugar ICE #11 Sugar price to remain under pressure ICE #11 Sugar price forecast slightly lowered at the front Sugar USc/lb 14. 14.6 13.7 13.2 14.1 14.5 14.7 14.7 The start of the Brazil harvest will provide market guidance White premium seems to have stabilised India is having a huge crop next season, which increases market estimates for the coming season All eyes are focused on the start of the Brazilian harvest. With a global excess of sugar, we don t expect the pace of the sugarcane harvest to affect the ICE #11 level all too much. Any interruption in the harvest due to unseasonal rains will probably just alleviate the glut in the market and have no price impact. But the pace of ethanol may prove to be relevant. At the moment, most market players expect the sugar mix to come towards a minimum, a level said to be at around 4% to 42%. Those expectations are based on a very high ethanol parity, at close to USc 18/lb today. If the parity does not plummet close to within two cents of the raw sugar price, all mills will favour ethanol over sugar. However, as we approach the start of the harvest in Brazil, we expect to see a decline in ethanol prices. The pace of the decline will potentially adjust expectations as to whether a minimum sugar mix will hold for the whole of the harvest. For the time being, sales of ethanol are doing very well as the economy recovers, with February ethanol sales up 16% YOY. With declining stocks until the harvest starts might result in a period of increased volatility. But if ethanol prices edge higher say because of a potential delay to the start of the harvest these prices should not be taken as a sign that they will stay high throughout the season, as the levels traded will probably be thin. The white premium seems to have stabilised over the last month, after a long period of decline. The October white premium is at the same level as it was at the end of January or at the end of February. However, unhedged Thai sugar may put further pressure on the white premium. In the longer term, it will be the planting decisions in the EU which will provide further direction to the white premium, around April. More bears in India. The announcement of ISMA stating that Indian sugar production for the current season is now estimated at a whopping 29.5m tonnes has sent the market south, even though there were already private estimates in that range. However, at the same time, raws dropped more than whites, which makes us wonder as to whether the market expects some of the Indian exportable surplus to be in the form of raws. More importantly, most of the market believed that the real big crop in India was going to be the next crop (218/19). As the market has been repeatedly increasing all estimates for the current crop and therefore the basis for all future crops then there remains a risk that the next harvest (218/19) may go from being a huge crop to becoming a monster crop. The pace of the fall in ethanol prices will be closely watched at the start of the sugarcane harvest 2 The sugar white premium appears to have stabilised, after pressure through the second half of 217 1 BRL/litre 1.9 1.8 1.7 1.6 1.5 1.4 1.3 1.2 USD/tonne 9 8 7 6 5 4 Hydrous Ethanol Price - Sao Paulo Sugar White Premium - October 218 contract Source: CEPEA, Bloomberg, Rabobank 218 7/12 RaboResearch Agri Commodity Markets Research March 218

Coffee Price forecast increased in Q3 Price forecast lowered in the short term, but increased in Q3 ICE Arabica USc/lb 132.3 124.7 121.7 124 133 133 133 133 ICE Robusta USD/t 2,96 1,857 1,776 1,81 1,85 1,85 1,85 1,85 We expect bearish price pressure as the Brazilian arabica harvest comes in The Battle for Espírito Santo rages on The end of La Niña makes a second consecutive record crop in Vietnam less likely ICE Arabica continued subdued in March, with very little news in the market. The May contract has gone from USc 122/lb at the end of February to USc 119.4/lb as of 19 March. Stocks in non-producing countries, having decreased significantly between September and October, have now stabilised, and in some ports, they have been replenished. Brazil s internal market has seen some more movement after carnival and even though it has been quiet, that created an impression of a large amount of unsold stocks from previous crops, which is anyone s guess. The battle for Espírito Santo continues. In our view, after two years of dry weather in some key Brazil robusta areas, Brazil will see a significant year-on-year production increase, but still at a lacklustre level (which we estimate at 15.8m bags) compared to previous years. However, estimates for Brazil robusta vary from 15m to 19m bags. The difference does not come from Rondônia or Bahia, where there is widespread agreement that the crop is excellent, but from Espírito Santo, the key robusta-growing area in Brazil and where all coffee analysts are focused on. It makes you wonder about the reliability of estimates. In any case, the higher availability of conillons means that there will also be a high availability of arabicas, but particularly so at the start of the harvest. As we expect near-record numbers of arabica production in Espírito Santo and Zona da Mata the areas where the arabica harvest starts (usually May) spot differentials will weaken. However, the follow-up in South of Minas may be disappointing, as we expect a disappointing crop for what should be an upcycle. The Honduran export pace continues to be very strong. Whereas sales have now decelerated to last year s level, exports continue to be 13% higher (October-16 March). The slow pace in Colombia has shifted demand towards Honduras at the start of the crop, and the mid-crop in Colombia is likely to continue to be on the low side. But as of now, it is not still not certain as to whether total exports from Honduras will finish above or below last year s by the end of the season. La Niña has come to an end, according to the Australian Bureau of Meteorology. La Niña usually correlates with increased rainfall over Indonesia and Vietnam. Indonesia usually does not need extra rainfall, and it can sometimes be counterproductive. But when it comes to Vietnam, some good rainfall is always a good thing, especially to replenish the reservoirs. For the time being and until we see actual rainfall numbers at the start of the rainy season, we will assume that Vietnam will have another very good crop, given the continuous good prices. But this could change. If it does, then the balance sheet will change from neutral to a deficit in 218/19. With low and declining certified stocks, it could perk up volatility. The arabica areas that are harvested first (Zona da Mata and Espírito Santo) will put pressure on the spot market With a large difference between Brazilian and Colombian crops, we see a large upside in implied volatility Million bags 18 16 14 12 1 8 6 4 2 Implied vol 1% moneyness - annualised 4 35 3 25 2 - South of Zona da Cerrado Minas Mata São Paulo Espírito Santo (A) 216/17 217/18 218/19 Espírito Santo (R) Other (A&R) 15 Robusta Arabica Source: Rabobank 218 8/12 RaboResearch Agri Commodity Markets Research March 218

