Eastern states grain giant, GrainCorp, could potentially triple its profits following the recent monster harvest, but the company is also looking at sourcing more grain for customers from Australia’s new cropping sector rivals in Eastern Europe.
The Black Sea region, particularly Ukraine, has swiftly grown into a major competitor for Australian grain exporters in recent years.
It now supplies markets right on our doorstep, such as Indonesia and the Philippines, and Australia’s one-time major customer base, the Middle East.
GrainCorp, which has forecast an underlying net profit rise from $53 million in 2015-16 to as much as $160m this trading year, is looking to further ramp up its supply chain inefficiencies at home and overseas.
Managing director, Mark Palmquist, said selling GrainCorp’s 60 per cent stake in Allied Mills for $190m and one of its German malting plants would help put the company in a good position to respond to supply chain investment opportunities.
Talking after last Friday’s annual general meeting, he said GrainCorp may have to increase its scope for sourcing grain from the Black Sea region given the area had become a major wheat supply competitor on price and customers wanted product from Eastern Europe.
“We’re already originating some grain from there,” he said, noting GrainCorp’s jointly owned Five Star flour mills in Egypt was among its customers buying more Black Sea grain.
“We are part of the global supply chain wherever that may be, and while a lot of our sales come from Australia, parts are from outside Australia.”
Mr Palmquist also saw considerable complementary counter-season value and growth potential in Canada where GrainCorp is now building a third high capacity, low cost receival site as part of its GrainsConnect joint venture with big Japanese agribusiness co-operative Zen-Noh.
Its 35,000 tonne Alberta and Saskatchewan silos, which start opening mid-year, will load 130 wagon trains in less than 10 hours – significantly faster than commonly achieved in Australia.
“We have a hole in our product offering to international customers and I see our Canadian supply chain as such an obvious source for what we do,” Mr Palmquist said.
“Canada grows a lot of wheat, barley and canola, like Australia.
“It fits very well having a supply chain in Canada – it may provide a better offering to our customers on price or quality, depending on the season, and there are exchange rate advantages at times, too.
“Although I think the majority of our origination business will be in Australia, including an increasing presence in South Australia and Western Australia, we’re always looking at expanding opportunities elsewhere.”
This year’s record Australian crop has so far seen about 13m tonnes delivered to GrainCorp storages (up from 8.8m tonnes throughout 2015-16), plus a 2.2m tonne surge of export shipments through its ports (3m tonnes in 2015-16).
With few indications of global grain prices improving this year, Mr Palmquist estimated eastern states farmers had sold about 75pc of their 28m tonne harvest and there was a lot of pressure to get crop shipped before winter.
But considerable volumes remained on-farm, possibly until next financial year – a trend GrainCorp had to adapt to by offering services to help growers with farm storage advice and technology such as heat sensing and quality monitoring gear.
The company’s past few years of project regeneration investment on supply chain efficiency has resulted in the 160 silos used for the 2016-17 harvest averaging about 70,000t each.
This compared with 300 sites in the previous big harvest season in 2010-11 averaging 50,000t.
While the Allied Mills sale would help GrainCorp pay down debt, the extra cash also gave it flexibility to invest in grain chain opportunities or related businesses “which can come along at times you can’t control”.
“It could be in Australia or overseas, depending on how something might fit with our strategy, but there’s not a direct intention to spend overseas,” Mr Palmquist said.
“Any investment will be around our core strengths – we’re grain supply chain operators, food ingredient processors and handlers.
“We won’t be going out to buy a semiconductor silicon chip maker.”
GrainCorp releases its first-half results for 2017-17 on May 11.