News Analysis: Globalisation hitting Australian grain farmers
Source: Xinhua   2016-06-03 15:14:43

by Matt Burgess

SYDNEY, June 3 (Xinhua) -- Historically high storage levels and record low shipping rates are weighing on Australia's Asian market access for grain, leading some to sound alarm bells.

Low benchmark prices for grains are likely to continue into the coming years as the world is awash with wheat with key exporters running at record storage highs.

However fallout from the Global Financial Crisis and a chronic excess capacity of shipping have seen daily bulk carrier charter costs also fall from approximately 80,000 U.S. dollars per day in 2008, to around 4,500 U.S. dollars per day.

Australia has had a natural freight advantage into Asian grain markets - particularly Indonesia - due to regional proximity, but the now historically low freight rates are making non-traditional Asian exporters more competitive.

Rabobank data suggests Australia's share of the Indonesian wheat market has dropped from 64 percent to 55 percent in the past five years, meanwhile Black Sea wheat increased three percent per year over five years, to 16 percent in 2015.

At present depressed freight levels, its approximately 15 U.S. dollars per ton cheaper to ship grain from Russia's Black Sea port to Indonesia - approximately 7500 nautical miles - than it is from Perth on Australia's east coast, just under 1300 nautical miles away.

"It's a bit of globalization in action," Mecardo grains analyst Andrew Whitelaw told Xinhua.

"It's not like fruit and vegetables, you can ship (grain) anywhere in the world and it doesn't spoil."

AUSTRALIA LOSING EXPORT WAR

A loss of market access has led some, including local giant GrainCorp, to claim Australia and other major wheat producers are loosing the export war to the Baltic states. U.S. wheat exports dropped just under 10 percent to their lowest level since 1972, despite storage levels hovering at five-year highs.

"Origins like the Black Sea will be competitive further away from the (source), particularly the Asian region," Commonwealth Bank of Australia agri-strategist Tobin Gorey told Xinhua, adding price response is starting to occurring in the Australian market.

GrainCorp has cut the price it pays its farmers for grain, however with prices already at record lows, Gorey can't see it going much further with prices already adjusting to the glut, though exporters are beginning to factor in competitive shipping rates.

"Maybe some volatility surrounding the (looming) U.S. harvest this year for their winter wheat," Gorey said.

"They've got a whole lot there, and they've obviously got a whole lot more to harvest."

AUSTRALIA NEEDS TO HEDGE RISKS

The best way to remain competitive is reduce the price of grain, however higher labor costs and lower yields - Australia is dry compared to Baltic states - puts a break even price higher.

Farmers have been shielded from lower freight rates from a low Australian dollar - trading at 72.51 U.S. cents at 1631 local time (AEST) on Friday - allowing it to remain competitive, however higher falls in Russia's Rouble to the U.S. dollar is compounding the problem.

"(Australia needs) to be come more efficient in logistics to reduce to the overall cost to get to the customer," Whitelaw said.

Currently eight rail companies operate on three separate track gauges, making grain transport highly inefficient.

Farmers however aren't properly managing the financial risks either.

"Growers could potentially use things like derivatives," Whitelaw said.

"They might not be able to make as much than a physical sale, but they might be able to make some (profit) on a paper sale.

"(It's) a way of hedging their risk."

And hedge they shall as freight prices aren't likely to recover over the next decade, putting pressure on local prices that once held a geographical advantage.

"A grain trading company buying grain from Australia just can't continue to pay a premium if they're not going to recoup it elsewhere," Whitelaw said.

"Obviously with this glut of wheat around the world, and it being a global commodity, (millers) will buy (grain) from where (they) get the best price."

Editor: ying
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News Analysis: Globalisation hitting Australian grain farmers

Source: Xinhua 2016-06-03 15:14:43
[Editor: huaxia]

by Matt Burgess

SYDNEY, June 3 (Xinhua) -- Historically high storage levels and record low shipping rates are weighing on Australia's Asian market access for grain, leading some to sound alarm bells.

Low benchmark prices for grains are likely to continue into the coming years as the world is awash with wheat with key exporters running at record storage highs.

However fallout from the Global Financial Crisis and a chronic excess capacity of shipping have seen daily bulk carrier charter costs also fall from approximately 80,000 U.S. dollars per day in 2008, to around 4,500 U.S. dollars per day.

Australia has had a natural freight advantage into Asian grain markets - particularly Indonesia - due to regional proximity, but the now historically low freight rates are making non-traditional Asian exporters more competitive.

Rabobank data suggests Australia's share of the Indonesian wheat market has dropped from 64 percent to 55 percent in the past five years, meanwhile Black Sea wheat increased three percent per year over five years, to 16 percent in 2015.

At present depressed freight levels, its approximately 15 U.S. dollars per ton cheaper to ship grain from Russia's Black Sea port to Indonesia - approximately 7500 nautical miles - than it is from Perth on Australia's east coast, just under 1300 nautical miles away.

"It's a bit of globalization in action," Mecardo grains analyst Andrew Whitelaw told Xinhua.

"It's not like fruit and vegetables, you can ship (grain) anywhere in the world and it doesn't spoil."

AUSTRALIA LOSING EXPORT WAR

A loss of market access has led some, including local giant GrainCorp, to claim Australia and other major wheat producers are loosing the export war to the Baltic states. U.S. wheat exports dropped just under 10 percent to their lowest level since 1972, despite storage levels hovering at five-year highs.

"Origins like the Black Sea will be competitive further away from the (source), particularly the Asian region," Commonwealth Bank of Australia agri-strategist Tobin Gorey told Xinhua, adding price response is starting to occurring in the Australian market.

GrainCorp has cut the price it pays its farmers for grain, however with prices already at record lows, Gorey can't see it going much further with prices already adjusting to the glut, though exporters are beginning to factor in competitive shipping rates.

"Maybe some volatility surrounding the (looming) U.S. harvest this year for their winter wheat," Gorey said.

"They've got a whole lot there, and they've obviously got a whole lot more to harvest."

AUSTRALIA NEEDS TO HEDGE RISKS

The best way to remain competitive is reduce the price of grain, however higher labor costs and lower yields - Australia is dry compared to Baltic states - puts a break even price higher.

Farmers have been shielded from lower freight rates from a low Australian dollar - trading at 72.51 U.S. cents at 1631 local time (AEST) on Friday - allowing it to remain competitive, however higher falls in Russia's Rouble to the U.S. dollar is compounding the problem.

"(Australia needs) to be come more efficient in logistics to reduce to the overall cost to get to the customer," Whitelaw said.

Currently eight rail companies operate on three separate track gauges, making grain transport highly inefficient.

Farmers however aren't properly managing the financial risks either.

"Growers could potentially use things like derivatives," Whitelaw said.

"They might not be able to make as much than a physical sale, but they might be able to make some (profit) on a paper sale.

"(It's) a way of hedging their risk."

And hedge they shall as freight prices aren't likely to recover over the next decade, putting pressure on local prices that once held a geographical advantage.

"A grain trading company buying grain from Australia just can't continue to pay a premium if they're not going to recoup it elsewhere," Whitelaw said.

"Obviously with this glut of wheat around the world, and it being a global commodity, (millers) will buy (grain) from where (they) get the best price."

[Editor: huaxia]
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