CBH withdraws LTA port proposal

10 Sep, 2014 02:00 AM
Comments
33
 
This was the best course, to make sure there was certainty for harvest

GRAIN marketers looking for port space for this year's harvest will revert back to a pure auction system after CBH withdrew its proposal for allocation of port capacity through Long Term Agreements (LTAs).

In a shock move this week, CBH said it had been through a process of review and had made the decision on a pragmatic basis given current regulation to provide certainty to exporters and growers.

It said despite 93 per cent of the market volume accepting capacity offered through the LTA process, feedback to the Australian Competition and Consumer Commission (ACCC) showed there was displeasure from some in the market over the new system because they believed they would not receive all of their requested LTA capacity.

CBH Operations general manager David Capper said CBH was disappointed that a process that had seen extensive consultation all year had been unable to deliver a workable solution at this point.

"We have had some mixed and confusing messages coming back and forth from the market, and everyone needs to manage their own position and best interests," Mr Capper said.

"In terms of the process, there were some that came into this very late, who hadn't shown any interest until later and probably didn't get all the background that everyone else had that had been pursuing this for some time.

"If demand outstrips supply in any slot (under the LTAs), then the slot would revert back to the auction, and that was the initial process we had set up.

"That's what we were talking to the ACCC about and communicating to all our customers.

"With the first round of submissions, demand massively outstripped supply and effectively all the slots would have gone back to auction.

"After a couple of rounds we were still in the same situation, it was going to be 100 per cent auction.

"When we went back to our customers, and said LTAs are not going to land; we have to go back to the full auction.

"We had strong feedback from the trade saying they wanted us to take some leadership and they wanted the LTAs and asked to tell them what to do to make it work; that's what we did.

"From that we had strong support, and had 93 per cent of the capacity booked and 11 out of 14 customers were happy with that.

"So we went back to the ACCC to change the submission to state the way the process works, to include this step, of CBH assisting the trade to make it work, and have been working to do that.

"While we have been doing that, the sentiments changed, each customer has decided that they did or didn't like the offering they have been given."

Mr Capper believed most would say they didn't like the process, but he thought it was the outcome of the process they didn't like.

"That's where we have ended up; not getting the support across the group," Mr Capper said.

"With demand outstripping supply as much as it did, we were never going to give anyone the allocation they really wanted.

"And so, they have made the decision they would rather go into a full auction, rather than the LTAs.

"I think that could be a bad call.

"This auction could be quite horrendous - but we will see how that plays out."

A shipping slot auction has now been scheduled for Wednesday, September 17.

Mr Capper said CBH also had to weigh up its options in terms of the time until harvest, the chance of success and admitted the odds were against them.

“We couldn't afford the time before the regulatory process to go through its full course, so we had to make the decision,” Mr Capper said.

"This was the best course, to make sure there was certainty for harvest."

In the short term, Mr Capper said the the decision shouldn't have a negative impact on growers, but warned that in the long term WA growers will see less competition, if the issue is not resolved.

In WAFarmers' submission to the ACCC it outlined its strong support for the LTAs saying "it supported the sustainability of WA grain growers and greater security of access through LTA agreements".

"It is in grower's best interests to have a fair and equitable system and WAFarmers believes that the proposed changes to the access undertaking by CBH can help deliver this to the benefit of the industry", the submission stated.

WAFarmers Grain Council president Kim Simpson said they still supported LTAs despite the retraction.

"I am sure they have their reasons for the retraction," Mr Simpson said.

But Pastoralists and Graziers Association (PGA) Western Graingrowers Committee chairman John Snooke believes somewhere in the process something went wrong.

Initially Mr Snooke said he was supportive of CBH's LTAs, but grew to be disappointed as they became over subscribed and allocations seemed to be given to CBH's favourites.

"That has caused some considerable complaint from the trade, and we have been surprised about the number of calls to us, by the traders complaining about the process.

"The news (of the withdrawal), is a good outcome, it really is an admission that the process was wrong.

