Domestic

Risk and reward: Traders/government weigh up feasibility of grain imports

Henry Wells, November 9, 2018

Soybean barges on the MississippiRiver. (Photo: jmurphpix on twitter)

THE drought-driven shortage of grain in eastern Australia has end-users, including feedlots and oilseeds crushers, looking at the importation of grain.

Droughts in previous years have brought foreign shipment to seaboard users in eastern Australia.

Trade sources have told Grain Central United States corn coming into southern ports was the most likely channel to open to imported grain based on price alone as markets readjust to life without Cargill’s cottonseed crushing plant at Narrabri in north west New South Wales.

However, most believe that, notwithstanding a surge in meal-type feed ingredients, import of whole grains is unlikely because of the risk to biosecurity, the GM status of US corn, and the cost/benefit equation is marginal.

Six applications

The Australian Government’s Department of Agriculture and Water Resources (DAWR) has received six applications for the import of whole grain, and none have so far been granted.

They cover canola, corn, peas and wheat from the US and Canada.

Traders said the detail of costings to supply imported whole grain to the feed market here depended very much on vessel size and on the costs of import protocols.

This includes accrediting handling facilities at origin and destination, and the effect of denaturing the grain to prevent foreign seed germinating in Australia.

Livestock industries would buy whatever grain fitted in a least-cost ration formulation, based on price and its value in animal nutrition.

The grain component of feedlot rations had been mostly wheat this year and looks likely to stay that way until the 2019 sorghum harvest begins in earnest in March.

Sorghum’s availability in April on the Darling Downs would contain prices, but might also lock imported corn out of contention for shipment into Brisbane.

“Given current pricing for sorghum, imported corn might only be lineball into Brisbane,” Robinson Grain trader Adam Robinson said.

“Imported corn, compared with local wheat, could possibly calculate better to southern markets which don’t get the benefit of cheaper sorghum.”

Stakeholder risk high

Market Check head of strategy, Nick Crundall, said the company saw import of foreign whole grains into the east coast feed market for the 2018-19 season as highly unlikely.

“I think the government will shy away from any biosecurity risks in importing whole grain as the stakes are too high and industry stakeholders are voicing their objection,” Mr Crundall said.

“The department is not a commercial enterprise, so while supply is available, which it is and will continue to be via interstate movements, I don’t see them taking on the risk.

“Therefore, the easiest and safest option is to let the market solve the problem, rather than import from overseas.”

The market is already pricing in South Australian and Western Australian grain to supply the east coast with more than enough grain to fill the deficit, and a potentially big sorghum crop in NSW and Queensland could be hitting the market in autumn.

“Also, asset holders on the east coast will think twice about importing foreign grains for the reputational risk.

“Growers are already having a poor season, helped only by the market paying big prices, so importing foreign supply will obviously dampen the market.

“Once you price it all out, the financial incentive doesn’t really stack up, considering the hurdles and execution risks.”

Every day, WA wheat is being offered free-on-truck (fot) at Brisbane, Newcastle and Port Kembla, and Gladstone is about to join the list.

“The consumers have local supply options, so I think the idea of importing grain from overseas is one better addressed if we see 2019-20 season production at similar levels to this season, i.e. another drought year in 2019.”

Corn and sorghum

US corn loaded ex the US Gulf ports would be cheaper than wheat at foreign load ports by a margin of around 40 per cent.

While wheat in southern Queensland is priced in the vicinity $410 per tonne fot Brisbane and $450/t delivered Darling Downs, US corn could be landed at a price level which might compete.

Import permits for whole corn have twice been issued in the past.

However, traders expect US corn will not make its way into Brisbane this year unless drought was to desiccate eastern states through summer and autumn.

Following substantial planting rain which fell in spring in southern Queensland, prospects look reasonable for a crop growing over summer, and on top of steady grain shipments from interstate, this might be key to locking US corn out of Brisbane.

Sorghum is pricing at around 15pc discount to wheat now that supply in Queensland is showing signs of hope for an autumn-harvested crop, and its impact is likely to trim feedgrains’ potential price rises there.

By contrast, southern markets such as Victoria and southern NSW have no benefit from sorghum price influence, because northern sorghum plus freight would do little to influence wheat price, so it is possible that a case could be made for US corn to service southern markets via southern ports.

Maintaining an open door for Australia’s export corn trade is important to the production and trade in this specialist industry, according to Robinson Grain’s trader Adam Robinson with regard to Australia’s GMO-free corn status.

GM concerns

Nearly all corn grown in the US is genetically modified.

Mr Robinson is aware of industry concern that importing GM corn could affect our current corn industry which is GMO free.

“There may be safeguards (however) the reason why we have a premium in markets is because we have GMO-free status.”

“The non-GM status we have is our one of the main reasons we can export and compete against cheaper origins that are not 100pc non-GMO,” Lachlan Commodities trading manager Andrew Cogswell said.

He believes imports of corn could affect human-consumption food products in Australia.

“Many of the human consumptive markets in Australia for Australian corn would fight any imports of GM product due to the potential for an unintentional release of GM product.”

He foreshadowed pushback from consumers due to labelling laws, and the concerns about how to label produce derived from feeding livestock/dairy cattle with GMO product.

Wheat import history

Wheat from the UK was imported into Brisbane during the millennium drought.

Protocols to have imported grain used beyond the metropolitan area included denaturing the grain through heat treating at Brisbane port and sealed trucks carting it to consumers on the Darling Downs.

Oilseeds and byproducts

Import permits have been issued in the past for soybeans twice and canola once, according to an information note published recently by the Office of the Gene Technology Regulator (OGTR).

Soybeans or canola are crushed for oil for food purposes and meal for livestock.

Oilseed industry sources said the costings for US soybeans and/or Canadian canola for Melbourne and Newcastle crushing plants were looking like a good second line alternative to coastal shipments of WA canola.

It is likely the next two weeks will solve the puzzle of WA’s crop as harvest is gearing towards full capacity and competition peaks among European buyers of WA canola, and local Australian bidders.

Processed plant-based stockfeed import applications to DAWR have increased in 2018 compared with 2017, a department spokesperson said.

Nine were under assessment and the remainder, 43, paused awaiting further information from applicants before assessment could progress.

The main category of imports by far is processed soybean meal, valued as a high-protein non-grain feed ingredient in pig and chicken rations, and landing in mainland ports in volume approaching 1Mt in 2019. Palm kernel extract and meal, copra meal and dried distillers’ grains with solids (DDGS) also arrive, though in relatively small volume.

No for hay and straw

Plenty of plant-based byproducts are filling the niche in feed rations, and always have done, depending on internal prices of equivalents in Australia and the profitability of imports.

However, as a rule of thumb, anything raw such as hay or straw, based on plant health or animal health risks, would need to prosecute a very convincing case to get clearance by DAWR for import.

Processed plant-based feed ingredients pose a risk more acceptable to DAWR because of treatment including heat the plant and seed has undergone in processing.

Fodder prices in November do not give rise to such concern as they did two months ago, given that the spot market for baled straw has dropped below $300/t farm in NSW from peak prices double that during winter.

 

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