Announcement PDF ASX Announcement 1 August 2024 Letter to A Class Shareholders and Riverina rice growers Enclosed is a letter from the Chairman to A Class Shareholders and Riverina rice growers regarding the announcement of CY25 Pool Arrangements. The letter also encloses a SunRice Group presentation which will be presented by Group CEO Paul Serra today at the Rice Connect Industry Breakfast in Moama, NSW. Authorised by Kate Cooper, General Counsel and Company Secretary Investor inquiries: Media inquiries: Richard Rose Anthony McFarlane Head of Corporate Development and Investor Relations Head of Corporate Affairs 0410 300 986/ rrose@sunrice.com.au 0447 324 674/ amcfarlane@sunrice.com.au About SunRice’s structure The structure of SunRice contains non-standard elements including its dual class share structure comprising A Class Shares and B Class Shares. A Class Shares confer on their holders the right to vote at general meetings but no right to dividends. A Class Shares are not quoted on ASX and may only be held by rice growers who meet the production quotas prescribed by the SunRice constitution. No person may hold more than 5 A Class Shares. In practical terms the voting rights held by A Class Shareholders give those shareholders the right to control the election of directors and any changes to SunRice’s constitution. B Class Shares are quoted on ASX and confer on their holders the right to receive dividends, as determined by the directors from time to time. Holders of B Class Shares do not generally have the right to vote at general meetings of SunRice. This means B Class Shareholders have no right to vote on the election of directors of SunRice. No person may hold more than 10% of the total number of B Class Shares on issue. For more details of the non-standard elements of SunRice’s structure see: https://corporate.sunrice.com.au/investors/ Ricegrowers Limited ABN 55 007 481 156 Registered Office 57 Yanco Avenue, Leeton, NSW 2705 Australia Locked Bag 2, Leeton, NSW 2705 Australia T +61 2 6953 0411 www.sunrice.com.au Registered Office 57 Yanco Avenue, Leeton, NSW 2705 Australia Locked Bag 2, Leeton, NSW 2705 Australia T +61 2 6953 0411 www.sunrice.com.au 1 August 2024 Dear Growers, Announcement of the CY25 pool arrangements I am writing to you regarding the CY25 pool arrangements that SunRice Group CEO Paul Serra will be announcing at the SunRice Industry Breakfast this morning at the Rice Connect conference in Moama. The Board and I are cognisant of providing you with timely information well ahead of the planting window, which commences in October this year for the CY25 crop to be harvested from March 2025 and marketed well into 2026. In my letter to Growers of 15 May 2024 and subsequent SunRice Group and RGA presentations in early June across the Riverina, we recommended a CY25 planting base from growers that was 30% less than last year’s crop (CY24) to assist us to maximise paddy prices for our Riverina growers in light of the carry over volumes and current market conditions. I also noted that we would continue to monitor the CY25 crop outlook as the planting window approached and return with any updates. The industry finds itself in a unique situation that is unparalleled in the last decade. Due to favourable growing conditions, over the last three years our growers have grown on average a crop size at or above our optimal milling and storage systems, resulting in a healthy but full effective carry over position. In addition, a number of factors continue to weigh on anticipated paddy returns, including increased medium grain rice supply from Northern Hemisphere markets returning from drought conditions and the disruption to the global shipping industry, particularly in the Red Sea. CY25 Pool Arrangements As we approach the CY25 seed ordering period, we are seeking to balance this combination of factors, including managing our AGS storage network and optimising our milling program to align with demand in our premium markets to maximise grower returns. With this in mind, we are today announcing a two-pool system that will target a total of 500,000 paddy tonnes (comprising 450,000 paddy tonnes of medium grain and 50,000 tonnes of specialty varieties). Operation of the two pool system Further details regarding the operation of the two-pool system and key upcoming ordering dates are set out in the enclosed presentation delivered by Paul Serra today at the Rice Connect Industry Breakfast. In summary, pool allocations for medium grain will be determined on your farm average 3-year final delivered tonnage as