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Enron Agricultural Trading Sidley & Austin Chicago, IL December 5, 2000

This discussion explores Enron's unique legal landscape in agribusiness, focusing on their value proposition, strategy, market perspectives, key players, deal trends, and prospective deal structures.

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Enron Agricultural Trading Sidley & Austin Chicago, IL December 5, 2000

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  1. Enron Agricultural Trading Sidley & Austin Chicago, IL December 5, 2000

  2. Discussion Points Purpose • To better understand the legal landscape unique to agribusiness with specific attention devoted to new product ideas • Enron’s Agriculture Value Proposition • Enron’s Agriculture Strategy • Agriculture Market Perspectives • Key Players • Deal Trends • Prospective Deal Structures

  3. Enron’s Agriculture Value Proposition Position Enron to identify and to take advantage of inefficiencies in the financial and physical agricultural markets, and thereby to provide superior risk management solutions to our customers.

  4. Enron’s Agriculture Strategy Current Strategic Focus Systematically identify inefficiently managed risk within the grains, meats and softs markets. Develop value-added risk management products and structure risk management solutions to more effectively manage these risks.

  5. Agriculture Market Perspectives Highly transparent, liquid, short-dated financial markets • Underdeveloped long-dated financial markets (beyond front month) • Financial markets are not keeping pace with the dynamic changes in the underlying physical market Prices to producers have declined significantly since 1996 Increasing market concentration, generally in the center of the supply chains Demand high for longer dated risk management products • Price must be better than front month plus cost of carry • Tenor horizon focus remains inside 2 years for most participants

  6. Key Players Meats • IBP • Smithfield • Tyson • Maple Leaf Foods • ConAgra • Cargill Softs • ADM • Cargill/Gerkens • Barry Callebaut • ED& F Man • Andre • Andira • Tate & Lyle • Cereal Foods Integrated Players/Grains • Cargill • ConAgra • ADM • Bunge Exchanges • CBOT • CME • LIFFE

  7. Deal Trends Risk Management Finance Alliances E-Commerce

  8. Prospective Deal Structures Feed Grain Provider Wholesaler / Distributor Sow Production Maple Leaf Foods Inc. (Processor) Synthetic Alliance Processed Pork $ (FP) Sow Capacity $ $ (FP) ENRON (2) ENRON (3) ENRON (1) = The physical flow of pork • Structure: • (1) Enron guarantees a fixed price (FP) and/or margin to a sow producer (may be a vertically integrated operation with processing). The physical movement / logistics will be handled between the sow producer and the processing plant. • (2) Enron enters into a “tolling” agreement with a packer to produce processed pork for a set margin. Most likely will contract for a percentage ( 10-15%) of a plant’s capacity. • (3) Enron “provides” a FP on processed pork to a wholesaler/distributor on a daily/weekly basis under a fixed volume arrangement (which our initial research indicates that wholesalers would be receptive to this product). Ideally, Enron would never take physical possession of the pork but merely organize/facilitate the transfer.

  9. Prospective Deal Structures (II) Inputs Outputs Ethanol Project* 24 million bu/yr 84 million gal/yr Corn Ethanol Plant* $ 50 million/yr $ 105 million/yr 255,000 tons/yr 8.5 million bu/yr DDGS Wheat $ 39 million/yr $ 22 million/yr 22,500 tons/yr Wheat Gluten XXXX MMBTU/yr Nat Gas $ 27 million/yr $ MMBTU/yr Other (8 products) MW/yr Electricity $ 20 million/yr $ MW/yr • * Structure Opportunities: • (1) Price Risk Management: Enhance financibility through financial price swaps, collars, or options • (2) Physical: Make or take physical delivery where value can be added • (3) Financial: Possible participation in equity, subordinated debt, or both • Note: Revenue projections based upon US Bancorp Piper Jaffray presentation

  10. Corn Purchaser Physical Relationship Unchanged Index ($) Corn Elevator Index ($) Fixed ($) Enron Prospective Deal Structures (III) • Terms • Elevator continues to sell corn to Purchaser at Index, or an agreed-upon price • Elevator pays Index price to Enron and receives a fixed price from Enron in return • Net effect • Elevator sells corn for a fixed price • Benefits • Mitigates directional price risk • Reduces earnings volatility • Stabilizes cash flows • Potentially improves credit rating • Longer-term focus Financial Swap

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