Grain Industry – Innovate and Collaborate Junee - July 2019Pat O’Shannassy - CEO

Contents

About GTA

Grains Industry Overview

Surplus & Deficits

Demand Story

Capacity

Future Trends

Collaboration to improve efficiency

Who is GTA

Grain Trading

Standards

Trade Rules &

Contracts

Dispute

Resolution

Services

Trade &

Market Access

Industry

Stewardship

& Capability

Reflect

Requirements &

capabilities in:

1. Regulation

2. Production

Sector

3. Supply Chain

4. Consumptive

Sector

Ensure

confidence in

commercial

dealings by

providing legal

rigour

Underpins

Contractual

Arrangements

Engaging with

Policy makers to

ensure fair &

equitable trade

and access to

domestic &

global markets

Leadership and

Codes of Practice

Increase Industry

capacity by

providing training

& development

programs

Industry driven and managed“Self Regulatory Framework”

GTA Core Task – Facilitation of Trade

Advocacy & Market

Access TradeCommerce

Grain Quality and

Assurance

Grain movement

& logistics

Data &

Information

Stewardship &

Capability

✓ Policy - Trade & Market Access Committee (TMAC) - Policy

✓ Market Access –TMAC & NWPGP, NTMs

✓ Market Choices Framework (PBI)

✓ Framework –IGTC (IPPC, LLP, MRLs)

✓ Operational –GPPEICC & GIMAF

✓ GTA Commerce Committee

✓ GTA Trade Rules

✓ GTA Contracts

✓ GTA Dispute Resolution Service

✓ Inventory Valuations (LDs)

✓ Operating Guidelines for Pools & Brokers/Agents

✓ GTA Trading Standards Committee

✓ GTA Code of Practice & TGDs

✓ NWPGP

✓ NRS

✓ Technical Engagement

✓ TGDs

✓ GTA Transport Ports and Storage Committee

✓ GTA Industry Working Groups

✓ Storage and Handling Agreements

✓ Transport Code of Practice and Contracts

✓ Chain of Responsibility

✓ GTA Information Technology Advisory Committee

✓ AGIC Conferences, Grain Storage Conference

✓ GTA Member Updates and Market Notifications

✓ Industry Databases

✓ Increase

Industry

capacity by

providing

vocational

training and

development

programs

✓ Diploma Grain

Management

✓ Code of

Practice

✓ COR & Training

✓ Strong

Governance

Industry driven and managed

GTA Role – Facilitation of Trade

Australian Production

Drought, but good crop in WA

2016

Key : Blue is “good” ☺ ; Red is “not good” …

2017

Key : Blue is “good” ☺ ; Red is “not good” …

2018 - Record East Coast Drought

Drought affected states:– New South Wales

(NSW)– Queensland (QLD)– Victoria (VIC)– South Australia (SA)

NSW

VIC

SA

QLD

Impact zone+

~63% of AUS crop area

9 month rainfall decile

Note: WA good crop

☺

2019

Jan-June 2019

April – June 2019

Key : Blue is “good” ☺ ; Red is “not good” …

not looking good

Bit better, but avg…

Still worrying

Looks av -better

☺

The hidden Australian grain deficit: Wheat

12

1. 2.No problem visible:

Production (blue) > Consumption (orange)

National

East Coast Consumption > Production by 100%

East Cost

The hidden Australian grain deficit: barley (Same story)

1No problem visible:

Production (blue) > Consumption

(orange)

2 East Coast Consumption >

Production

National East Coast

Why isn’t Australian Domestic demand falling?

• Reasons:1. Strong feed demand and2. Strong cattle “crush” margins3. =>Price of cattle in NSW is

almost double now compared to the last drought period.

50% Fall during last significant drought

Cattle Price

Market Driven solutions to Strong Demand

Solution 1: move grain from West to East Coast

Grain has been hipped andmoved by rail from:• Western Australia• South Australia

To:• Queensland• New South Wales• Victoria

Grain Surplus

Grain Deficit

Shipping Grain

Movement by Rail

Solution 2: Import from international markets?

Grain imports from Canada have occurred This is historically rareIncurs significant biosecurity risks & costsComplies with IPPC protocols

Due to large abandoned area from a poor winter crop,there is increased acreage available for sorghum planting.