follows: • • Pool 1: will be calculated on the average of your last three years’ delivered tonnage x 75%; and Pool 2: any surplus delivered above your Pool 1 allocation. If you wish to grow additional rice above the Pool 1 allocation, it is important to note that at this stage returns for Pool 2 are expected to be significantly lower than $200/tonne. We realise the returns for Pool 2 may be unattractive, however this expected outcome also illustrates the impact that a crop size in excess of 500,000 paddy tonnes could have on the overall paddy return under a single pool system given the current environment. Ricegrowers Limited ABN 55 007 481 156 Registered Office 57 Yanco Avenue, Leeton, NSW 2705 Australia Locked Bag 2, Leeton, NSW 2705 Australia T +61 2 6953 8350 www.sunrice.com.au As we shared with you earlier in the year, a two-pool system is designed to help maximise returns for all growers, rather than diluting returns given the current supply and demand outlook. Special Varieties For special varieties, Expressions of Interest will be offered to all growers, for a total of up to circa 50,000 paddy tonnes. Priority allocation for special varieties will be given to those growers who have grown the relevant variety in the past three years, in line with their average seed orders. However, please note the medium grain Pool 75% allocation methodology does not apply to special varieties. For further details regarding this process for special varieties, please see page 18 of Paul Serra’s presentation. If you have any further questions regarding the CY25 pool arrangements, please don’t hesitate to contact me on 0428 500 232, or feel free to reach out to your local Grower Director, or Grower Services on 1800 654 557 or growerservices@sunrice.com.au. We will also be hosting pre-season grower meetings later in August to answer your questions and will come back to you with further details on these meetings shortly. Sincerely, Laurie Arthur Chairman SUNRICE GROUP UPDATE SunRice Group Update Paul Serra, Group CEO 1 August 2024 1 SUNRICE GROUP UPDATE Important notice & disclaimer These risks and uncertainties include changes in rice crop harvests, global rice market supply and demand, supply chain costs and availability; SunRice has prepared this presentation increased costs and demand for in good faith believing the statements production inputs; changes in product made in it to be true as at the date of pricing assumptions, changes in the presentation. SunRice is not equipment life or capability; otherwise warranting the accuracy of and environmental or social factors the information provided, noting that which may affect a licence to operate. the presentation includes forwardSunRice does not undertake to release looking statements reflecting publicly any revisions to any forwardSunRice’s current expectations. looking statements to reflect events or These statements are expressed in circumstances after the date of this good faith and the expectations and presentation, or to reflect the beliefs are genuinely held but no occurrence of unanticipated events. All representation or warranty is being figures are expressed in Australian made by SunRice that the matters dollars unless stated otherwise. stated in this presentation will in fact About SunRice’s structure be achieved or prove to be correct. Forward-looking statements are The structure of SunRice contains nonsubject to risks, uncertainties and standard elements including its dual assumptions that could cause the class share structure comprising A actual results or achievements of Class Shares and B Class Shares. SunRice to differ materially from A Class Shares confer on their holders expectations. the right to vote at general meetings but no right to dividends. This presentation has been prepared by Ricegrowers Limited (SunRice) and provides summary information only. A Class Shares are not quoted on ASX and may only be held by growers who meet the production quotas prescribed by the Sunrice Constitution. No person may hold more than 5 A Class Shares. In practical terms the voting rights held by A Class Shareholders give those shareholders the right to control the election of directors and any changes to SunRice’s constitution. B Class Shares are quoted on ASX and confer on their holders the right to receive dividends, as determined by the directors from time to time. Holders of B Class Shares do not generally have the right to vote at general meetings of SunRice. This means that B Class Shareholders have no right to vote on the election of directors of SunRice. No person may