Stock data critical to port changes

25 Apr, 2015 02:00 AM
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7
 
The current imbalance of trading information will erode the benefits of further deregulation

GRAIN stocks information is one of the overlooked factors in the argument in port regulation, according to the head of NZX Agribusiness and grains industry veteran Ron Storey.

Mr Storey said there had been a lot of focus on the administration of physical supply chain assets, such as port facilities, but not much on the topic of stocks information.

“Information capture is just as effective, if not more so, in extracting margins as physical ownership of critical points in the supply chain,” he said.

Talking about the decision by the Australian Competition and Consumer Commission (ACCC) to allow exemptions to the mandatory port access code at many grain export ports, Mr Storey said a change in information was required if the requirements were relaxed.

“If you alter the rules by which those parties can negotiate access to port terminals, we must ensure that the marketplace, in order to compete for grain through the supply chain, have the same access to stocks information as the port terminal operator.”

Mr Storey described the current stocks reporting system as “third world” and said changes were needed.

“Unless we equip the market with accurate and reliable stocks data, the current imbalance of trading information will erode the benefits of further deregulation.”

Commercial benefit

The bulk handlers have argued against being forced into releasing additional stocks information, saying it was a commercial benefit caused by their investment in supply chain assets.

They have also argued that the release of too much market information would harm grower returns, as the trade would have a more exact idea of the tonnages available and buy accordingly.

Mr Storey said the release of more information would see less speculative buying than now, but said overall he felt it would be fairer.

“It will be better balanced, if there is little grain about and the marketers can clearly see that, then they will definitely still compete hard for that grain.”

Andrew Weidemann, chairman of Grain Producers Australia (GPA), said his organisation had long argued that more transparent stocks reporting would benefit the industry as a whole.

“Ultimately when the trade doesn’t know what is out there, it creates a risk premium in the price, and we all know those risk costs eventually end up with the grower,” he said.

In terms of port operators pushing to switch to long-term agreements (LTA) instead of auction systems, both men acknowledged there was merit to the idea.

“Rather than seeing significant amounts of money spent securing spots, marketers may be able to allocate this money to better prices,” Mr Storey said.

“It will be helpful to allow traders to put buy with confidence knowing they have shipping slots,” Mr Weidemann said.

Mr Storey said whatever systems were adopted, the key was to drop supply chain costs.

“Fundamentally, Australian grain has to compete on the global market.

“We need the lowest supply chain costs to arrive at the best farmgate returns.”

Supply chain big picture

As part of that, he said the supply chain networks needed to be looked at as a whole.

“We must make sure the system will drive the end-to-end cost down, not just individual pieces of the chain.”

Mr Storey said the current system was resulting in duplication at certain links of the supply chain.

“Businesses are doing the numbers and have decided investing in their own port facilities stacks up.”

However, from an industry perspective, he said rail investment was the major priority.

“Better rail is critical in getting grain to port cheaper, wherever you are.”

In terms of the ACCC’s draft decision to grant ports at Geelong and Melbourne in Victoria exemptions but not the Port of Portland in the State’s west, Mr Storey said he did not think it would distort the market.

“The domestic market is a big deal in that area, so I don’t think it will change things too much.”

Mr Weidemann said he was still sceptical on whether there was true competition in Victoria.

“When you look at it, the only site with the capacity to receive significant volumes of grain by rail is Geelong.”

“We still don’t believe there’s enough competition to give carte blanche, and we’re worried that by granting all these exemptions the ACCC will be a toothless tiger in terms of upholding the Act.”

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FarmOnline
Gregor Heard

Gregor Heard

is the national grains writer for Fairfax Agricultural Media
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READER COMMENTS

Jock Munro
25/04/2015 3:44:05 AM

Ron Storey continues to try and make silk out of the deregulation pig's ear! Andrew Weidemann was a champion for deregulation as well but it would appear that he does not have a lot of confidence in the current merchant controlled arrangements.
Fred Haskins
27/04/2015 9:26:06 AM

Jock Munro, does a poker player reviel his hand? Of course not.! Why would or should grain growers supply the grain stocks they have on hand to those in the market place, that would use that information against the grower. That's what free marketing is all about, Gamble and bluff.
John Smith
28/04/2015 1:55:19 PM

Its abhorrent that growers, marketers, and even customers are unable to see what tonnages and quality of grain is available. Take the USA for example - every week the entire market is able to see exactly what tonnages have been traded into what destinations. The fact that people are having to guess what is in short supply is ONLY an advantage to the bulk handlers. A transparent market will undoubtedly benefit growers and customers overseas, it also reduces the ability to arbitrage quality to the customer which would return better prices for better quality grain to the farmer.
Jock Munro
28/04/2015 4:50:36 PM

John Smith, the US does not have a free market like the situation that the urban political elite have left Australia with.
pepper
29/04/2015 6:38:51 AM

Fred, it is a fundamental of functional markets that every player has access to data post trade and that the market is clearly advised of any player issue that may impact on the market outcome pre-market. Good business should not be a total random game of chance. Even in poker there are play strategies developed on experience from previous games, and the end game cards are tabled before settlement. It is comforting to know why you lost.....
Independent Farmer
29/04/2015 6:43:27 AM

Why would any grain grower want the stocks position to be made mandatory? It is private information even in a co-mingled stack. Ron Storey does not understand how a market needs some uncertainty to function correctly, he is a central planner in deregulated clothing!
pepper
29/04/2015 8:10:55 PM

Independent Farmer, why does a market need uncertainty to function correctly? Two key factors are enough 'degrees of freedom' for the market to move/respond, and transparency ( which is not commercial in confidence information ). Supply/Demand data at a market node is not just a dice toss, it does have boundaries of certainty which drives strike prices. A Gambler wearing a Traders jacket?

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