The sorghum crop had the potential to be between 1.9 to2.5 million mt but conditions in Oct/Nov meant it did nothappen….

If the crop was large enough, it could have substituted forother grains and is likely to eliminate the need forimporting.

What does the crop size depend on? Rainfall

October rainfall: Good

December to Feb rainfall forecast : Average

It didn’t happen…. So we have another year of markettension and driving demand

Chance of above median Rainfall Dec- Feb

Sorghum Area

1 month rainfall Decile: October

Sorghum Area

Solution 3: Large sorghum summer crop

Choice & Capacity - 24 Bulk Export Ports

Ports-West & South

1- Geraldton

2- Fremantle

3- Albany

4- Esperance

5- Thevenard

6- Lincoln

7- Pirie

8- Wallaroo

9- Giles

10- Adelaide (2)

Ports- East

11- Portland

12- Geelong

13- Melbourne

14- Kembla (2)

15- Newcastle (3)

16- Brisbane (2)

17- Gladstone

18- Mackay

19- Bunbury

18mmt

9mmt

1.0 mmt

17mmt

19

1.0 mmt

1.5 mmt

1.0 mmt

Port Capacity ~ 50mmt

-

10

20

30

40

50

Aust

Prod

Xpt

Dom

0

5

10

15

Prod Xpt Dom

kmt

0

5

10

Prod Xpt Dom

kmt

0

5

10

15

20

Pro

d

Xp

t

Do

m

kmt

Site and Rail Network

Storage

Rationalisation of receival sites

On-farm grows

Private Storage may be underestimated

Supply Chain Costs

-

5

10

15

20

25

30

35

40

45

Mill

ion

s

Australian Exports to (All) by Commodity

Wheat

Sorghum

Oats

Lupins

Field Peas

Chickpeas

Canola

Barley

Source: ABS

Australian Grain Exports

Where does it go?

Source: ABS

Where does it depart from

Source: ABS

Container Growth

Competitive freight to reposition boxes

Lower entry cost

Lower working capital cost

Logistics at destination

Shipping line consolidationSource: ABS

Container Exports – A Vic / NSW Game

Source: ABS

Export Capacity

Source: ABS, pers comm

It’s all about utilisation!

AEGIC – Australia’s Grain Supply Chains

AEGIC – Australia’s Grain Supply Chain Report

SA is a little tighter

AEGIC – Australia’s Grain Supply Chain Report

WA – consistent & simple pathway

AEGIC – Australia’s Grain Supply Chain Report

Domestic Demand Grows

Increase in domestic demand

EC driven

Strong livestock prices

Biggest gain in wheat

Source: ABARES

Demand for Food - Security and safety

SEA Demand Story

Doubling Production, but

Massive Imports

6 x in corn, 2.5 x wheat

Consumption doubled!

Feed doesn’t = failure!

Policy & Market Access

Source: USDA

Asian Consumption Driving Demand

Asian consumption will drive long-term import demand for Aust grain, particularly the rise of animal meat driving demand for feed grains

• Source: CBH Analysis. Consumption growth of wheat, barley, corn, sorghum, soybeans, canola and other oilseeds in country not import growth

75

175

0

25

150

50

100

125

2030f

55%

1990 2000

13%

2010

5%

27%

2020f

+3%

Pork Poultry Beef Lamb

Asian Grain Consumption Growth (ALL GRAINS & OILSEEDS, MILLION TONNES, ASIA)

Asian Meat Consumption Growth (MEAT CONSUMPTION, MILLION TONNES, ASIA)

200

400

600

800

1,000

1,200

1,400

2020f1990 2000 2010 2030f

54%

35%

49%

+3%

Feed Grain Food Grain

Food

Feed

Supply from the Black Sea has increased rapidly…

Source: Bloomberg, CME, USDA, CBH Analysis

Black Sea Exports (ALL GRAINS, MILLION TONNES)

Real Global Prices(INDEXED REAL PRICES)

……with long term real global prices reverting to the mean and set to remain flat …

… so what?

