Infrastructure investment sharpens business acumen
GroundCover™ Issue: 110 | 05 May 2014 | Author: Clarisa Collis
Growers in the northern grains region have shown they can secure more than just grain from their investment in the on-farm equivalent of grain receival depots.
Northern New South Wales growers Jason and Lisa Orchin and Central Queensland growers Phillip and Janelle Otto say their state-of-the-art grain-handling systems have also led to higher levels of business acumen, particularly in relation to grains marketing.
The grain-handling systems have required the development of new skills, which is in itself a challenge for time-pressured growers, but they say the effort is paying off.
Their new systems, complete with silos and weighbridges, have given the Orchin and Otto families more control over when and how their grain is sold: with a shift towards trading grain direct from the farm at higher ‘ex-farm’ prices.
In 2013, both families used their increased grain storage capacity and weighbridges, registered for trade, to sell more than 90 per cent of their grain direct into domestic markets.
For the Orchins, who crop 12,958 hectares at Weemelah, about 92 kilometres north-west of Moree, NSW, the ability to sell most of their grain ex-farm using the new grains system, has allowed them to save on transport, receival and warehousing costs.
This is partly because their 16,320-tonne silo complex, able to store all of the Orchins’ annual production, means they only have to shift grain from paddock to silo using their own S-double trucks. Previously they had to employ five contractors using B-doubles or road trains to cart grain to the local receival depot.
Having their own weighbridge to facilitate direct grain marketing has also saved them about $20/t on the depot’s ‘in-and-out’ fees, and in situations where they still need to use the depot they can deliver in the off-peak season for half this fee.
These cost-savings are also illustrated in the Otto family’s 2800ha cropping operation about 24km north-east of Clermont in Central Queensland’s Isaac region. The Ottos have invested in a new grain-handling system, including two new silos with capacity to store and dry 3000t of grain, plus a certified weighbridge with a 38t elevated quick-fill silo.
Phillip Otto says that since the complex was completed on their property in early 2013, they have sold all their grain ex-farm (the buyer covers freight costs), which has reduced their costs and increased the profitability of their grain marketing.
“Before we had the new system, we only sold about five per cent of grain ex-farm and mostly used our own triple road train to transport it,” Phillip says.
“We averaged 75 triple road train loads a year, but last year we sold all our grain ex-farm, so our truck didn’t leave the farm, providing big savings on fuel and wages.
“But we handled more than 250 other trucks through the new silo and weighbridge system.”
Phillip says using the on-farm facility to sell grain ex-farm has saved their business about $10/t in cartage costs to the local depot and $2.50/t a month in warehousing fees.
Selling grain direct from their property for an ex-farm price has delivered a further saving of $10/t to $15/t on the depot’s in-and-out fees, Phillip says.
Lisa Orchin says ex-farm cost-benefits are part of an overall lift in grains marketing enabled by the Orchins’ $4 million grains system, including eight 1500t silos, two 2000t silos, an elevated 320t silo and a weighbridge.
She says the increased storage capacity has given them the flexibility to market their grain throughout the year, instead of mostly at harvest when commodity prices tend to decline.
This increased flexibility, involving more targeted marketing over 12 months in combination with ex-farm trading, has the potential to return an extra $64/t for Australian Premium White (APW) wheat, Lisa says.
For example, the Orchins would have received $250/t if they sold their APW wheat through the bulk-handling system during the 2013 harvest, and to achieve that price they would have had to deliver the grain. Whereas selling some of their APW wheat ex-farm at harvest helped them achieve a price of $280/t without expenditure on grain carting and other fees.
However, when Ground Cover visited the Orchins in March, the ex-farm price of APW wheat on their property was $315/t, while the price through the bulk-handling system was $281/ha.
The marketing flexibility provided by the Ottos’ investment in an on-farm storage and handling facility was also clearly demonstrated in 2013 when they opted to sell their grain into domestic feed markets, which attracted a higher price due to the dry seasonal conditions.
This flexibility in marketing stored grain saw the family gain an extra $30/t for wheat and an extra $18/t for sorghum sold as feed grain.
Aside from helping both families secure better commodity prices, Lisa says the ability to sell grain stored on-farm throughout the year is also part of a strategy to help minimise marketing risks, such as forward-selling grain.
For the Orchins, this strategy involves marketing 25 per cent of their grain every three months to help spread commodity price risk across the year.
How do they know when to sell? Lisa says their marketing decisions are based on past average commodity prices, first-hand and generational knowledge of domestic and international markets, and benchmarking data.
The Ottos have a similar approach to selling grain guided by past average commodity prices and in-depth knowledge of grain markets. However, Phillip has also started using a website, igrain, which enables him to sell grain stored in both the bulk-handling system and on-farm, in contrast with other online grain-trading websites that focus on the bulk-handling system alone.
In terms of identifying buyers, both Lisa and Phillip have developed their own networks of grain traders in domestic and international markets. These were built on earlier trade relationships established by their fathers, Charles Ledingham and Rod Otto, and have been expanded through contacts provided by trusted traders in their existing networks.
Lisa says better market access is another benefit of their grain-handling system that stems from the ability to blend grain to meet different market specifications.
Automated aeration for drying grain in silos has also allowed the families to harvest grain at higher moisture levels, avoiding price penalties resulting from downgraded quality in wet seasonal conditions.
Lisa says it costs $2000 every two years to have the weighbridge calibrated for trade registration, but she says this is offset by a $35 saving on fees for weighing each grain load.
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