WEDNESDAY last week was a hugely rewarding day for the team at Clear Grain Exchange (CGX).
Feed barley (BFED1) had consistently been trading between $310-320 a tonne FIS in the Kwinana and Albany port zones for the past couple of weeks.
Best public bids as collected by independent price collection services Profarmer and Grain Market ranged between $303-$315/t over the same period (refer chart).
The trade level was $310-$320/t, where sellers were willing to sell and buyers were willing to buy, rather than the public bid level, where some buyers were willing to disclose they will buy.
Hence there appeared to be reasonable demand for feed barley in Kwinana and Albany, yet the best public bid in Esperance per the independent analysts was just $287/t FIS.
Why was Esperance so heavily discounted to other port zones?
The bulk sea freight differential between Kwinana and Esperance is between A$2-$5/t currently, depending on where the grain is being shipped.
Yet traders were discounting their bids in Esperance by more than $20/t.
So what was going on?
Put simply - market failure.
Many buyers get nervous about continuing to accumulate grain in Esperance after harvest because they are worried they will be left holding a smaller quantity that is hard to do anything with.
As a result, they pull out of that market and bids can fall away as they attempt to price in the perceived extra risk of building a position in the port zone.
If buyers had confidence there was reasonable volume of feed barley still to sell in Esperance, they would likely be more willing to participate in accumulating grain in the zone.
Early last week we had sellers calling and rightfully querying why feed barley in Esperance wasn't being bid or trading anywhere near the values BFED1 was trading on CGX consistently in Kwinana and Albany.
Many were saying they would sell their grain at the natural price spread to Kwinana if they could.
We suggested offering it on the exchange so potential buyers can see it exists.
This builds confidence in buyers to crunch their numbers and hopefully try and buy your grain.
Growers, grower consultants and traders did just that (offered their BFED1 in Esperance on CGX) and on Wednesday we saw buyers come in and purchase nearly 13,000t of BFED1 up to $305/t FIS.
Had growers not offered their grain and disclosed to buyers the volume, quality and price they were willing to sell at, on a completely impartial electronic exchange, this opportunity to sell (at closer to fair value for their grain) may not have eventuated.
Giving buyers more confidence to buy your grain is a good thing, as it means they are likely to be more willing to continue participating in our markets and in turn it helps to ensure grain is priced at its real value.
Remember if your grain trades on Clear Grain Exchange, you are protected by anonymity and a secure settlement process where-by you do not lose title of your grain until you are paid within seven business days.
For the record, bulk sea freight rate differentials between Kwinana and Esperance typically range between $2-5/t, yet we have often seen bids discounted for grain in Esperance out to $20/t and sometimes as high as over $40/t after harvest and depending on grade.
Some may argue there should be a price difference between zones depending on the zone's quality profile.
For some grades this is non-existent - we are talking feed barley in this instance.
Having grown up on a family farm in Lake King (Esperance port zone), the above example should provide a glimpse of why I'm passionate about operating an independent and secure grain exchange open to all industry stakeholders.
The aim is to help correct market failure by making it easier for all buyers to buy grain direct from growers, whilst ensuring growers are protected by anonymity and secure settlement.
There is a lot more work for us to do.
Thankfully there is an unreal team at CGX as passionate as I am to keep the sleeves rolled up and grind away.
Keeping focussed on our aim is extremely motivating as there is real value added to all industry stakeholders.
This example is just one we wanted to share with you.
Other grades trading through CGX in WA last week included wheat, canola and malt barley.
Some traded values in Kwinana as follows; ANW1 and APWN up to $425 FIS Kwinana, ASW1 and H2 traded $420, AGP1 $415, SPAR1 $325 and PLAN1 $320.
Thirty different buyers purchased grain through the exchange for the second week in succession, with more searching for grain on offer.
This can indicate demand remains relatively strong at these higher levels.
Go to cleargrain.com.au to view recent trades on the exchange or call 1800 000 410.