Who is Olam?
Olam is a leading global integrated supply
chain manager and processor of
agricultural products and food ingredients
 Presence across 16 platforms, 5 agricommodity segments across 4 value
chain steps
Cotton:
#1 private ginner
#2 merchant globally
 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
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History of Olam
1989
Start-Up
1 product - Cashews
1 country - Nigeria
1 end Market
4 customers
2 employees
S$0.15m Book Value
S$0.15m Mkt. Value
FY 2013
20 products
65 countries
50 end markets
12,300 customers
18,000 employees
S$15.7 bn turnover
S$444.6 mm PAT
S$6.3 bn Mkt. Cap
 Sales CARG of 51% and PAT CAGR of 48% over the last 21 years
Transitioned from a Trader to an Integrated Supply Chain Manager
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Our Business: Supply Chain Manger of
Agricultural Raw Materials
Integrated from farm to factory gate
ORIGIN
CUSTOMER
Managing Risk at Every Stage
Farming
Origination
Logistics
Processing
Marketing
Solutions
& Services
Trading &
Distribution
End-to-end Supply Chain Capability
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Components of the cotton price
Futures
A$513
per
bale
Basis
Exchange
Rate
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Futures Contracts
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
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Futures Contracts
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Impact on Cotton Price
• 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
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Basis
• 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
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Calculation of Basis
Example:
July 2014 Futures
QC 2014 Cash Price
85.61 US cents/lb
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’
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Relationship between Basis and Futures
• 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.
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Exchange Rate
• 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
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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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Calculation of Cotton Price
Price = (Futures price +/- Basis ) x 500 lb/bale
Exchange Rate
= (0.8561 + 0.0475) x 500 lb/bale
0.8867
=
A$510 / bale
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Marketing Contract Types
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
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Managing Risk
Price
Production
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Thank you!
Elissa Wegener
0400 681146
Luke Chappel
0428 799 446
Meg Laidlaw
0427 816 315
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