Bin Burster ... Too? - by The Compass

April 27, 2022

There are certain things in life that, once done, there is no going back: forgetting your partner’s birthday, drinking too much tequila, and missing the planting window. For many farmers across the wheatbelt, they might still forget their partner’s birthday and get goaded into another shot of Mexican devil water but at least, this year, they will have a solid early season break.

The early break is integral to a decent season as it allows a knockdown or two, a full choice of agronomic options and a strong germination as crops are sown into still warm, whilst moist, soils.  

But for all the positives, there is a dark side to this particular moon. Western Australia is coming off the largest harvest ever. GIWA pegged the 21/22 season at 24 million tonnes with 21.3 million tonnes of that going into CBH. Around 95% of CBH’s receipts is expected to be poured out of CBH’s four ports on to bulk vessels. The most CBH has ever shipped in a year is 15mt and, although shipping slots are offered over that number (17.7mt so far this year), that is a theoretical level, as it has never practically been achieved before. If there are shipping delays (and there have been already thanks to Omicron) there is no capacity to catch up when the supply chain is already maxed out.

So why does this matter? A slow and steady export of grain is not necessarily bad is it? As the expression goes, timing is everything.

Global market prices are currently exceptionally high but local grain prices are much lower as traders don’t want to bet on markets staying high when capacity may next open up - so they don’t! Their motivation is not just related to market risk and carrying costs but also execution risk. Last year, in a 30% smaller harvest, CBH incurred $17.1m in demurrage and penalty costs due to supply chain hiccups (refer 2021 CBH Annual Report). The consequence of supply exceeding supply chain capacity is hundreds of millions of dollars lost and this is being felt by growers in the price they are being offered (good old basis rearing its head).  

The compounding problem is if the good start to the current season leads to a consecutive bin burster. The first foundational piece to a big crop is being laid as we speak. A good break and high prices encourages growers to sow that extra paddock, the marginal salty block and maybe even the verge of the holiday house! The encouragement is especially the case with canola. With prices over $1100pt, brassica seeds are going in with gusto from Yuna to Beaumont as this piece is written. (Some growers last year paid off many years of debt with the proceeds from their canola crop.) Of course, crops will only thrive with follow-up rainfall, but it is rare that a good start with underlying subsoil moisture results in a complete dud of a season.

Any delays in shipping the current harvest will push carry-over tonnes into next year and make the task of exporting just an average 2022/23 harvest difficult. A larger harvest (say north of 15 mt) will put significant pressure on shipping capacity right through the 2023 calendar year. It would consequently be likely that the unprecedented basis discount local prices have been experiencing since last harvest would continue.

The only caveat is CBH continuing to open up the supply chain to push more tonnes through. However, as the low hanging fruit from that tree has been picked already – don’t expect a significant improvement in throughput overnight and there may be more downside than upside, ranging from an inopportune winter storm through to another Covid variant.  

Farming revenue is a function of yield and price and the two are not mutually exclusive. The more farmers grow this year, then relative to export markets, the lower the price per tonne they will get.

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