100

0

50

150

1998 20181988 2008 2028F

0

50

100

150

2030F2020F201020001990

Indexed real wheat price

Long term pricing

Black Sea Supply Grows – Pressure Price & Returns

36

Reduced Margins in the Grain Value

Chain and therefore

pressure on cost.

Australian wheat delivered to South East Asia is more expensive than Black Sea wheat, but benefits from a slight quality premium. High Cost base up to $65-75/t higher than Black SeaIt is critical to reduce costs to compete in the long term – both supply chain and production.

Wheat delivered to South East Asia (A$/t)

Paddock costs include fertiliser, chemicals, fuel, repair & maintenance and other costs associated with production and overhead costs (Government subsidies excluded).

Source: CBH analysis

Russia

88

129

179

Krasn.(Russia)

121

127

Argentina

147

SA

107

189

99

199

119

117

East Aust.

94

United StatesCanada

Wheat exports into contestable market (Mt)

138

198

104

200

168

233 240 248267

306

337

366

101

Ukraine WA

226

Del

iver

ed c

ost

($

/ tonn

e)

Delivered Costs

Supply chain

Paddock

Supply Side – Cost Competitiveness

37

Extended Black Sea exports narrowing the shipping window

Capacity aiming to capture the peak demand period.

Eastern Australia has invested heavily in port access

Shipping Window – Capacity needed to capture premiums

38

Shipping Comparison

2.0

0.0

1.0

3.0

4.0

6.0

5.0

7.0

8.0

May AugJan Feb Mar Apr OctJun Jul Sep Nov Dec

Black Sea Australia

Australian shipping window

Black Sea Harvest Aus. Harvest

Average monthly exports last 5 years (Mt to FY18)

Tonn

es (m

illion

s)

Source: CBH

Excess Capacity exists on East Coast

AEGIC – Australia’s Grain Supply Chains

Excess in Bulk has been exacerbated by a growth in Containers

Trends and Future

Sector

Grain storage • More investment in on-farm storage, particularly in eastern Australia

• Further rationalisation of the ‘central storage network’

Port Terminal operations

• Growth in Container exports • Initial investment in Ports - QBT, NAT, Quattro, MPT, Lucky Bay,

Bunge • Greater use of low-cost mobile ship loaders

Road transport • Increased share of the grain freight task• More specialised PBS vehicles campaign moving grain from sites

to port/endusers• No electric trucks …..not yet

Rail transport • More closure of regional branchlines• Who can manage the Risk?

Shipping • Further innovation in shipping and support services• Innovation in engines/fuel types to address emission issues• Technology to play a leading role in managing vessel

performance and cargo management systems

Supply Chain Management Systems

• Blockchain, IoT and AI

Future Supply Chain Innovations

43

Automation could look like:

driverless chaser bins that deliver grain from farmers’

fields to on-farm storage or grain trucks;

autonomous cartage of grain from upcountry to adjacent rail loading facilities;

grain rail wagons that automatically load and unload;

driverless shuttle trains;

greater automation of grain receival and grain

quality assessment; and

more automated grain port operations.

Traditional innovations such as more fuel-efficient, safer trucks & locomotives will continue to underpin the cost efficiency of supply chains.

Grain Storage

44

Background / History:

40 years of growth

Accelerated growth in last 10 years

2018 – estimate = 17 to 18 MMT

37% of Annual Production

• Canada - 105%

Est. Annual increase?

• 1.0 – 2.0 MT per annum.

925

619536

0

100

200

300

400

500

600

700

800

900

1000

1998 2010 2017

Receival Sites

Sites

Grain Storage

45

Growth Drivers:Harvest Efficiency

Reduced transport cost

Quick turn around

Around the clock operations

Quickly deal with “out of spec”

Direct to End User DeliveryContingent on local markets

Allocate handling and warehousing costs to the on farm investment

Marketing/Price OptimizationA small percentage of On Farm Stored Grain

Timing

Grain Storage

The Future:

Underlying drivers continue

Harvesting is getting faster

Local consumption increasing

Farming units growing

Local Rationalisation

47

On-farm storage is growing in many shapes and sizes..

