New player in WA's Noodle wheat market

Plum Grove announced the move last week when it revealed it would offer a new specialist Noodle pool in conjunction with Mitsui for the 2011/12 season.

Plum Grove managing director Andrew Young said it was a significant step forward for WA growers who wanted closer, transparent and clearly defined access to the Noodle markets of Asia.

The new product will aim to provide pool participants with clear access to market with a foundation buyer, allowing the pool to aim for maximum value for the grain but with the knowledge of Mitsui's backing.

Mr Young said the consumptive-based demand relationship between Plum Grove and Mitsui would see the substantial trading entity grow its traditionally smaller grain portfolio into a larger one and establish a more direct relationship in grain accumulation.

In briefing a group of industry stakeholders last Friday, Mr Young said WA growers that committed to the pool would be backed by consumptive demand in the Japanese market, managed by proven Plum Grove pool managers and take the form of a short-run pool with all the typical payment options.

But more than that, the new venture also had the potential to provide more competition and a heavyweight alternative in the WA grain marketing space for Noodle wheat.

With the grain accumulated set to target Korea and Japan, Mr Young believed the pool would help to truly reflect the market value of WA's Noodle harvest.

"In its first year we'll be very specific about only accumulating about 100,000 tonnes," he said.

"But it should reflect the value of the Japanese and Korean Noodle markets because there is no other grade of grain that will influence, or can be manipulated to influence, the sort of outcome we're after."

Mr Young also considered recent moves from the Japanese market toward becoming a more deregulated space and the controversy surrounding last year's mixed market signals in the Noodle sector.

He said industry uncertainty forced growers to question the relevance of the WA Noodle wheat crop but the new pool would help to provide clarification and marketing certainty in the wake of last season.

"It hasn't been formally announced but it's highly likely Japan will go back to the traditional Noodle and APW blend this year now there is an increased supply of Noodle being made available in WA," he said.

"That will be partly influenced, not only by volume but by grade differentials.

"At the moment there is still a premium over Noodle from APW.

"Any sort of move toward a zero differential in pricing from a Korean market perspective would also see Korea moving back to the old blend.

"Both markets went to a 70 per cent APW and 30pc Noodle blend ratio because of short supply last year but the expectation is they will move back to a 60pc Noodle and 40pc APW blend during the coming season."

Mr Young said at this early stage there was about 800,000t of Noodle grade wheat potentially available for harvest compared to less than 400,000t last year.

He believed it was a sufficient amount to support Japan and Korea's expanded volume and would be a reasonable proposition to encourage growers to keep producing the grade without heavily discounted price signals.

"From a long-term perspective we're hoping this pool will bypass the common tender process for Noodle wheat," Mr Young said.

"The expectation is there will be more special buying and selling arrangements between specific buyers and specific sellers and that's where this sort of pool arrangement will become more relevant in supplying yet another key market for WA."

Historically the Japanese and Korean markets ranked in WA's top five with Indonesia taking the top spot.

"Japan and Korea are mature markets but there is still more room for WA to have a larger market share," Mr Young said.

"Currently there's still a lot of Canadian and US wheat going into these countries.

"For growers we believe the benefits of this pool are increased competitiveness for their grain and for the mills overseas, more direct access to the grain, increasing food security."

The pool will be open on November 14 and will run until September 2012 before being finalised.

It will also feature all the traditional payment methods available for growers including distributions, loans and advances.

p Melbourne-based Mitsui is a broad based commodity trading company with a long history in Australia exporting minerals, energy and grain.

Last financial year it reported net assets of $1.4 billion and is a 100pc owned subsidiary of its parent company Mitsui & Co Ltd of Japan.

Mitsui is also the largest canola importer into Japan, holding about 30pc of the market, which may present further opportunity for WA oilseed producers down the track.