Drought adds complexity to grain market

Drought adds complexity to grain market

Opinion
CHANGING DYNAMICS: The SA grains industry is going through a period of rapid change, with an increase in delivery points and a steady rise in domestic demand - much of which has been caused by the ongoing drought.

CHANGING DYNAMICS: The SA grains industry is going through a period of rapid change, with an increase in delivery points and a steady rise in domestic demand - much of which has been caused by the ongoing drought.

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The SA grain marketplace has become more fragmented in recent years. This means that the options available to growers, in terms of where they send their grain, has widened.

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The SA grains landscape has changed remarkably in the past five years.

The marketplace has become more fragmented. This means that the options available to growers, in terms of where they send their grain, has widened and, arguably, added more opportunity.

It has, of course, added complexity and created a fast-moving market driven by competing factors.

The drought that continues to grip large parts of the country has exacerbated this fragmentation.

SA has long been associated with being primarily export-dominant - which it will continue to be - but, this dominance weakens with greater domestic draws.

Growers across the state have more delivery options beyond simply an export pathway. Should they deliver to traditional pathways? Should they deliver and sell their grain as a site-based contract? Should they access the domestic end users?

There has been a string of newly-developed delivery points - Lock, Lucky Bay, Port Pirie and Dublin - all vying for grower deliveries alongside traditional bulk handlers. Not only have we seen an increase in bulk handler activity, we have seen a steady rise of domestic demand, with the Murray Plains, in particular, now a hotspot for drawing grain.

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This suits growers that may have an ex-farm strategy or provides opportunistic selling for others.

These options create changes to the draw zones and the makeup of where grain flows in the state. Competition will drive change. We saw this start more than five years ago, when the SA border sites were priced differently to keep grain on this side of the border.

As the market within the state comes under increasing bulk handler competition, the complexity is bound to rise. Freight loops and draw zones change so grain flows further afield than perhaps it ever has, post-farmgate.

Looking at port zone pricing, Adelaide has been trading at a premium to Port Lincoln for a number of months. The export parity price is arguably the same between the two ports but the domestic influence in the Adelaide zone is the driver of this difference.

Drought has made a marked footprint on the way grain moves. Despite adversity for growers elsewhere, this draw from the east has had a considerable effect on pricing in SA. Without this drought market pricing, the global price sits as low as decile 1. This is a stark contrast to the decile 9-plus pricing we are seeing here.

Drought changes the domestic draw of commodities, with much of SA's crop flowing east and hay coming by road from as far as WA.

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Upper EP grain moving to Crystal Brook last year was not uncommon as port zone and site-based differentials opened up.

The drought is hopefully not an ongoing concern despite it leading to the present inflated prices. But, the grains landscape has been changed in SA and this dynamic is likely to continue.

This means growers need to be attuned to logistics advantages that could be in their peripheries.

We spend a fair bit of time with clients mapping out logistics prior to harvest - where is grain going to be best placed to pick up a better farmgate return? In some cases, this means going further afield to pick up a better farmgate result.

Planning logistics is a key element in maximising grain profitability, yet it is an area that is quite underdone. It is not something that costs much to do, but the return on the time spent is well worth it. It not only provides a clear pathway for harvest deliveries but can also help leverage the investments in trucks, for instance.

But, growers should put contingencies in place, and be prepared to sell to capture the logistics advantage before it is gone.

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