Global grain surplus forces Australian farmers to switch to on-farm storage

A global grain glut and falling crop prices are forcing Australian farmers to increasingly store their crops on their own farms rather than hand them over to export operators. This trend is negatively affecting the business of large grain traders, including GrainCorp.

Against this background, GrainCorp shares fell to multi-year lows on Monday after the company lowered its financial forecast. The reasons were a global excess of grain supply over demand, weak trading profitability and a decrease in the volume of grain entering the company’s elevators for further export.

According to Andrew Weidemann, southern director of Grain Producers Australia, at current prices and margins, farmers are increasingly concluding that the only way to remain profitable is to store their grain themselves. In addition, the number of intermediaries and costs after the “farm gate” are increasing, forcing producers to look for opportunities to be more actively involved in the logistics chain.

GrainCorp expects its underlying EBITDA to fall to $200-$240 million in the current financial year from $308 million a year earlier, while net profit could fall to $20-$50 million. Analysts said the downgrade reflects the impact of farmers’ decisions to keep grain on farms and a general weakening in global trading margins.

GrainCorp, however, said it was financially sound and was adapting to challenging market conditions by tightening cost controls. Australia’s ABARES estimates the country’s winter crop will be around 31.2 million tonnes this season, but a global grain glut will continue to weigh on prices and producer behaviour.

Tags: Australia, prices, wheat, grain storage