Markets

Big export surplus gives scope to grain pools

Liz Wells, December 4, 2020

Flexi Grain has been managing pooled grain from its Swan Hill base since 2013. File photo: Flexi Grain

EASTERN Australia is ripping into its biggest grain-export program since 2016-17, and playing a role in accumulating for offshore as well as domestic customers are pools.

Operating as managed-sales programs, they are an option favoured by growers chasing a staggered cashflow from the part of their crop they do not wish to market themselves.

The pools growers choose depend on their appetite for risk based on the operators’ strategy, and the life of the pool, which dictates the number and timing of payments throughout the marketing period.

Pools in perspective

Storey Marketing Services principal Ron Storey was general manager marketing at AWB from 1982 to 2000.

As Australia’s single-desk wheat exporter, AWB pools were a major supplier of wheat to world markets until deregulation in 2008-09.

“The history is we went from 100-per-cent pools in the 1980s to domestic deregulation in 1991, when 20pc went for cash into the domestic market.

“From day one after the loss of the single desk, we still probably had around 30pc of the crop going into pools, and as much as 50pc in that transition period, when board names were still strong.”

Mr Storey said he estimated the drought years of 2017-2018 and 2018-19 would have attracted less than 10pc of the national crop.

He said that percentage was expected to rise considerably this year because eastern Australia is back in the export game, and South Australia and Western Australia do not need to fill the drought deficit in eastern states.

“Because the crop’s so big, most growers have got enough cash from harvest to cover their requirements, but don’t want to sell the whole lot at once. “

“Pools are one of the risk-management tools they can use.

“I certainly think they’ll get some participation this year.”

Ring-fencing required

While impossible to quantify, the market’s feeling is that eastern Australian growers have sold roughly half their crop, and split the rest between on-farm storage, warehousing and pools.

Pool operators generally claim well-managed pools will return contributing growers up to $18-$19 per tonne over the harvest cash market.

Underpinning the appeal of pools managed by majors is “ring-fencing”, where pool assets exist in a separate legal entity to other business activities, and operators pay credit insurance to negate the risk of a counterparty default.

Mr Storey said growers should read the fine print on their pooling contracts to ensure any pool getting their grain was indeed ring-fenced from trading books or other activities.

“It’s worth checking out the due diligence around the pool manager.”

Changing landscape

Among the 2020-21 operators are some new and familiar names that show the changes that have occurred in the pool space since Profarmer released its most recent Australian grain under management report in relation to 2018-19.

Eastern Australia looks set to have three major non-bulk handler pool operators this season: Advantage Grain, Flexi Grain and Market Check.

Pool operators with bulk handling assets are GrainCorp and CBH.

New this year is Advantage Grain, an independent which offers pools managed by Chris Nikolaou.

Formerly with Agfarm, which closed this year following a change of ownership, Mr Nikolaou and his team have opened pools for wheat, barley and canola which are receiving grain at all major bulk-handling sites.

“I’m hoping that we’ll see grower support in New South Wales, Victoria and South Australia,” Mr Nikolaou said.

“I’m excited to be able to bring the product back after two years of drought.

“There hasn’t been enough grain since 2017 here to justify carrying it through for sale out of pools, but what we are receiving now we should be able to carry through at least until the end of the second quarter.”

Advantage Grain strategy is to sell an equal amount of pooled grain monthly post harvest for the duration of the pool’s life, which is a maximum of 10 months.

“It’s low risk.

“We don’t use futures and derivatives, and we won’t go beyond delivered-port basis.”

Products vary

From its base at Swan Hill in Victoria, Flexi Grain offers pre-harvest hectare and tonnage contracts, and accumulates in NSW, Victoria, South Australia and WA.

“The large wheat and barley crop now being harvested in south-eastern Australia has enabled the company to switch its pool-marketing focus from domestic to export sales,” Flexi Grain general manager Jarrod Tonkin said.

“The two key components for achieving solid returns in this environment are access to the export market and a disciplined hedging approach.”

Mr Tonkin said Flexi Grain has been actively managing foreign exchange on barley, and basis on wheat.

“With an oversupply of grain versus export capacity, we feel the combination of export capacity and well-managed hedging will enable us to achieve an optimum result.

“Now being a registered exporter, we’ll be looking to sell bulk and pass that elevation margin on to growers.”

Eye on basis

Sydney-based Market Check uses positions on European and North American futures exchanges plus currency hedging to help lock in price support for wheat and canola, and currency hedging alone on barley.

Market Check head of strategy Nick Crundall said the company’s eye on basis — the differential between a relevant futures contract and domestic prices – was an important factor in its marketing.

“We look to hedge our downside risk in offshore markets, remaining exposed to the relative improvement in our prices versus the rest of world post-harvest.”

Moves in basis for Australian wheat, barley and canola occur in relation to domestic supply, and the outlook for crops from Australia’s competitors in the export market.

Market Check is independent, and those buying out of its pools include exporters, feedlotters and millers.

Market Check pools receive grain at major and private bulk handling sites.

Mr Crundall said on-farm storages were an option for grain pooled with Market Check, but needed to meet certain criteria.

Room for regions

On the regional front is Priag Marketing Pools.

Based at Narrabri in north -est NSW, Priag is running wheat and feed barley pools in the Brisbane and Newcastle port zones.

As manager of commercial and risk, Sarah McGrath has set up Priag’s pool structures.

“She brings an analytical focus to our business, and makes sure we’re not stepping out of our protocols,” Priag principal and pool manager Kevin Schwager said.

“It’s all about managing the farmers’ risk.”

Priag will be selling in the track market to consumers and traders, and is taking in pooled grain at GrainCorp and Grainflow sites.

Gone with time

A number of pool operators have exited in recent years, with the contraction in export volume caused by drought largely behind their inability to attract tonnes.

They include Australian Grain Growers Co-operative, a South Australian entity which in 2018 handed management of the last of its pools to Plum Grove.

Based in Western Australia, Plum Grove itself stepped out of the accumulation space last year.

Through AvantAgri, Malcolm Bartholomaeus and Peter Woods operated pools from 2013-14 to 2016-17, but have not operated since.

Likewise, Mark Thiele’s Unique Grain and Cargill’s AWB-Grainflow no longer operate pools.

 

 

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