Thursday, September 27, 2007

Australian grains chief warns of global wheat crisis

Philip Hopkins
The Age, Melbourne, Australia
Selling forward, going backwards.

Selling forward, going backwards.
Photo: James Davies

AS GLOBAL wheat prices continue to break records, Victoria's grains chief has warned of a crisis that could put the state's wheat sector back a decade.

Wheat surged to a record $US9.16 ($A10.48) a bushel early yesterday as Ukraine said it would cut exports, and importers elsewhere sought more supplies, squeezing worldwide inventories already at a 26-year low.

Wheat futures in Chicago reached as high as $US9.3925 a bushel and have more than doubled in the past year.

In Victoria, growers, grain companies and marketers are preparing for a crucial meeting next week to discuss the dire situation facing many grain farmers hit by the dry weather and their hedging arrangements.

Victorian Farmers Federation grains group president Geoff Nalder said farmers had made losses last year from the drought.

Now, many growers had sold their crop forward on expectations of a good harvest, and now faced potential ruin as the dry weather destroyed the grain in their paddocks. They would still have to meet their contract commitments.

"This is really serious," Mr Nalder said. "It will set the industry back a decade."

Mr Nalder said it appeared 50 per cent of Victorian grain producers had taken some form of forward position. This was up to 80 per cent in some areas.

But it was unclear what percentage of their crop these farmers had sold forward. "The usual advice is never go beyond 50 per cent," he said.

Mr Nalder said it could be different this year because farmers had hoped to reap rewards after last year's drought.

The season had started well, and official forecasts were for a wet spring, so farmers had sold forward their crop earlier this year when prices were comparatively high, he said.

The meeting in Birchip next Friday will bring together farmers, grain companies and legal representatives, with some growers talking about launching a class action against the grain companies.

Mr Nalder said the concept of hedging had been growing in farmers' minds for the past four or five years, and had been strongly promoted by banks and marketers.

"A contract is a contract. But a problem shared is a problem halved," he said.

Australian Crop Forecasters head Ron Storey said he did not think any company could forgive a contract. "Companies are not just buying grain — they bought and sold it," he said. "But they also do not want to bite the hand that feeds them. They want to see good, profitable farmers."

Mr Storey said farmers would have gone into a contract with their eyes open.

"The grains trade is well governed. A verbal contract is a contract," he said.

While many farmers could be affected, Mr Storey said he did not believe their output would constitute a significant proportion of the entire crop.

Australian farmers who had a crop and had not sold too far forward would reap the benefits of high prices.

ProFarmer analyst Richard Koch said Australia was the last major exporting nation with a crop problem.

The international market was expecting an Australian wheat crop of 12-16 million tonnes.

"We believe it will be difficult for the Australian crop to move under 13 to 14 million tonnes, which makes the crop better than last year," he said. Mr Koch said Australia only needed to help the world out with exports until mid-2008.

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