FARMERS fear a lack of storage capacity at GrainCorp silos will compound their troubles during a difficult harvest, as wet weather leads to crop downgrades.
GrainCorp storages around the country carried over a massive 6 million tonnes of feed-quality grain from last year's bumper crop.
In a repeat of last year, in some regions of NSW the wet weather and flooding of the past week has resulted in crops, especially wheat, sprouting. Analysts expect widespread downgrades, which will hit farmers hard as prices for feed-quality grain are well down on last year and set to fall further.
A farmer in Young, speaking anonymously, said GrainCorp owned nearly all the silos in NSW and "you just assume they will empty them for next year's harvest, but they haven't".
"When you go to deliver your grain, if the silos are full, you have to pay considerably more carting expenses to get it to the next silo. It's not like we have alternatives."
The NSW Department of Primary Industries Young district agronomist, Paul Parker, has been travelling the state assessing crop quality and says the problem is statewide.
"I've been seeing a lot of silos where they haven't moved grain," he said. "We're going to end up with a big excess, which growers are going to have to deliver elsewhere.
"Once they get going on the wheat, there's going to be a lot of downgraded wheat around, [leading to] the same problem next year."
On Wednesday, a Commonwealth Bank farm commodities analyst, Luke Matthews, estimated 4.5 million tonnes of wheat remained unharvested in NSW. Low quality wheat prices have fallen to uneconomic levels, reflecting the record old-crop stocks and expected new-crop downgrades.
Mr Matthews noted "complications at grain receival sites being encountered due to the huge supply of old-crop grain ... the large volume of grain produced this season and additional quality-related segregation requirements".
A GrainCorp spokesman, David Ginns, said the company was operating about 300 storage sites across Queensland, NSW and Victoria and "less than 10 would be closed".
"In NSW we had around 140 sites operating prior to the rain, and no more than five small sites [of less than 15,000-tonne capacity] have closed.
"Some sites are offering limited segregations and this has required some growers to go to nearby sites for particular segregations."
But Mr Parker said the issue for growers was that while GrainCorp's storages might not be closed yet, "they've got very limited storage available. It may only take a few days and they'll be full."
Mr Ginns said GrainCorp had spent $13.5 million expanding its storages and was in the process of adding 800,000 tonnes of capacity.
"Interestingly, in several areas we have responded to grower requests for additional storage, built it, and then found that growers have delivered grain elsewhere for sale," he said.
Yesterday a Deutsche Bank analyst, Dominic Rose, gave a bearish assessment of a roughly 21 per cent downside risk to GrainCorp's 2011-12 earnings forecasts.
With the harvest half-complete, Mr Rose noted downside crop risks including potential inclement weather which could reduce yields and quality.
GrainCorp shares fell 17? to $7.30 yesterday.
Frequently Asked Questions about this Article…
Why is GrainCorp's storage capacity a concern for farmers and investors?
GrainCorp is a major operator of regional silos and the article reports storages carried over about 6 million tonnes of feed-quality grain from last year. With wet weather causing crop downgrades and limited movement of old-crop grain, many GrainCorp sites risk filling quickly. That can force farmers to cart grain further at higher cost and creates operational and price risks investors should watch.
How is recent wet weather affecting crop quality and feed-quality grain prices?
Wet weather and flooding in parts of NSW have led to sprouting and widespread downgrades, especially in wheat. Analysts say downgrades add to a large supply of low-quality grain, and the article notes feed-quality and low-quality wheat prices have fallen to uneconomic levels and are expected to fall further.
What impact do full silos have on haulage and carting costs for growers?
When local GrainCorp silos are full, growers often must deliver grain to more distant sites, increasing carting and haulage expenses. The article quotes a farmer saying higher carting costs are incurred because there are few local alternatives, squeezing growers' margins.
How many GrainCorp storage sites are operating and how many have closed because of the rain?
GrainCorp said it operates about 300 storage sites across Queensland, NSW and Victoria and that fewer than 10 sites would be closed. In NSW specifically, there were around 140 sites operating before the rain, and GrainCorp reported no more than five small sites (each under 15,000-tonne capacity) have closed.
What capacity additions has GrainCorp made to address storage pressure?
GrainCorp told the article it spent about $13.5 million expanding storages and was adding roughly 800,000 tonnes of capacity. The company also said it built additional storage in some areas in response to grower requests.
What do analysts say about the risks to GrainCorp's earnings and share price?
A Deutsche Bank analyst, Dominic Rose, gave a bearish assessment estimating roughly a 21% downside risk to GrainCorp's 2011–12 earnings forecasts, noting crop and weather risks. The article also reports GrainCorp shares fell about 17% to $7.30 on the news.
How big is the unharvested wheat situation and why does it matter?
Commonwealth Bank farm commodities analyst Luke Matthews estimated about 4.5 million tonnes of wheat remained unharvested in NSW at the time of the article. Large unharvested volumes, combined with record old-crop stocks, increase segregation needs, depress low-quality wheat prices and put pressure on receival sites.
What should everyday investors watch next regarding grain markets and GrainCorp?
Investors should monitor harvest progress and crop quality reports (downgrades), storage utilisation at GrainCorp sites, changes in feed-quality grain prices, any further site closures or capacity additions, and analyst revisions to earnings forecasts — all factors highlighted in the article as drivers of company performance and market sentiment.
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