hold more than 10% of the total number of B Class Shares on issue. For more details of the non-standard elements of SunRice’s structure see: investors.sunrice.com.au SUNRICE GROUP UPDATE Agenda Global context CY25 Australian context Next steps Questions & answers 3 SUNRICE GROUP UPDATE The global context 4 SUNRICE GROUP UPDATE Global rice production is forecast to reach a record high of 528.2 million metric tons in 2024/25. G L O B AL R I C E P R O DUC T I ON Record forecasted Global Rice Production, Consumption and Ending Stock (Million MT, Milled) 540 530 149.4 520 510 500 470 187.3 116.3 484 483 513 518 179.4 516 177.2 178.1 520 521 523 528 527 200 180 160 140 503 496 495 497 495 491 183.2 120 100 484 80 472 470 60 460 40 450 20 440 Source: Rice Outlook: July 2024, RCS-24F, 16 July 2024 USDA, Economic Research Service 177.9 509 490 480 161.7 176.9 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 World Production Consumption and Residual use World ending stock 0 5 SUNRICE GROUP UPDATE 700 LONG GRAIN Global pricing FOB (USD/MT) After Indian Non-Basmati Ban FOB (USD/MT) Before Indian Non-Basmati Ban 650 THLG +32% 600 550 VNLG +33% 500 100% THLG +14% 450 400 5% THLG Source: Platts S&P Global Commodity Insights 5% VNLG 100% TH Broken Jul-24 Jun-24 May-24 Apr-24 Mar-24 Feb-24 Jan-24 Dec-23 Nov-23 Oct-23 Sep-23 Aug-23 Jul-23 Jun-23 May-23 Apr-23 Mar-23 Feb-23 Jan-23 Dec-22 Nov-22 Oct-22 Sep-22 Aug-22 Jul-22 350 100% VNLG +16% 100% VN Broken 6 SUNRICE GROUP UPDATE CA Planted Acres & Paddy Inventory Levels 600 ME DI UM G R A I N Supply dynamics California 35000 541 550 499 500 450 497 30000 465 439 428 519 515 1 June 2024 Paddy Stocks 15000 (KMT) 406 400 20000 350 10000 300 253 250 Acres (000) 200 25000 2015 2016 2017 2018 2019 2020 2021 2022 5000 2023 2024 0 Crop year US MA pricing has dropped from $1700/t in 2023 down to $725/t in most recent tender in March 2024 due to excess supply. Source Acres: Land IQ LLC Source Paddy Inventory: USDA NASS Rice Stock Report 7 SUNRICE GROUP UPDATE ME DI UM G R A I N Supply dynamics Vietnam Vietnam monthly Japonica rice exports* (‘000 mt) 80 60 40 20 0 *Source: Japonica Rice Market Report July 2024 Jun 2023 Aug 2023 Oct 2023 Dec 2023 Feb 2024 Apr 2024 Jun 2024 Vietnamese Japonica rice exports surged by 115% year-on-year and 152% month-on-month in June 2024. Fresh Japonica crops are expected to be available from late August to mid-September. 8 SUNRICE GROUP UPDATE ME DI UM G R A I N Supply dynamics South America Increasing supply of medium grain from South America also adds further pricing pressure in premium markets. Image Credit: https://blog.gfar.net/2012/10/25/the-enigma-of-uruguayan-rice/ 9 SUNRICE GROUP UPDATE Drewry World Container Index ($US/40ft) Shipping costs JULY 2023 TO 2024 Contract Volumes 5,000 ● Spot rates increased by circa 600% partially mitigated by long term contracts 4,000 Global Impacts 6,000 ● Red Sea hostilities 3,000 ● Panama Canal drought 2,000 ● Global network congestion 1,000 ● US & Europe early Christmas trade orders July 2023 July 2024 Source : https://www.drewry.co.uk/supply-chain-advisors/supply-chainexpertise/world-container-index-assessed-by-drewry ● US tariff avoidance – pre-US Election 10 SUNRICE GROUP UPDATE CY25: Australian context 11 SUNRICE GROUP UPDATE The law of diminishing returns Returns to pool growers are a weighted average of all of our markets. There is a finite amount of premium export markets. There is a limit on the amount of Australian rice that can currently be sold at a premium Paddy price per tonne Return Increased overhead recovery versus declining market returns 50kt 100kt 150kt Paddy tonnes milled (excluding carry over crop) Illustrative only 200kt 250kt 300kt 350kt 400kt 450kt 500kt 550kt 600kt 650kt > 700kt 12 SUNRICE GROUP UPDATE Paddy price FY12-FY24 750* CAGR: + 4.5% 255 FY12 317 FY13 395 404 415 FY15 FY16 FY17 379 500* 428 411 461 430 294 FY14 FY18 Naturally Determined Paddy Prce (Reiziq $/Tonne) FY19 FY20 FY21 FY22 FY23 FY24 * Fixed Paddy Price (Reiziq $/Tonne) 13 SUNRICE GROUP UPDATE Australian supply Southern MurrayDarling Basin Water Availability Climate Driver Update, 23 July 24 • There is about an equal chance of either ENSO remaining neutral or La Niña developing during the remainder of 2024. • The long-range forecast predicts wetter than average conditions for SE Australia for August to October. Source: Climate Driver Update (bom.gov.au) We are expecting a positive response to growing rice in CY25 based on water markets and expected wet conditions Allocation Water: Median Price and Volume Traded July 23 