Wheat | Barley | Oilseeds | Sorghum

Flexibility of contract alternatives

Contract alternatives minimise price risks while striving to achieve higher net returns for growers.

A key component of our contracts is the ability to separate the sales transaction into two functions - price and delivery – providing access to prices for delivery that suits the grower.

GrainCorp contract alternatives include the following:

§  Spot cash contract

§  Forward price contract

§  Multi-grade forward contract

Spot Cash Contracts

A Spot Cash Contract is an agreement between the buyer and seller for immediate shipment or conveyance of title of a specific quantity and quality of grain to a specific location at an agreed price.

Cash contracts establish an immediate price for grain on delivery and are an attractive alternative when the daily cash price reaches the grower’s price goal.

Example:

On 20 November 200X, GrainCorp's Cash Price at Temora Silo was $160.00 per tonne for Australian Standard White (ASW) and $165.00 per tonne for Australian Premium White (APW).

Joe Thomas organised 100 tonnes to be delivered to Temora Silo. The grain was tested, with 75 tonnes graded as ASW and 25 tonnes as APW. Joe instructed the silo manager to sell to GrainCorp. The trucks were unloaded and receipts issued to the driver. The grain was immediately transferred to GrainCorp. Payment was then made at $160.00 per tonne for the ASW and $165.00 per tonne for the APW.

Forward Price Contracts

A Forward Price Contract is an agreement between the buyer and seller for future shipment or conveyance of title of a specific quantity and quality of grain at a specific location, at an agreed price.

Grain can be forward contracted for delivery during or after harvest. Two decisions must be made when forward pricing grain: How much (if any) to price? Which market to sell to?

Forward contracts offer flexibility of marketing grain over an extended time period of up to 24 months.

By enabling the grower to lock in a target price prior to delivery, the grower has the opportunity to cover costs of production, storage and interest, and achieve a reasonable rate of return.

BENEFITS	RISKS
Easy to execute Negotiable contract terms Cash price and quantity are fixed Provides protection against a falling market Ability to lock in returns and improve certainty of income and cash flow Allows for taxation considerations	Delivery of grain required within the period established in the contract No ability to participate in any further market rise Payment is not received until grain is delivered Must perform as per contract terms Deliverable quality risk exists

Example: Delivered Silo
On 12 June 200X, GrainCorp's Forward Price at Temora Silo was $160.00 per tonne for Australian Standard White (ASW) for December delivery.

Joe Thomas agreed to forward-sell 100 tonnes of ASW delivered to Temora Silo during December. At harvest, Joe delivered 100 tonnes of ASW wheat to Temora Silo, informed the silo manager that the grain had been sold to GrainCorp and quoted the relevant contract number. The driver was issued delivery receipts that were applied to the contract. Payment of $160.00 per tonne was then made as per the contract terms.

If the grain had been warehoused upon initial delivery, Joe could have arranged a title transfer to GrainCorp at any time within the contract delivery period. This method is often more convenient and may help to avoid confusion at harvest.

Multi-grade Forward Contracts

A Multi-grade Forward Price Contract is an agreement between the buyer and seller for a range of wheat grades to be delivered at a specific shipment period, of a specific quantity of grain, at a specific location, at an agreed price.

This contract lets the grower deliver one (or more) of several nominated grades with the ability to lock in a forward cash price. Risk of delivering against a single, specified grade is eliminated. Multi-grade contracts are usually at a lower price than a fixed grade contract as the buyer is accepting part of the quality risk.

The Multi-grade Forward Contract is based on a standard delivery grade of APW and feed barley. Once the forward price for the standard grade is established, the price difference on the day of delivery between the standard grade and the grade delivered is added to the forward price. A schedule of premiums/discounts for various grades is established as per the market at the time of delivery.

BENEFITS	RISKS
Easy to execute Negotiable contract terms Quantity for delivery is fixed Greater flexibility in grades delivered Price premium/discounts can be negotiated Provides protection against a falling market Ability to lock in returns and improve certainty of income and cash flow	Delivery of grain required within period established in the contract No ability to participate in any future market rise Payment is not received until grain is delivered Additional cost associated with the grade uncertainty is likely Subject to grade spread movement

Example:
On 12 June 200X, GrainCorp's Multi-Grade Price, based on Australian Premium White (APW), for delivery to Temora Silo in December was $160.00 per tonne.

Joe Thomas agreed to forward sell on a Multi-Grade Forward Contract 100 tonnes of wheat delivered to Temora Silo in December. The price was locked in on a base grade of APW at $160.00 per tonne with premium/discounts to be determined at time of delivery.

At harvest, Joe found that he had Australian Hard (AH1) to deliver and the grade spread at that time was $8.00 per tonne. Joe delivered the 100 tonnes of AH1 and informed the silo manager that the grain had been sold to GrainCorp, quoting the relevant contract number. The driver was issued with delivery receipts and payment was then made at $168.00 per tonne ($160.00 per tonne base price plus a $8.00 per tonne quality spread) as per the contract.