48

49

50

51

300KT OF BULK BARLEY LOADED VIA PORTABLE LOADER 2017

Port Terminal Operations

Road Transport

• Background– Grain industry supported

by small regional carriers

– Growth of the ‘farm fleet’

– Low barriers of entry

• Downward pressure on freight rates

• Uneconomic returns for carriers in general

Road Transport

• The Future

– Innovation in:• PBS Vehicles

• Electric Trucks

• Autonomous trucks

– Working in with Rail • Hub and Spoke sites

Rail Transport

Coal Grain*

Annual production 448mt 42mt

Annual domestic consumption 66mt 12mt

Annual export 382mt 30mt

Annual export value $54b $11b

Export tonne KM (b) (est.) 81.4 7.0

Mines/farms 110 23,000

Number of terminals 10 21

Average tonnes per terminal 42.0mtpa 1.4mtpa

Number of load-points (est.) 101 ~450

Average tonnes per load-point (000)

4,435 80

Sources/Notes:

*includes Grains, Oilseeds and PulsesCoal Production, Exports (and assumed) Domestic Consumption and

(FY2018): Office of Chief Economist (OCE) Resources and Energy Quarterly December 2018. Export Revenue (FY2018): Sourced from ABS, Customised Report. Coal Mines: Geoscience Australia. Grain Production, Domestic

Consumption (and assumed) Domestic Consumption, Export Revenue

(FY2018): ABARES Agricultural Commodities (March 2019). Grain Farms: ABARES website (Grain Overview), includes farms with at least 40 hectares sown to grains, oilseeds or pulses.

OBSERVATIONS

• SCALE!!

• History of rail / grain driven by regulated past

• Grain is cyclical and has peaked demand

• Multiple clients focussed on commodity trading -no consistency of demand for rail transport

• In summary, grain delivers a lack of scale and consistent demand

Rail Operators

BHCs

Exporters

Governments

The Relationships & Challenge – BULK

• In the regulated market the rail operator wore most of the risk.

• Post deregulation Rail Operators became Wholesalers using Take or Pay arrangements

• BHCs became the retailer and shared the risk / reward

• Repetitive droughts and competition = uncertainty of the future

• Exporters are extremely wary of S/C risk in Bulk

• Frustration with lack of coordination between track owners & operators.

• Disaggregated market and supply chain eroding S/C scale – Insular arrangements

•Unlikely to see continued govt support for tracks in the majority of regions

Rail Transport

The Future – Innovate, Collaborate and Grow

1. Potential to concentrate the task and investment in areas with another purpose; coal, interstate, and passenger.

2. Can a Collaborative approach to the Supply Chaingenerate support for increased rail usage?

a) Need to link farm, BHCs and smaller storage sites to major rail loading points to generate scale

b) Creates winners and losers

3. Requires open and honest discussion and access to analytical data and modelling expertise (CSIRO)

4. Requires cross-industry collaboration at a strategic level – STILL REQUIRES SOMEONE TO HOLD THE RISK

Rail Transport

Competitive Advantage: An efficient integrated value chain can be a key to gaining and maintaining competitive advantage and boosting profitability.

Collaboration can provide:

better visibility and support efficient planning and scheduling;

Improve inventory management and lower levels of stock;

Opportunities to lower costs

Better utilisation of key assets, and

Improved decision making and S&OP

Value in Collaboration

The Journey from Silo based Supply Chains to a collaborative model requires time and trust to develop

1) Closed Silo Supply Chains

Price based

Adversarial Relationships

Duplication

Cost & Chaos

2) Cooperation/Coordination

Less duplication

Better asset use

Cost & Chaos are reduced

3) Collaboration

Joint Planning

Asset sharing

Technology Sharing

Degrees of Collaboration

The Australian Supply Chain has many examples of past/current Collaboration:

1. Common ownership within Storage

2. Track Trading

3. Industry Codes of Practice

4. Grain Trading Standards

5. Port capacity management

6. Sharing of fixed cost rail contracts

7. Road fleet utilisation – Matching capacity to high level demand

8. NGR

And of course GTA and other industry associations and government departments

Examples of Existing Collaboration in Grain

Questions..?

Surety

Reliability

Reputation

Confidence

Customer Value

Tonnes Transacted

E: pat.oshannassy@graintrade.org.auW: www.graintrade.org.au

Thank you!!!