The Australian bulk grain supply chains have shown their ability to adapt to service the country’s domestic demand caused by drought conditions on the east coast.
At the start of 2018, east coast grain levels were low after below average yields from the 2017/18 harvest. A lack of rain in the first half of the year saw demand build. In mid 2018 individual truck loads of grain began moving longer distances to smaller end-users.
Glencore Agriculture Domestic Grain Merchant, David Wood said that once growers saw the demand grow in the east coast, they were quick to start moving their grain into the market.
“The lower yields from the 2017/18 harvest meant that the eastern states were running low on grain by the start of 2018. As it became harder to source, buyers began looking elsewhere in Australia to purchase the grain they needed,” David said.
“Growers were quick to react to the demand and began transporting their unsold grain by truck to the east. These loads might have gone to a cattle farmer in Victoria (VIC) or New South Wales (NSW) who thought they would just need a small amount to get through to harvest.”
As the year continued, larger amounts of grain began moving across the country.
“As the months and the lack of rain continued, it was apparent that the eastern states weren’t going to produce the 12 million metric tonnes (mmt) it requires each year for consumption, and so bigger movements by rail and ship began from bulk storage.
“Around 70 per cent of movements have been wheat.
“In the beginning the majority were feed grades going to cattle farmers as dry conditions meant their cattle weren’t able to graze and instead they had to purchase feed.
“Now we are starting to see much more milling wheat being sold to the east coast, as larger end-users start buying for human consumption products.”
Changes to the supply chain
For Australia to distribute grain to the drought impacted areas, many changes were required at all levels of the supply chain. The change required, and to what extent, was dependent on location.
In South Australia (SA) growers were advised to look at individual site based pricing at sites strategically located for domestic movements. As the strong demand from the east coast changed the region’s pricing away from the more typical export parity port based pricing less the cost of freight to port.
“Prices were stronger at sites closer to the Victorian border as grain was freighted by road and rail from the South Australian site directly,” David continued.
“Moving away from the Victorian border, rail sites such as Crystal Brook, Gladstone, Snowtown and Bowmans were showing the highest prices as large loads could be transported to central NSW through Broken Hill.
“This was very different from previous years, where the sites that were closer to ports gave better prices.”
David explained the challenges marketers were faced with.
“We have done lots of smaller contracts. Instead of the regular contracts of 60,000 tonnes going to one bulk customer we could be splitting that much between 200 different buyers. That’s more time talking to each buyer, ensuring they get what they need and when they need it by.
“We also had a lot of first time customers, but because Glencore Agriculture has offices and teams across the country and close relationships with growers, we could communicate with our colleagues in NSW, VIC and Queensland (QLD) and organise a smooth and efficient delivery.”
At first, obtaining importing licenses for our customers to deliver the grain to the east, was difficult.
“Getting an import licence was a long and slow process in the beginning, because this isn’t the norm, the right processes weren’t in place. The Government has since worked out a better process and it’s now much more efficient to obtain the licences needed to ship grain to the east.”
Bulk handlers also had to start making changes to their practices to meet their customers’ needs. Viterra Operations Manager, Michael Hill, said that the company started outturning grain back to growers as early as January 2018.
“Due to dry conditions in some parts of SA we began facilitating outturns. In May outturns increased as the domestic demand on the east coast rose,” Michael said.
“Viterra changed the Export Select status at some of its key sites for the 2018/19 harvest, making it easier for buyers to outturn grain onto road and rail from sites that had previously been dedicated to an export only supply path.
“We also introduced an initiative called Rail Select, which has been used by buyers to consolidate grain ownership into key rail sites for domestic outturn on rail, destined to the eastern states.
“Viterra has been able to provide a flexible service to our grower and buyer customers to efficiently facilitate movements of grain into the South Australian domestic market and the east coast by rail, road and ship.
“We continue to load trucks and trains to fill the deficit in the inland regions of the eastern states, as well as facilitate shipments of grain destined for ports on the east coast.”
In Western Australia (WA), CBH Logistics Manager, Ben Raisbeck said that grain they received has been moved to the east by ship.
“Traditionally we don’t ship to the east because they are self-sufficient, typically 100 per cent of exports of Western Australian grain is exported to international markets,” Ben said.
“For us, the process of moving the grain is largely the same as exporting to another country as we use shipping for both international and domestic exports.”
On the other side of the country bulk handler GrainCorp arguably had to make the most changes to their supply chain to bring grain into the east, where they are based.
Operations Manager Stephanie Jurd said they had to adapt to start accepting imports of grain instead of exporting.
“At GrainCorp we had to act pretty quickly to reverse our supply chain to be able to unload vessels and move grain into storage. We had to literally flip our supply chain upside down, which came with some issues. But we were able to work together as a business to accomplish what was necessary,” Stephanie said.
Imports set to continue
The Australian supply chain has shown its resilience against seasonal conditions over the past year, and although it is clear that more grain will travel from west to east, it’s difficult to say how much.
The 2018/19 east coast harvest produced approximately 8mmt, 4mmt below their consumption. “We haven’t seen the last of the movements to the east,” David said.
“Right now they have grain left over from harvest, but once that starts to run low, imports to the east will steadily increase.”
Glencore Agriculture predicts that a further 2.5mmt will be imported to the east in the coming months.
The sorghum harvest is nearing, but the yields it will produce are difficult to predict. “It’s hard to say how much sorghum the eastern states will produce this season, as the conditions haven’t really improved,” David said.
“Whether or not the sorghum harvest produces significant yields, Australia has enough grain to stay self-sufficient and our grain supply chains have successfully proven they can keep up with demand and adapt when necessary.”