"The trade was initially very happy with the process that was explained to them back in March.

"But as the allocation occurred the process was not transparent and it seems to have favoured four big players in the grain trade to the exclusion of the smaller players.

"We need a number of grain traders in WA and that is what has given us the basis premium and we need equal access."

Mr Capper said CBH believes there is still a want within the market for LTAs, to create consistency and the certainty going forward.

"The market is still telling us this is well and truly what they want, it may not be reflective in their submissions, but they are certainly telling us this is what they want," he said.

"They want LTAs, they want the consistency and the certainty going forward, so we will do another round of consultations to try determine how this will work.

"If we can make this process work in the future, it will give us, our customers and our exporters the certainty to build that capacity."

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READER COMMENTS

Jock Munro
10/09/2014 6:20:20 AM, on The Land

WA growers have a 'gold mine 'with CBH. We in the East are at the total mercy of the merchants who are gouging us from farm gate to customer.
looking after home
10/09/2014 6:50:17 AM, on The Land

Who owns the ports and facitlities that CBH are trying to secure - the Chinese - whose interests does the ACCC operate in - Australia bears much commercial damage because of the slow response of the ACCC and the fact that Australian interests are secondary to everyone else who is buying our assets.
looking after home
10/09/2014 6:50:18 AM, on The Land

Who owns the ports and facitlities that CBH are trying to secure - the Chinese - whose interests does the ACCC operate in - Australia bears much commercial damage because of the slow response of the ACCC and the fact that Australian interests are secondary to everyone else who is buying our assets.
independant farmer
10/09/2014 7:19:31 AM, on Farm Weekly

So Jock are you supporting the decision by CBH management to lock out particular traders from the WA market place? The ACCC was going to ping them for unti-competitive behaviour that is why CBH pulled the application, I would have thought you would have seen it as an admission of guilt, like everyone else?
Deregul8
10/09/2014 7:42:11 AM, on Farm Weekly

CBH is in danger of destroying basis in WA. With the basis at record levels, who would have thought our own grower co-op would sabotage local prices by effectively playing with its monopoly position to continually shift the goal posts for the trade and foreign end users. God knows growers need every bit of support basis can provide because futures prices are heading to 10 year lows below $5 a bushel. Very disappointing.
James
10/09/2014 9:14:41 AM, on Farm Weekly

Might be a bit of an exaggeration there Dereg, all forecasts I've seen are looking around $5.70 a bushel as the lowest it will go, but even that is $200/t and would cause significant pain.
Jock Munro
10/09/2014 11:12:10 AM, on The Land

Deregular is either a trader himself or the powerful merchants have overpowered him with spin.
Torobrook
10/09/2014 1:04:55 PM, on Farm Weekly

I know this bloke D8. He is a bonafide WA mixed grain farmer producing in the order of 4 - 5,000 tones. Fourth generation operating family farm. Well educated with Ag Science degree. In possession of a key ingredient - he can think for himself. Not swayed by the likes of the idealogical drivel from Munro that unfortunately occupies these spaces. But I guess that Munro wouldn't even believe these facts even if they stared him in the face but anyway she's all over for your lot Jock and the D8 mob will continue to prosper.
Torobrook
10/09/2014 1:39:33 PM, on Farm Weekly

Been having a bit of a wander around Vietnam. The old days of Uncle Ho would have been just up your alley Jock. But modern day Vietnam is outstripping your type of thinking. No Jurassic Park for this country. Only exists with the likes of Jock and his ilk.
argis
10/09/2014 3:41:17 PM, on The Land

Hey hang on a minute D8. Why would you be panicking about wheat futures dropping below $5/bushel? You have been telling us all year that you locked your crop in at over $300/tonne using swaps. You have also told us that your high WA basis, was due to your quality. How is it that shipping issues are now the basis of your high WA basis? Sounds like that Ag Science degree Toro was telling us about hasn't done much for your integrity or consistency. You know tell us, deregulation is also doing nothing for your prices or operational efficiency at your ports. Not a good score card is it?
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