Cocoa Change of sentiment in the cocoa market Price forecast slightly increased ICE NY USD/t 1,957 2,38 2,83 2,45 2,5 2,45 2,45 2,45 ICE London GBP/t 1,57 1,56 1,472 1,74 1,77 1,74 1,74 1,74 Low West African mid-crops ahead Prices will need to go high enough to at least incentivise some increase in internal prices paid in Côte d Ivoire and Ghana Demand is doing better than expected Funds hold largest net long position since August 216. We see a risk for a price break and volatility Cocoa has seen impressive upside momentum in February and March. On 26 January, we made a very bullish call, expecting the market to go up by 12% in Q1. However, the market has been relentless and overshot our then-bullish forecast, to increase by almost 3%. There was a combination of concerns about the West African mid-crops and low quality of the crop arriving in Côte d Ivoire, which seems to be quite poor. This has been taken as a sign of the poor husbandry, resulting from very low internal prices paid to farmers over the last year. Arrivals in Ivorian ports have started to decelerate, and there is a distinctive risk that they will continue to do so. Furthermore, Ghanaian officials publicly stated that the current crop in the country (217/18) is well below what was expected (85, tonnes). The coming mid-crops are likely to exacerbate the tightness in the market. With those declines in expected production, and with consumption still growing strongly, 217/18 could turn from a surplus year into a deficit year. All eyes will be on a potential rise in the internal price paid to farmers in Côte d Ivoire. If there is not a sufficient increase, a significant fall in production is likely, which could result in a significant deficit in the 218/19 season. The increase in prices could come in time for the mid-crops, but it is also likely that the next significant increase will only occur from October 218 onwards. With this in mind, we believe the Q3 price will have CFTC Non-Commercial net long position shows growth, but could result in volatility to be high enough to prompt the Ivorian government to go ahead with a significant increase. How much of an increase will be necessary to stop a significant fall is anyone s guess. In the meantime, we cannot discard a price drop. The momentum created by cocoa prices has attracted funds. Non- Commercials are, as of 13 March, 33,693 lots net long, which is the longest net position since August 216. The structure in the market still shows contango at the front, and prices have been coming down from the peak on 14 March. This makes us believe funds may have an incentive to stop piling up long contracts. It is also interesting to note that, during the market upswing, Non-Commercial gross shorts have stayed unchanged, at just over 5, lots since mid-february. These very brave funds must believe in dropping prices due to a potential surplus this year. It is unlikely they will change their view on the fundamental picture any time soon, but their beliefs may be challenged by large and potentially increasing margin calls. Adjust your seat belts, and expect a bumpy ride! Despite above normal rains across west Africa the mid crops are set to disappoint (18Feb-19Mar Rainfall Anomaly (mm)) 12 1 8 Thousand lots (NY) 6 4 2-2 -4-6 Non-Commercial Net Position Non-Commercial Gross Long Source: CFTC, Bloomberg, Rabobank 218 Source: NOAA 218 9/12 RaboResearch Agri Commodity Markets Research March 218

