Mike Chaseling, Deputy Chairman, Emerald Group Australia Pty Ltd

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Coping In The Deregulated Market
How is the Australian grain industry managing in
this first year of wheat market deregulation?
Mike Chaseling, Deputy Chairman, Emerald Group
Australia Pty Ltd
2
COPING IN THE DEREGULATED GRAIN MARKET

• Challenging market environment
• Major re-alignment of market share
• Significant teething problems
• Key issues looking forward

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CHALLENGING MARKET ENVIRONMENT A PERFECT STORM
HOWEVER THESE ARE NOT STRUCTURAL ISSUES

• Unprecedented volatility
• Physical grain markets
• Futures markets
• Bulk freight markets
• Freezing of global credit markets
• On set of the global financial crisis

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UNPRECEDENTED GRAIN MARKET VOLATILITY
Wild swings in market relativity
Overtly bearish tone
SOURCE EMERALD GROUP AUSTRALIA PTY LTD
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UNPRECEDENTED FREIGHT MARKET VOLATILITY
SOURCE BLOOMBERG NEWS WEB SITE
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SHIPPING CAPACITY MOTHBALLED DUE TO FREIGHT
MARKET MELTDOWN
Vessels at Layberth in Singapore in January 2009
7
SIGNIFICANT IMPACT OF THE GLOBAL FINANCIAL
CRISIS SHRINKING BANK VIABILITY GLOBALLY
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HOWEVER EARLY SIGNS OF PHYSICAL EXPORT MOVEMENT
WERE POSITIVE
The first non-AWB Japanese noodle wheat cargo
sold post deregulation sold by Emerald Group
Australia loading in Fremantle January 09
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VERY QUICKLY THERE HAS BEEN A MAJOR RE-ALIGHNMENT
OF MARKET SHARE MOST EVIDENT IN WA

• AWB dominated in regulated market
• Other players largely restricted to re-delivery
  pools, small domestic market and container
  exports
• CBH/Grain Pool starting to emerge as major wheat
  players linkage to Indonesian mills

Source Emerald estimates

• AWB share decimated
• Other players emerge to dominate alongside AWB
  CBH, Emerald and variety of exporters
• Greater variety of pricing and risk management
  products available to growers

Source Emerald estimates
10
MAJOR RE-ALIGNMENT OF MARKET SHARE BULK HANDLERS
FLEX MUSCLES IN THEIR BACK YARD
MV Horsham 63,000 mt berthing Geraldton Feb
09 Emerald Group sale of wheat destined for the
Iranian market
Based off a national wheat crop of 21 million
tonnes (Emerald current estimate 20.339 mmt)
Source Emerald estimates
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MAJOR RE-ALIGNMENT OF MARKET SHARE OTHER MAJOR
PLAYERS ALSO ACTIVE AT THE FOB POINT
Source Emerald estimates
Source Emerald estimates
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WE ARE EXPERIENCING SOME TEETHING PROBLEMS
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SIGNIFICANT TEETHING PROBLEMS PROBABLY
INEVITABLE HOWEVER MAJOR STRUCTURAL ISSUES REMAIN

• Teething Problems or Structural Reality?
• WA Shipping stem shut down in February until
  end of April and then indefinitely
• NSW rail based grain freight has all but
  collapsed in terms of any meaningful
  public/industry access - significant collapse
  in confidence has occurred
• Exports from NSW ports began at a snails pace
  and continue to be problematic real lack of
  transparency
• System has not yet grappled with the desire of
  Australian growers to store more grain on farm
  how will the export chain link with farm held
  stocks?
• SA currently the stand out in terms of export
  logistics

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SIGNIFICANT TEETHING PROBLEMS PROBABLY INEVITABLE
Environmental Issues Low carry in stocks
Delayed harvest Quality challenges Structural
Issues Restricted pipe line capacity Failing
rail infrastructure Shipping rules have been
fluid Economic Issues Increased costs being
pushed back to exporters and growers
Base total grain pipe line capacity in WA is just
795,000 mt / month or 9,540,000 mt per annum
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EFFICINET MARKETS CRAVE CERTAINTY - A LACK OF
CERTAINTY DRAINS LIQUIDITY AND ULTIMATELY REDUCES
TRANSPARENCY AND PRICES

Friday 30th January
will not be accepting new nominations for the
months of February and March
we will advise our position and likely capacity
for April as soon as possible and encourage
customers to limit sales for shipments earlier
than mid April.

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EFFICIENT MARKETS CRAVE CERTAINTY - A LACK OF
CERTAINTY DRAINS LIQUIDITY AND ULTIMATELY REDUCES
TRANSPARENCY AND PRICES

Wednesday February 4th
we are therefore CLOSING the stem for any
nominations from April onwards until further
notice
Over the next couple of weeks.will be
reviewing current processes for shipping
nominations and coming up with options to improve
the current process, which is obviously not
working.


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IN WA A SOLUTION TO IMMEDIATE PORT SPACE
ALLOCATION REMAINS ILLUSIVE BUT NSW NO BETTER
(MAYBE WORSE)

• Shipping nominations should be allocated in a
  reasonable, open and transparent manner
• Restrictions on any one company monopolising
  capacity (suggested 25 in initial allocation)
• Shipping allocations to be tradable amongst the
  players
• Secondary market will support true determination
  of nearby value
• Lazy allocations to revert back to the port
  operator

Esperance Port WA
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A NUMBER OF ISSUES NEED TO BE ADDRESSED TO
PROMOTE A TRUELY EFFICINET AND PROPERLY
FUNCTIONING, OPENLY CONTESTED GRAIN MARKET

• TRANSPARENT ACCESS TO PORT SHIPPING CAPACITY
  ESSENTIAL NATIONALLY
• GRAIN SUPPLY CHAIN INFRASTRUCTURE INVESTMENT
  (RAIL)
• 2. IMPROVED TRANSPARENCY OF INFORMATION
• 3. ADDRESS THE ISSUE OF STORAGE AND HANDLING
  MONOPOLIES AND THEIR TRADING ARMS

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SO - HOW ARE WE COPING?