to July 24 1,000,000 $170/ML 800,000 Surface water, Volume trade Median Price ($/ML) $120/ML 150 100 600,00 400,000 Total volume held in storage at 17 July 2024 $85/ML $20/ML 200,000 50 0 0 Source: Water Information Dashboard: Water Information: Bureau of Meteorology (bom.gov.au) 80% Southern Basin 13,069 of 16,296 GL Source: Murray – Darling Basin Government Storages (mdba.gov.au) 14 SUNRICE GROUP UPDATE Market and system optimisation • This is a unique situation, unparalleled in the last 10 years. • Due to favourable growing conditions over the past three years, our growers have grown, on average, a crop size above our milling capacity. • As a result, we are in a healthy but full effective carry over position. • We are seeking to optimise our milling capacity, whilst managing our storage network, in line with premium market demand to maximise grower returns. 15 SUNRICE GROUP UPDATE Two pool system (Medium Grain) Optimal paddy tonnes for CY25 is 500kt (comprising 450kt medium grain and ~50kt special varieties) The allocation methodology is based on total three-year average volume of 600kt Pool 1: 75% (approx. 450kt medium grain) Pool 2: 25% (100kt medium grain). Given the strong grower response to plant rice and full storage system, to maximise paddy returns we are implementing a two-pool system MG Pool 1 MG Pool 2 450,000 paddy tonnes Volume reflects optimal milling capacity and premium market demand Excess MG above 450,000 paddy tonnes Excess volume above expected premium market demand will go to lower returning markets Pricing: Within the range of historical paddy price returns, subject to market conditions.* Pricing: Modelling at this stage suggests significantly less than $200/t. Calculation : Determined by farm three-year average delivered MG tonnage x 75% *Illustrative only not indicative of future pricing Calculation: Surplus above Pool 1 allocation based on delivered MG tonnage 16 SUNRICE GROUP UPDATE Example for an individual farm Assuming 3-year MG average of 1,000 delivered paddy tonnes Assuming a farm delivered 1,000t on average, applying the 75% means that the maximum Pool 1 allocation for this farm is 750t. Any additional volume would go into Pool 2 as per the example below: Final Tonnage MG Pool 1 Allocation MG Pool 2 Allocation 750t 750t 0t 1,000t 750t 250t 1,250t 750t 500t Note: allocation is determined on your 3-year average farm tonnage delivered and allocations may increase if the full 500kT (both MG and special varieties) is not exhausted in first window. SUNRICE GROUP UPDATE Special varieties Expressions of Interest (EOI) for special varieties will be offered to all growers*. Priority will be given to those growers who have grown the relevant variety in the past 3 years, in line with their average seed orders. If less than 50kt of special varieties are taken up, the balance of the remaining volume will be offered to growers (who have grown in the previous 3 years) in a two-step process: *Please note the MG Pool 1 75% allocation methodology does not apply to special varieties. Step One: • Growers will be asked to submit an Expression of Interest (EOI) to Grower Services on or before 26 August for hectares they intend to grow for the following varieties: Koshi, Topaz, Langi, Opus and Doongara. Step Two: • Grower Services will then allocate hectare contracts for special varieties based on a farm’s 3year average seed orders by 9 September. • Any remaining hectares will be allocated on a fair and transparent basis to be determined and communicated at the relevant time. • If contracts are not filled through this process, then the remaining volume will be re-offered to all growers from 10 September until such time they are filled. SUNRICE GROUP UPDATE Next steps 19 SUNRICE GROUP UPDATE The CY25 Seed Ordering Process 1 August Announcement of two pool process for CY25. 16 August Seed circular sent to growers. 19 August Grower Services emails each grower the allocation split of seed order for MG Pool 1 & Pool 2. 26 August Grower submits EOI for special varieties (ha contracts): Koshi, Topaz, Opus, Langi, Doongara. 9 September Medium grain seed orders open. Grower Services allocate ha contracts for speciality varieties (seed orders then placed). 10 September > If contracts for special varieties are not filled, contracts re-offered to all growers from 10 September until filled. 20 September Existing medium grain seed orders confirmed by Grower Services and seed can be issued. 20 SUNRICE GROUP UPDATE Q&A 21 Making a difference to places and lives everywhere through nourishing and delicious products. 22