Status memorandum as of 31 October 2014

Based on the global decline in market prices of crops, the Board has decided to send out this memorandum, as well as an overview of the economic impact.

Conditions during the growing season

The growing season this year, unlike previous years, has been characterised by plentiful amounts of water and moderate temperatures, which has led to a long growing season. Therefore, we were only been able to start the corn harvest on 1 October, which is 4 weeks later than “normal”, but on the other hand, with a better average yield than in previous years.

The late harvest of course means that sowing in the autumn of certain fields he been delayed.

The wet summer over south Europe has had a great impact on to quality, especially of bread wheat, which has resulted in a low supply of this. It has been, among other things, mentioned that up to 90% of the wheat in France does not live up to bread wheat quality requirements.

However, we have had confirmation that a significant part of our wheat crop meets the quality requirement, which is why we have relatively positive price expectations for this.

Sales strategy

Our overall sales strategy is that we want to have harvested the crops and know the quality parameters before there are large sales. To minimise the risk, sales after the harvest are spread throughout most of the year.

The basis of this strategy is that we do not want to enter into contracts that we cannot meet quantitatively and qualitatively in particular, in the interests of our legal obligations and in the interests of the unpleasant economic consequences this may have. In so far as quality goes, this course, first and foremost is about bread wheat.

An important basis for the chosen strategy is also that all experience and logic says that there will be increases in the prices of the products some time after the harvest, as there is a lack of storage facilities that can guarantee the product’s quality in the time after the harvest. That is precisely why we have invested in silo facilities with the aim of reaping the benefits of potential price increases there are here.

As shown in the attached appendix, the largest amount of wheat and barley are all still in stock and our liquidity is in place to wait to sell at an expected better time.

Harvest result 2014

As you know, work here in 2014 has been according to the prepared action plan, focusing on various focus areas. The harvest results in 2014 compared to previous years are as follows:

We are definitely not satisfied with the above harvest results and it currently points to a 0 result. All efforts are being made by the board and management to improve yields, with a focus on timely action, ongoing resource adjustments, as well as in the following areas in particular:

1. Liming: In continuation of previous years’ efforts, this year a total of 6,500 tonnes of lime have been added in Oravita and Videle. Measurements of this are of course ongoing and there is no doubt that this liming needs to be maintained.
2. Potash availability: Analysis has shown that there is sufficient potash content of the soil. The question is whether this is obtainable for the crops. There has been focus on this area, with controlled trials and crop analyses. There is about to be a picture of that, at least for corn, where we should continue so there will still be efforts and analyses in this area.
3. Surface drainage: Especially in Mizil, but also in certain areas of Videle and Oravita, it has been seen previously that there is a need of upgrading and new construction of surface drainage. Great efforts have been made on this during the last two years and they are naturally continuing for now.
4. Cultivating: The places where there have been problems with directing water away and down into the ground, have really been seen in this growing season due the heavy rainfall. So far we have made interventions with drain cultivators, but we have now supplemented this with additional capacity with “ordinary” straight toothed cultivators. This has naturally had a – positive – dewatering effect in wet years, but also opens the soil downwards for the roots in the dry years, which there are still expected to be most of, without opening the soil surface to drying out.

In our endeavours to improve the economy here and now, a critical cost analysis is to be carried out, and the board has also decided on an investment stop where possible, without negative consequences, which means a reduction in the ongoing construction project at Mizil by DKK 2.5 million.

Yours sincerely,

Richardt Duus, CEO