Friday, February 27, 2009

Deregulation a winner

Despite Murphy’s Law (what could go wrong did go wrong) and in the absence of any perfect measures, on our assessment deregulation has been a success. Certainly, the worst fears of many have not been realised:

• Finance was still available to participants to purchase the crop
• There has always been a ready buyer of grain (despite significant quality issues)
• Pre and post harvest market liquidity has been sound
• There have been spot premiums available (growers have had some market power)
• There has been plenty of competition for grain.

East/West Coast

A big winner for WA was that the east/west coast spread inverted post deregulation. This suggests some serious inequities existed under the previous system. The first export licenses were issued at the end of August and the spread inverted the following week. You can’t get more unequivocal than that!

This just reflects that the true costs of execution are being reflected in the market. Over time this more direct transmission of market signals will extend – no more subsidisation of areas, sites and grades which are not in demand.

Supply chain – the big challenge

Currently there is a big line-up of grain boats off Cottesloe beach waiting to load. This scenario has been repeated at various ports several times this year. Some commercials have found it more difficult than anticipated to acquire grower tonnage which caused early season delays in ship loading – they will learn from this.

CBH has been surprised at the demand for early season shipping space with demand running at 3mmt per month compared to 1mmt previously. The problem is in getting grain to port and the ‘unanticipated’ costs of meeting the surge in exports. Unless this can be resolved quickly, it has the ability to damage WA’s reputation as a reliable exporter of grain.

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