WITH an estimated carry-over of five million tonnes and an impact on grain prices of up to $100/t, growers and industry representatives are looking at the upcoming harvest with trepidation as they wonder where the estimated 19.5mt crop is going to go.
Last year, growers produced a record 23mt of grain and while CBH Group did the best it could to receive that crop, the size of it has exposed deficiencies in the up-country freight network which has caused a multitude of issues in getting grain to port.
The situation has been worsened by worker shortages caused by COVID-19 and competition from the mining industry, but there's no denying the tonnes to port capacity of the supply chain has not kept pace with the production trajectory of the grains sector.
WAFarmers grains section president Mark Fowler said the current situation was costing growers in many ways, starting with the loss of the early shipping premium equating to $25-35/t for tonnes shipped after the northern hemisphere harvest began.
"Demurrage is also an issue - if grain cannot be shifted from up-country to port at a rate which keeps up with ships arriving at port, then those ships will incur significant additional demurrage costs while they queue to be loaded," Mr Fowler said.
"Currently the shipping stem at Kwinana is around 25 days behind schedule and that situation is expected to remain for the foreseeable future.
"Our understanding is that this has added about $30/t of additional cost to shipments and that is what the market has been pricing in for some time now."
On top of that, if a trader cannot ship grain within a reasonable time frame, it will be less willing to buy grain from growers for fear of the price falling before it can be shipped.
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The effect is traders build a risk margin or discount into the local cash prices that they are willing to offer growers which will be larger when international prices are as volatile as they are now.
If the market believes there will be a significant carry-over of old season's stock into the next year, it will serve to undermine local cash prices both in relation to supply side economics and concerns about shipping logistics in the future.
Lastly, the longer that a trader expects to carry grain in the up-country storage system after August, the more time-based storage costs that will be factored into the cash prices that it offers to the market.
Mr Fowler said taken together, these costs manifest as a discount to prevailing international prices which is a clear opportunity cost to graingrowers.
"We have already seen this discount in relation to the marketing of the 2021 crop and it has continued in relation to the 2022 crop," he said.
"Grain marketing consultants estimate that from about mid November last year until now, that discount has amounted to $50-$100/t across an estimated 17mt of grain sold.
"Crucially, this cost will continue to grow as more tonnes are sold subject to the discount and it will only get worse as the new season's crop is added to what is expected to be a carry-out of about 4mt."
If the carry-over causes the storage and handling system to be overloaded during this coming harvest, causing receival delays and premature site closures across the network, growers will be exposed to additional logistical challenges and costs in the form of longer runs to site, slower turn-arounds and potential crop damage from a delayed harvest.
While the supply chain is on track to export more than it has done so in the past, CBH has forecasted a carry-over of up to 5mt heading into harvest.
It's a number of particular concern for growers in the Kwinanna zone and as a result, the co-operative last week informed growers in the area of a new initiative to keep grain flowing to port, freeing up space for other commodities and alleviating pressure at upcountry receival sites.
As part of the initiative, Kwinana growers who deliver canola directly to the Metro Grain Centre (MGC) and the Kwinana Grain Terminal (KGT) will receive a $7.30/t rebate on storage and handling fees.
In a letter to growers, head of operations Duncan Gray said this would help offset the expected reduction in CBH road transport resources during harvest that have been helping move grain towards port over the past few months.
"Given the strong demand for WA grain, this harvest we are seeking to attract 120,000t to the Metro Grain Centre and 15,000t to the Kwinana Grain Terminal of new season canola (GM and non-GM) directly from growers early in the harvest period," Mr Gray said.
"Kwinana growers who deliver canola to KGT and MGC once those targets have been achieved, or as required from time to time, the initiative may close and if CBH Operations identifies further opportunities, the initiative may be extended to other commodities."
Throughout this year, WAFarmers has been working with the Pastoralists and Graziers' Association of WA (PGA), WA Grains Group (WAGG) and CBH to urgently identify and implement measures to address the situation.
While both short and medium-term measures - such as mobilising all of the transport options to get grain from up-country to port to reduce the anticipated carry-over of old season crop - have been addressed and implemented, longer-term strategies are required to stop this being an ongoing issue in the years to come.
Mr Fowler said there needed to be an industry-wide push, with the assistance of both the State and Federal governments, to implement CBH's strategy to lift the capacity of the grain supply chain by 2033 so it can export 70 per cent of an average 22mt harvest, with surge capacity to 28mt, in the first half of the shipping year.
"CBH's plan is to increase tonnes to port capacity, currently 1.6mt per month, to 2mt/month by 2024, 2.5mt/month by 2028 and 3mt/month by 2033," he said.
"Some growers have called for this plan to be delivered in half that time, however CBH say this schedule should more than match the production trajectory of the WA grains sector.
"This plan depends on investment by the State and Federal government in rail infrastructure and CBH has no control over that investment schedule, plus the timelines for these projects are also limited by the time necessary to obtain the required regulatory approvals."
So far this year, an additional 2mt have moved through the supply chain as a result of CBH road initiatives developed in late February to accelerate the existing road and rail outloading programs.
Last month, CBH broke the July Statewide shipping record of 1.16mt which had been set in 2018.
That figure was increased by more than 723,000t, or 62pc, and makes July 2022 the second-highest shipping month Statewide, just 13,500t short of the record set in January 2017.
A spokesman for the co-operative said success could be attributed to changes in the road transport strategy following extensive industry consultation last year and into this year.
"We also outturned a record number of tonnes in July 2022 by road," the spokesman said.
"Domestic road outturn was 140,056t, beating last month's record-setting 124,871t and making it the fourth month in a row we have set a new monthly record.
"These are huge achievements and the result of your hard work and commitment and that of our transport partners, contractors."
While these are all positive signs, they are still short-term band aid solutions to a larger overall problem.
WAFarmers has suggested CBH should aggressively alter its historically conservative appetite for debt in order to deliver the program of works required to fix the shipping issues long-term.
"We need to be mindful about not overplaying our hand by building a network with capacity that significantly exceeds our requirements, which would expose growers to an excessive capital cost," Mr Fowler said.
"However, it is fair to say that it is better to over-do it than to under-do it."
Ultimately, the existing up-country freight network is not adequate to meet the current and future needs of the WA grains industry and there is an urgent need to carry out significant investment in that network by both CBH and government.
As the State's three leading grain bodies, WAFarmers, PGA and WAGG are united in their belief that the key metric in assessing a project should be the extent to which it increases tonnes to port capacity.
