General Comments (November 2018)


High demand relative to supply of feed grain in northern NSW, has again lead to wheat and barley basis levels at Port Kembla (PKE) being $30 - $40/tonne above that at Melbourne/Geelong Ports. For canola, the basis premium at Port Kembla is $20-$25/tonne above that at Melbourne/ Geelong Ports.

Therefore growers who are delivering grain into the central receival system, should consider delivery into depots in the Port Kembla zone, rather than into those in Melbourne and Geelong Port zones. The extra freight cost into a depot located in the PKE zone, especially for grower owned trucks (variable costs only), is likely to be much lower than the grain price differential.

Given the high local demand for feed grains, the opportunity should arise this harvest to market grain direct to end-users, thus bypassing the supply chain costs in the central receival system. This in theory should result in a win-win situation for both growers and end-users, with the supply chain cost savings being shared by both parties. Some clients have been more successful than others in negotiating these deals, while at the same time managing their counterparty risk satisfactorily.

Large, efficient loading and unloading on-farm storage systems, centrally located, can assist with both harvest logistics and obtaining a better price for grain stored by selling direct to an end-user.

A number of clients have used RAA Farm Innovation Fund loans, to finance new grain storage, machinery and shearing sheds over 20 years at an interest rate of 2.5% pa. This has been a great opportunity to erect new or replace existing infrastructure, which may occur only once every generation on the farm.

The building of on-farm fodder storage assets such as silos and hay sheds to store animal fodder, is now even more attractive, as the cost can immediately be deducted against taxable income, rather than being depreciated over three years. However as RSM Australia points out, the devil is in the detail, with this concession being available only to primary producers who have their own livestock.

Clients with bank borrowings should investigate the relative interest rates of alternative payment frequencies for their market linked facilities. It has been observed that the nominal interest rate charged for quarterly or semi-annual interest payments, can be up to 0.25% pa or 25 basis points less than for monthly interest payments. The difference between the effective interest rate paid is obviously greater than the difference between the nominal rate charged, especially where interest paid is being debited to an overdraft account, where the interest rate is greater than that applicable to a market rate facility.