As we celebrate Planfarm’s 50th year, it is a perfect opportunity to timeline events that have shaped our WA grain market landscape over the past 50 years. I am sure these events will bring back memories (both good and bad) as our market has evolved dramatically due to changing government policy and local community needs.
When casting my eye over this period, there are the usual patterns or trends such as drought or over supply but there are many other influences that have shaped the market as we know it today; with most of these being totally out of our control.
The 1970’s was a time of consolidation with the abolishment of the controversial Wheat quota restrictions implemented to reduce the potential build up of carryover stocks after record Australian harvests which also coincided with the build up of world wheat stocks.
In 1974 Grain Pool headquarters opened in Perth. Barley, lupins, & rapeseed were prescribed grains under the grain marketing act and Bushels were no longer recognised as a measure of grain. The first advance for Barley in 1974 was a record $69.2 for Manufacturing (Malt) grade. Wheat was marketed by the Single Desk operated by the Government founded Australian Wheat Board (AWB). On 11th of February 1974 wheat prices hit a record US dollar $6.32 per Bushel which was result of a Russian and Northern Hemisphere drought.
In 1979 new legislation gave the AWB power to issue permits to growers, allowing them to deliver wheat into domestic market instead of into the bulk handling system. (CBH in WA) These permits cost $2.50 per tonne.
The 1980s was a tough time with the rural recession and the grain wars. In response to this, the government conducted a Royal Commission into grain storage, handling and transport with recommendations of deregulation to minimise costs. By 1989 the domestic marketing of wheat was fully deregulated.
In the mid-80’s the United States and Europe were trading punches over grain markets. Forcing prices down to ridiculously low and uneconomic levels. Skip forward 40 years and we are still having the same issues with politics and policy influencing markets.
In reference to our 1986 Planfarm Benchmarks the highest wheat yield recorded through the Central wheatbelt was 2.37mt/ha and the highest Lupin yield was 1.97mt/ha. Also, in 1986, the average wheat yield in the medium rainfall areas was 1.66mt/ha.
In 1985/86 AWB exported nearly 16mmt tonnes from Australia which equated to around 19% of world trade placing Australia third behind the US and Canada in tonnes exported with 30% of this coming from WA. The Guaranteed minimum price for ASW1 was $149.87 per tonne.
The 1990s saw the large-scale growth of canola production in WA. The Grain pool marketed 16,632mt in the 1991 season. By the 1994-95 season the tonnage had reached more than 100,000mt. The first exports left Albany to Japan in March 1992. In the 91-92 season Lupin deliveries also reached over 500,000mt for the second time.
While all wheat was still being marketed by the AWB Pool there was a concerted push from CBH and the Grain pool to market Western Australian wheat. An agreement in 1995 saw the pool re-enter the domestic wheat market to work on opportunistic sales. Communication was on the improve between growers and industry bodies with the introduction of daily prices via the Grains feed fax.
The Grain Marketing act paved the way for cash pricing options alongside pooling. A survey of Western Australian growers in 1995 reported that 71.5% still favoured the single desk grain pool to market lupins, canola and barley into the export market.
Below is a snapshot of sales revenue and ASW pool returns on a National basis of the AWB Pool performance from 1992 to 1997 season.
By the time the 2000s had rolled around, change had been brewing for a while. In November 2001 it was announced that the merger between the grain pool and CBH would go ahead and become a wholly owned marketing subsidiary. This was formalised by March 2002 with 85% of CBH members in favour of the merger. The first year of the merger was very challenging with WA facing a massive drought and only producing 5.21 million tonnes.
The most defining event of the 2000’s was the “wheat for oil scandal” when the AWB had knowledge of fees being paid (kickbacks) to a Jordanian trucking company were being passed onto Saddam Husseins Iraqi regime. While under investigation Iraq refused to buy wheat from AWB which at the time was a crucial Australian wheat market.
The (WEMA) Wheat Export Marketing Act of 2008 was introduced ending 70 years of statutory marketing by the AWB. Under deregulation multiple marketers would require access to many, smaller stockpiles. Hopefully reducing economies of scale and driving prices up. As a result of this we saw the birth of the market we know today with many new buyers in the cash and pooling environment.
