Grain’s Industry Conference points the finger at the services sector

ProFarmer is in Melbourne this week attending the annual Australian Grains Industry conference. There are certainly some hard questions being asked and answered, which is a change from previous conferences where industry issues were often brushed over.

One of the themes of the conference is how much more professional the services sector needs to become to meet the changing needs of our increasingly sophisticated client base (the grower). This is especially true in a marketplace which is undergoing substantial changes both at home and abroad.

Many small businesses are trying to figure out how they can run fast enough just to keep up. We reckon, that just the price risk farmers are faced with has increased 10-fold over the past decade. If you throw in climate variability and dynamic input costs you can get an idea of why our clients need the best service possible.

In that respect ProFarmer is not standing still. This year we have opened an office in Sydney and have recently employed our first foreign correspondent to keep us abreast of agricultural markets and trade issues across Asia. His first piece on the changing structure of the Japanese beef market was in this week’s newsletter and it is a cracker!

Another key theme of the conference is the step-up in competition in the services space. In conjunction with eFarming, ProFarmer is preparing to launch a subscription based nationwide daily price discovery and information service called Best Bids on the eFarming website. We’re on track for a mid-August launch. Another party is launching a similar service at the conference. But we love competition - bring it on - the grower will be the winner!

But the biggest and most exciting development is our employment of an Ana Komorova who started this week in our Perth office as our Strategic Development manager. Ana has experienced in the turf seed and irrigation industry through a family business based in Moscow, Russia.

She has spent the last 2 years in New York setting up supply distribution arrangements for seed and irrigation equipment back to her family’s company in Moscow which has contributed to that company growing its market share significantly. Basically she knows all the places we all guess about at the moment and has the ability through her networks to ‘verify’ information received on the Eastern European grain markets. ProFarmer is very excited to have someone of Ana’s experience and calibre join our business.

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Grain Industry Logistics Conference Instils Confidence for Growers

Apart from having the flu, I had a great weekend. Poor old Tom Watson got the wobbles on the 72nd hole, I fell asleep on the couch when the guy I had backed, Lee Westwood, was leading by 2 strokes – I thought I had the money in the bag.

I thought the industry took a great leap forward last Thursday with a great conference on Grain Industry Logistics organised by the AAAC last week. Sure it was a talk fest, but the difference was discussion revolved, finding the best solution for the longer-term industry benefit. Growers had a chance to hear from both sides of the fence and be involved in the decision making process.

This is quite different from pre-deregulation days when decisions (some right and some wrong) were made behind closed doors. Mistakes were covered up and any successes were overstated.

There is nothing wrong with debate. People have different views based on their industry position, personality, background and training and everyone needs to respect that. But growers are also entitled to hear different perspectives that are not churned out by industry funded propaganda machines. Focussed debate is healthy.

A better informed industry is an industry with better prospects. But what is lacking is a formal decision making process. On CBH matters it is the CBH board, and who does the CBH board take advice from?

But CBH isn’t the only player anymore. Increasingly we will have a diverse industry with a diverse range of issues. So what about matters where CBH is only one stakeholder, then it becomes the state Government or an even higher power. How do we read the temperature of the grower and find out what he thinks after he has been given all the facts and arguments?

For example there is clearly divided opinion on the level of information CBH should release to the market. The natural reaction is to say don’t tell anyone anything or to maintain the status quo. This is the easy option, and certainly many think it is the best way to go. But is this in the best interests of our industry longer term?

With my training I have learnt that markets work better when they are provided with information. Multi-nationals like to work in an environment of certainty, it makes decision making easier. But this is an argument for another day.

The purpose of the rant this week is to congratulate the industry for taking a step forward and at least be prepared to debate tough issues (the last bloke I heard that got his head stuck in the sand suffocated himself). And be prepared for more of the same as our industry goes through momentous, but well overdue, change.

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Crops are off to a better start in 2009

In order to better assess crop conditions and improve our production and balance sheet efforts in 2009, we have come up with an improved methodology to rank crop conditions nation wide. The ProFarmer Crop Condition Index (PCCI) can be used to assess which crops are likely to perform best at a state and national level.

In the ProFarmer weekly newsletter we will be reporting on crop conditions regularly throughout the season, and each crop month we will update the (PCCI). We now have 4-years historical data by state by major crop.

What do the results show?
At the state level, crop conditions have started better this year than in 2008. The improvement in conditions on the east coast are stronger than on the west coast, due to earlier and more planting rainfall.

WA had later rainfalls, which has lead to later crop planting/establishment, however good rains forecast in July should see the state play catch-up. In WA wheat is rated fewer than 50, placing the season’s conditions just under average.

SA wheat has had the best start, with current crop conditions ranked in the top third of the last 100 years. This is a significant turnaround from last season, where it was in the bottom half. Murray Bridge and Naracoorte in eastern SA are both currently ranked in the highest 10% of crops over the last 100 years. While this is an amazing improvement it needs to be noted that last season SA’s condition rating more than halved between July and November – if this occurred again it would place the crop condition in the bottom third.

VIC is currently ranked the lowest amongst the states, however there are areas of VIC which are currently ranked in the top 10% of crop years.

It is early in the season, and as spring approaches the weighted crop conditions will start to give a better idea of the production capacity of the season ahead.

Nationally, all crops this season have had a better start than in previous seasons. National planted area of canola is estimated to increase by 7% this year, and if crop condition continues to remain ahead of last season, total production could push the record.

