MARKETING of this year’s remarkable WA grains harvest of close to 14 million tonnes began long before the crops were out of the ground.
For CBH Group’s marketing and trading team of 33, headed by Trevor Lucas and with offices in Japan and Hong Kong, marketing and trading grain and other commodity ‘products’ is a never-ending process.
Team members are constantly liaising with almost 200 regular clients in more than 30 countries and always on the lookout for new opportunities to build long-term relationships with clients, according to Mr Lucas.
Since November 1, 2017, CBH has shipped more than 2.1m tonnes, a mix of old and new crop stock.
Canola has gone to Europe, wheat to Indonesia and the Philippines and barley to China.
It is definitely not a case of the headers have been put away, now the marketing phase begins.
“We are constantly selling a combination of old crop grain and new crop grain and anything in between and around about,” Mr Lucas said.
“WA is just a part of the program that we do – our marketing and trading business – we trade roughly 50 per cent of WA’s grain and 15pc of South Australia’s.
Mr Lucas pointed out his team’s role was not just simply selling WA growers’ grain, but was trading grain procured from various sources on world markets, including keeping regular customers supplied, to generate a profit for the group.
Being able to trade non-Australian grains gave his team the flexibility to hedge risk from exposure on Australian grains on the futures exchange, he said, but building and maintaining trusting relationships with clients was its main priority.
“The customers are key and the relationships with end users – we like them to be pure end users in terms of processors and that could be the malt house in China, or the flour miller in South East Asia or the feed miller in the Philippines or Vietnam or the shochu maker in Japan or the biodiesel refinery and fuel processor in Europe, we have relationships with all of them.
“Essentially before (wheat export) deregulation 10 years ago we were a grain merchant by design and by virtue of the fact we were just selling growers’ grain on their behalf.
“In the past 10 years we’ve evolved into a commercial trading business which takes risk on 90pc of the grain traded,” he said.
Much of the market information the marketing and trading team relies on comes from customers.
“Ultimately they provided those tangible market signals, the ones that you act upon,” Mr Lucas said.
“It’s why we are so protective of our customers, because they’re where we get our most vital information.
“You can look at a futures market, it doesn’t represent exactly what you are selling and it doesn’t represent the volume or the quality, it’s just a generic benchmark.
“It doesn’t mean a great deal unless you want to hedge a product.
“If you are there to sell something, you need to know your competition and what those numbers are that you are competing against, and it’s only your customer who can give you that.”
While wheat is now CBH’s biggest volume product, it is also the most difficult to make money on because it carries the most risk and least margin, and is often the most difficult to sell.
Because of its volume it is easy to forget wheat was only “bolted on”, as Mr Lucas described it, to CBH’s core business of barley, canola and lupins after the demise of Australian Wheat Board’s monopoly on wheat exporting.
“It’s really amazing, to be honest, the degree of market penetration we have been able to achieve (with wheat),” Mr Lucas said.
“First year out of deregulation we were number one wheat exporter in WA, but it wasn’t long (four years) after that we became the biggest wheat exporter in Australia.”
But slow demand and increasing competition from Russian and Ukrainian wheat from the Black Sea area pushing prices down against a strengthening Australian dollar is expected to impact on returns from wheat this year.
“We’re competing against the Black Sea and to a lesser degree Argentina, so a lot of the buyers who typically rely on Australian wheat are just sitting there being hand-to-mouth with their requirements, watching the market,” Mr Lucas said.
“From an operational point of view, we’d like to clear the decks and not have too much carryover into next season.
“From a marketing perspective it’s not the end of the world, we can sell other commodities.
“At the moment you have a Mexican standoff with our customers who see a particular value in Australian grain and growers who see a different value.”
Growing competition from the Black Sea area was one of the reasons CBH opened an aggregation office there, as much to learn about what Russian and Ukrainian grain growers and marketers are doing as anything else.
“If Russia continues to increase yield and to increase planting size, and they can do both, that’s only going to mean one thing for Australian wheat prices, it’s going to add (downward) pressure,” Mr Lucas said.
“That was the catalyst for us going into Russia, to give us the information, giving us the ability and confidence to trade the global spreads.
“In the past we’ve just not had that.
“You’ve got big competitors in the multis (multi-nationals) doing that, that’s their bread and butter.
“For us, we have to have the same level of information to compete.
“It puts us in front of the (price) curve now, rather than just waiting for it to be beaten.
“As an industry, and we need to lead it, the feedback enables us to determine where we need to be in five years’ time because we know where Russia is going to be, that’s quite transparent.”
His marketing team also faced increased competition from the Black Sea creating market access issues for canola early in the harvest season.
Prices which are down about $65 a tonne since early November look likely to remain under pressure with higher than anticipated production and yield.
In comparison to wheat and canola, barley looks like continuing its run as the standout performer.
Current WA feed barley values are about $70 higher, or 40pc, compared to January last year.
One of the biggest recent shifts in grain marketing, Mr Lucas said, was in barley with China now a major importer.
“Five years ago they never imported feed barley but now they’re almost the biggest importer of feed barley on the planet, they are pushing Saudi Arabia as the biggest,” he said.
China remains number two on the CBH client region list – its marketers and traders are divided into client regions, not by product types.
South East Asia is clearly number one, with the Middle East, Africa and Japan roughly equal third in terms on customer numbers.
CBH marketers’ and traders’ biggest competitors, according to Mr Lucas, are Glencore, Grain-Corp, Bunge and to a lesser degree Cargill.
But, he claims CBH has one advantage.
“Our accumulation team is 27 strong and they’re an integral part of what we do.
“There’s the sell side and there’s the supply side as well.
“They’re located not just in WA, but in SA.
“One of the strategic advantages we have is our brand, we manage that brand with a pretty close relationship with our growers and we couldn’t do that without our on-the-ground team.
“That sets us aside, a lot of our competition have gone away from having a higher number of regional accumulation people on the ground.
“We haven’t, we’ve probably gone the other way, and for me as a trading manager, liquidity on the buy side is a key to success really.
“If I can’t buy it, how do I aggressively sell forward or go short?”
