SYDNEY (Reuters) – Australia’s biggest wheat harvest in nearly a decade threatens to strain a creaky rail network and delay grain shipments just as buyers look to the country to plug global supply gaps caused by a Russian export ban.
The logjam will play out in the eastern states of the world’s fourth largest wheat exporter.
Wheat prices have risen by two-thirds since mid-year after a severe drought in Russia, the world’s third-largest exporter, dried up the wheat harvest there by a third.
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But with harvesting now underway, eastern Australian exporters’ ability to exploit strong global prices will depend on how quickly their wheat can move to ports from farms and silos.
“We haven’t handled a crop of this size in eastern Australia for some time and certainly not since deregulation, and over that time, a number of delivery points have closed with railway lines being closed,” said Malcolm Bartholomaeus, market analyst for Callum Downs Commodity News.
The states of South Australia, Victoria, New South Wales and Queensland are forecast to lift wheat production 42 percent to 19 million tonnes in 2010-11, the government’s Australian Bureau of Agricultural and Resource Economics estimated.
In contrast, Western Australia’s crop is forecast to fall to 6.1 million tonnes from 8.2 million in 2009-10.
Higher output means Australia is expected to ship 18.376 million tonnes of wheat in the year to July 2011, up from 15.249 million in 2009-10, according to ABARE.
Rail and port bottlenecks mean a lot of grain will have to be stored on farms.
Over the past decade, erratic harvests in drought-prone eastern Australia have left grain handlers reluctant to invest in more infrastructure.
Cash-strapped state governments have been closing down country branch rail lines, mainly used to shift grain to silos on trunk rail lines that connect to export ports.
“We’re hamstrung because the railway is gone,” said Chris Groves, a grain grower in New South Wales.
Previously, during a big harvest, when the local silo was filled, the grain handler would organize a train to empty it, but all that’s going to have to be done by truck these days, which is a much slower task,” said Groves.
Australia’s grain handling systems had been designed for a regulated environment where statutory bodies, such as the Australian Wheat Board, now AWB Ltd., handled wheat exports over 12 months.
But grain exporters who proliferated across the sector once exports were freed up two years ago have pushed for a system that can handle large volumes when prices are good.
“You really want to export the crop during a marketing window that allows you to access the best pricing opportunities, but that may be only a five-to six-month period,” said Mike Chaseling, deputy chair of grain handling firm Emerald Group.
The system was caught out by a surge in export demand in 2009, the first harvest after AWB’s monopoly was abolished. Grain handler CBH Group, which operates Western Australia’s four grain port terminals and the bulk of the state’s production, had to leave ships anchored offshore for weeks.
CBH has since introduced a take-or-pay auction system to allot shipping slots and avert overbooking, and expects no hiccups after the next harvest as its system will have more capacity than available grain.
GrainCorp Ltd., eastern Australia’s largest grain handler, has added five trains over the past year in contracts with rail operators, taking its fleet to 13.
The other key player, AWB, has more than doubled its rail fleet, spending $12 million Aus to buy 90 rail cars this year.
GrainCorp, which handles about 80 percent of eastern grain output, says it has enough capacity to do the job.
“We don’t see it as a daunting task as it doesn’t all have to be moved at the one time,” said spokesperson David Ginns, adding that rail capacity of five million to 5.5 million tonnes available across the three states of Victoria, New South Wales and Queensland could be supplemented by road.
In Western Australia, getting grain from country to port had proved to be the system’s weak link in 2009, Bartholomaeus said.
“So I think the eastern seaboard will be confronted with similar issues as a deregulated environment means things aren’t as co-ordinated as they used to be.”
That prospect led the U.S. Department of Agriculture to cut its estimate of Australia’s exports to 16 million tonnes from 16.5 million in its September supply-demand report, though keeping its harvest forecast for 2010-11 steady at 23 million tonnes.
