Haulage costs could bite as silos fill fast

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.