Planfarm Marketing started its journey in 2007 to assist grain producers in navigating their way through this new market environment. Farmers had gone from pooling most of their grain with the odd cash sale here and there to having to choose which was the best option to suit their business. Volatile and uncertain markets, combined with the Global Financial Crisis (GFC) amounted to tough and uncertain times and independent advice was appreciated and needed.
The rise of the Russian and Black Sea grain trade was also well and truly on the up displacing North America as the new superpower of grain markets.
Other significant events to influence Grain marketing as we know it today was the first commercial trial of GM canola in 2009 and the introduction of Quality assurance or Better Farm IQ.
From 2010 through to now, new exporters and different selling options were presenting themselves, with buyers falling over themselves to get a piece of the lucrative Western Australian Grain Market. West Australian grains were now exported to more than 30 countries around the world.
Pooling companies such as Emerald were offering entrée fees to pools to encourage growers to commit tonnage. The 2011/12 pool was a complete failure with the Pool performance way below the Estimated return and -$60mt below fellow competitors. A class action was launched as growers lost an estimated $7.5 million dollars, but this was later dismissed. CBH were not immune to trading losses either as competition from the Black Sea had begun to make the market more challenging.
In 2014 Bunge Grain opened its first Australian terminal in Bunbury. This was to service growers from the Great southern area with upcountry sites located in Kukerin and Arthur River. Although there have been challenges close to 1 million tonne of grain now leaves their port. CBH have tried their best to make it hard for them, but the extra competition has been met with applause from growers especially with the marked increase in production.
Cash markets had become the King in WA and pool providers such as Plum Grove had started to lose significance. Even the once mighty CBH pool had reduced tonnage. Farmers were now receiving SMS and email with daily prices and could pick up the phone and sell at a price they were happy with and forward selling of prices had become the new norm to try and protect profitable prices. Pay terms were shortening from 21 DEOW to today’s 7BD.
Quality optimisation of wheat was first trialled in 2010 to allow growers to blend their grain online. Although farmers have been blending grain for ever and a day in the field this presented growers with more flexibility and control over their wheat quality.
Over the past decade Australia has developed a growing trade relationship with China which has created incredible opportunities for our grains. Barley has been the main benefactor of this with exported tonnes reaching a high of over 6mmt in the 2016/17 season. See chart below.
With increasing profitability and reliance comes risk. In 2018 China initiated an anti-dumping investigation into Barley exported into China. As a result of this China imposed an 80% tariff on Australian Barley in May 2020. This caused a massive drop in the barley price with Exporters forced to look elsewhere. These tariffs were lifted in August 2023 and trade has since resumed. Although the anti-dumping was never proved it seem this was more of a political statement from China about the Covid 19 pandemic.
On Feb 2022 Russia launched a military invasion into Ukraine. This sent grain markets into panic mode with a rally like we had not witnessed before. This also coincided with the two biggest years of Grain production in WA’s history when two plus 20mmt production years were achieved. Grain prices lifted to unprecedented levels which was a great boost for WA trying to move a record crop. During this period grains recorded record high prices with Canola reaching $1220 per tonne, BFED $420 per tonne and APW1 over $500 FIS.
With a sharp rally in wheat futures a lot of growers were caught with high margin calls on wheat swaps along with local basis at record low levels due to our high production and the lack of foresight to move two massive crops. Australian wheat was heavily discounted against world FOB values which was a bitter pill to swallow. On a marketing front it contributed to the reinvention of grain pools as a way of growers maximising their returns and these have performed to a high level.
As I finish this article in my office today, I am sure there will be many twists and turns in the grain production and marketing landscape. This season alone there has seen a sharp variation in prices from both local and international factors. WA has gone from the brink of drought in early May, to what shapes up as a good to average season. The political landscape both nationally and internationally has never been more volatile and with Donald Trump half a chance to be voted back in who knows what could happen next.
References, The Grain Journey continues, GIWA, UWA.