Barley area has been estimated lower; however with a weighted condition 22% higher than last year production could also rise. Wheat is in a similar position, with a weighted crop condition ranking 20% higher than last year. With wheat acres thought to increase on last season, strong tonnages could again be seen. All crops have had a great start to the season.

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No car accidents this week and one of my footy teams won

I know I promised to give you an overview of the information regimes of some of our competitors but our normally reliable source didn’t come through - I will get back to you on it.

In this week’s newsletter we issued results of the Australian Grower Planting Survey. Apart from our survey we don't currently have a comprehensive survey of grower’s plantings. Our survey is but a small snippet required to be confident in the accuracy of the numbers - it is not statistically valid, but we are confident that the trends are usually correct, particularly on the major crops.

There is still a level of skepticism in the grower community about providing open access to information - our view is that good information makes markets work better. For example service providers can better plan for the needs of their customers who can then make better decisions based on good information. As Alan Greenspan used to say 'when the facts change so do my decisions'.

What many don't realise is that ABARE plantings estimates are a combination of expert opinion and the views of their analysts - they are not survey based. In this week's newsletter we plan to review our historical survey results to actual ABARE figures. But if the ABARE figures are not survey based then which benchmark can we use to measure our results against? A prime example is the WA canola crop last year; our survey suggested a massive increase in plantings and we produced a massive crop, but ABARE put much of this down to stellar yields rather than considering if they had under-estimated plantings.

The other gripe I have with the way ABARE approach things is that they assume all plantings are actually harvest, but we know there is often a high level of abandonment. Rather than adjusting harvested acres they just decrease yields to fit the planted number to the production estimate. So in fact they are underestimating yields on the portion that was harvest.

Don't get me wrong, I am not bashing ABARE. I think their work has improved significantly since Phil Glyde has taken over but we have a long way to go to meet the information regimes of our competitors to bring us into the 21st century. These needs will be covered in the coming weeks.

Update to last week’s rant – Information is right for all

In an update to last week’s rant, CBH has still not provided me with results of their online survey where they asked growers whether they would like CBH to release more harvest related information. They have, however, selectively released results to parts of the industry where they say the results have been 'mixed'.

Our survey conducted in conjunction with efarming of over 1000 growers was almost 90% in support of the bulk handlers releasing more 'aggregate' information. CBH are attempting to run a scare campaign suggesting that what we are requesting is the release of individual grower information which is a misleading.

Anyway because CBH disagree with my view - that they should be keeping the market more informed - they are not speaking to me anymore. But apparently I am not the only one. Exporters are highly disgruntled about the new CBH proposal on the management of shipping allocation for the upcoming year. CBH say they have consulted with industry, but apparently the conversations have been my way or the highway type stuff - no different to the experience I have been having. Are they reminding you of anything?

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Information is a right for all

I have had better weeks; I got into another car bingle and both my footy teams lost again, meaning another quiet September (I might go on holidays or take up another hobby like gardening – except I don’t have a garden). At least it is raining - it’s a pity grain markets are in a coma and stuck in a trance following financials.

Anyway, I want to continue to press an issue that I have been banging on about for a while. It concerns the release of market critical information. It seems the debate has been polarised by the noisy minority who don’t want to tell anyone anything to the exporters who want to know everything. The problem with this is it is easy for CBH to run interference to their betterment.

CBH have gone to ground on the whole affair. They won’t even release results of a survey they took of growers on this issue, on the grounds that ProFarmer will misconstrue the data (I found this quite offensive). The survey we conducted with efarming.com.au suggested that 87% of the 1078 growers who voted, agreed that the bulk handlers should be compelled to release more aggregate information. I have provided CBH with formal, peer reviewed economic studies that suggest that information facilitates trade and overcomes market inefficiencies. CBH conveniently fail to acknowledge these ‘established’ economic theories.

The sad thing is that CBH won’t even enter into a debate about the subject. They are showing clear signs that they intend to abuse their market power by withholding information for as long as they can– but to whose benefit? The Grain Pool and Agracorp have a vested interest in withholding this data because as market leaders they have better information than any of their competitors – this benefit will erode as their market share diminishes. That is if you believe that the Chinese walls between their operations and trading teams are effective.

Growers are kidding themselves if they believe withholding data is to their benefit. All the buyers they are selling grain to have much more sophisticated market intelligence systems, and the grower only sees the information from their own port hole.

In their submission to the ACCC, CBH reckon ABS and ABARE release sufficient data to the market. But there are gaping holes. The ABS and ABARE stocks and usage information is dated (5-8 weeks late), and only covers wheat (what’s the integrity of this data). They fail to release information on other commodities and the ABS excludes barley exports that are only released at a national level (state export data is deferred by six months – a hangover from statutory market days) meaning it is impossible to formulate an east coast feed grain balance sheet.

Plus we only have a quarterly production report (which is survey based after consultation with industry experts i.e., CBH and their counterparts); no planting intentions, actual plantings or abandonment statistics or ongoing weekly crop conditions, receivals and exports.Some groups want CBH to release a plethora of information. We don’t agree this is necessary, but if CBH continue to stonewall on the release of basic data they will further alienate the people they are supposed to serve.

We need a new information regime that reflects the needs of a changing market. Next week we will articulate the types of data our competitors release to benefit market participants.

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