Cotton Bearish new-crop prices, as volatility remains in the front end of the curve ICE #2 Cotton forecast raised marginally in Q2 218 Cotton USc/lb 71 72 8 8 75 72 7 72 Volatility on the ICE #2 falls to playoff between Managed Money longs and unfixed mill positions Global stocks forecast to grow 4m bales outside of China in 218/19 the basis of our bearish outlook US planted area forecast at 13.1m acres, amid strong price relativity vs. soybeans and corn. However, persistent West Texas drought could limit this figure The nature of US cotton futures remain unpredictable in the short term, with implied volatility on active May 218 attaining near-contract highs through March. Historical tenday volatility also surged to contract highs, with a USc 3.5/lb range traded month-to-date. Volatility on the ICE #2 falls to the ongoing playoff between Managed Money longs and unfixed on-call mill sales, currently 85,46 lots (as of 13 March) and 79,36 lots (old crop contracts as of 9 March), respectively. Interestingly, speculators are still a far cry from their January record-long position, suggesting a top to this market is yet to be found short-lived breaks have been attempted above the USc 84/lb mark. Mill fixations have been relatively steady as we edge closer to July contract expiry. As a result, Rabobank raises its nearby forecast marginally, while maintaining a strong bearish view for 2H 218. Levels above USc 78/lb for Dec 218 flag up as exceptionally good value to new crop growers. Global stocks forecast to grow 4m bales outside of China in 218/19, a factor which forms the basis of our bearish outlook. While 218/19 stock growth is anticipated lower comparatively vs. 217/18 where world excl. China stocks grew +8.5m bales higher exportable supplies will lessen supply tightness and pressure prices. Rabobank forecasts strong international prices to maintain continued high production in 218/19 particularly for the US, Brazil, India, and Pakistan but for a 3% increase in global consumption to lessen the size of the surplus vs. 217/18. When including China, global stocks decline almost 6m bales in 218/19, to 82m bales, as the nation removes +1m bales from domestic 218/19 stocks Chinese reserve auctions are underway, with 78.7% of the cumulative total sold. Rabobank looks to the USDA for short-term price direction, in the form of the March 3 Prospective Plantings report and weekly US export sales reports. Analyst estimates ahead of the Prospective Planting report put US planted acres at between 13.m and 13.5m acres, up from 12.6m acres in 217/18 and vs. Rabobank s forecast 13.1m acres. Strong December 218 price relativity vs. CBOT Soybeans and Corn should incentivise additional year-on-year acres although these could be limited by persistent West Texas drought. On the export side, US demand has been unexpectedly strong, but delays in recent shipments have tempered this bullish demand influence. More recently, the US has shipped almost 1m bales in the last fortnight, allowing bales to flow to major importers and reducing the sales/shipment gap marginally to 7.4m bales, from a previous 7.6m bales. If the pace of shipments remains unhindered, current demand could allow for 217/18 US exports sales to exceed the USDA s 14.8m bales by some margin future revisions here will directly tighten the US 217/18 balance sheet. Global stocks outside of China are forecast to rise some 4m bales in 218/19, a bearish development US shipments have accelerated in recent weeks, allowing bales to flow and strong importer demand to be satisfied 12 16 Million bales 1 8 6 4 2 Accumulated exports (million bales) 14 12 1 8 6 4 2 World (exc. China) Ending Stocks China Ending Stocks 215/16 216/17 217/18 Source: USDA, Rabobank 218 Source: USDA, Rabobank 218 1/12 RaboResearch Agri Commodity Markets Research March 218

Imprint RaboResearch Food & Agribusiness far.rabobank.com Agri Commodity Markets Research Stefan Vogel, Head of ACMR stefan.vogel@rabobank.com, +44 2 7664 9523 Carlos Mera, Senior Commodity Analyst carlos.mera@rabobank.com, +44 2 7664 9512 Charles Clack, Commodity Analyst charles.clack@rabobank.com, +44 2 7664 9756 Contributing analysts: Andy Duff São Paulo, Brazil andy.duff@rabobank.com Oscar Tjakra Singapore oscar.tjakra@rabobank.com Rabobank Markets Corporate Risk & Treasury Management Contacts GLOBAL HEAD Martijn Sorber +31 3 21 69447 martijn.sorber@rabobank.com ASIA Koon Koh Tan +65 623 6988 koonkoh.tan@rabobank.com AUSTRALIA Terry Allom +61 2 8115 313 terry.allom@rabobank.com NETHERLANDS Arjan Veerhoek +31 3 216 94 arjan.veerhoek@rabobank.com EUROPE David Kane +44 (2) 7664 9744 david.kane@rabobank.com NORTH AMERICA Neil Williamson +1 (212) 886966 neil.williamson@rabobank.com SOUTH AMERICA Ricardo Rosa +55 11 553-715 ricardo.rosa@rabobank.com 11/12 RaboResearch Agri Commodity Markets Research March 218

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