Shaking up bulk storing options
Growth in direct loading and off-site storage of commodities is set to continue, finds John Bensalhia
In the bulk handling sector, growth in direct loading at ports and increased on-farm storage are both reducing pressure and creating potential new opportunities.
Australia enjoys both these benefits. On average, Australia produces 43m tonnes of winter crops and 4m tonnes of summer crops per year, and annually exports around 30m tonnes of grains.
Ross Kingwell and Peter White of the Australian Export Grains Innovation Centre (AEGIC) explain that over the past two decades, the amount of grain stored on-farm in Australia and the rationale for that storage have changed. “Farms have become more crop dominant, often with greater input intensity, especially in favourable years. New crop varieties continue to be higher yielding and often are widely adopted.”
Changes in crop sowing technology allow large areas to be planted more rapidly than decades ago. Larger crops coupled with the combination of chaser bins and larger capacity trucks has meant larger volumes of grain can be stripped and carted each day during harvest, which places greater pressure on harvest logistics and supply chain infrastructure, especially during bumper years.
The trend of increasing on-farm storage — taking the pressure off space-constrained bulk ports — is down to a number of related factors, as Cheryl Kalisch Gordon, Rabobank's senior grains and oilseeds analyst, explains.
“Firstly, it reflects the more strategic approach by farmers to grain marketing that has developed in the decade since Australia's wheat single desk was removed. This means that grain farmers are holding grain for longer during the year, are supplying a range of different end users, and more often using derivatives to manage price risk over time.”
In conjunction with this, there has been the consolidation of grain farm operations which has caused higher production volumes. “This provides greater capacity to engage in direct to end-user supply but also requires consistency of supply which on-farm storage supports,” says Ms Kalisch Gordon. “In addition, there has been growth in the production of smaller grain crops and segregations that may not be offered in bulk-handling networks.”
Ms Kalisch Gordon says that the other key factor is the countrywide changes made to Australian bulk-handling networks, to varying degrees. “In some areas, the rationalisation of smaller receival sites means that the additional distances to travel to centralised, though upgraded and efficient, receival sites, is less profitable than it was previously and does not support the best use of harvest assets (trucks, harvesters, employees) in their peak use period.
“Increased use of direct truck-to-ship loading of grain is supported by increased on-farm storage – accumulation of a grain shipment from a larger number of on-farm storage locations is easily facilitated by single 'farm to ship' truck movements.
“However, in addition and importantly, the flexibility of direct loading allows capacity utilisation to be higher and so the marginal cost of port delivery will be, under certain conditions, lower than a fixed storage and handling approach to delivery to ship.”
Direct loading gains
Direct loading has brought benefits to ports outside Australia. The Port of New Orleans, for example, provides direct-to-barge loading and unloading services. The port says that these make it ideal for handling breakbulk cargo, as convenient access is offered to inland locations for heavy loads.
Colombian coal producer Drummond operates the Puerto Drummond Coal Port. Having invested $360m in improving the port infrastructure, this project included installation of high quality direct loading facilities. Since the completion of these facilities in 2014, Puerto Drummond's capacity has doubled to 60m tonnes per year, which means that Drummond can provide export services to other Colombian mining companies. From 2014-2017, thermal coal export figures have improved year-on-year: 21.7m tonnes in 2014; 27.756m in 2015; and 32.10m in 2016).
Meanwhile, more on-farm storage facilitates harvest logistics and helps farmers to capture more valuable local marketing opportunities. Mr Kingwell and Mr White add that the likelihood of persistent drought in eastern Australia gives mixed-enterprise farmers strong incentive to store grain on-farm to maintain the condition of their animals and to facilitate retention of a core breeding flock or herd during drought. “Grain-only farmers have incentive to store grain on-farm to capitalise on a spike in grain prices when droughts occur.”
Additional farm storage also facilitates harvest operations and helps crops to be harvested faster, thereby avoiding potential weather damage during a harvest.
A benefit of both direct loading and on-farm storage is flexibility, although in each case, it's a different kind of flexibility.
“In the case of direct loading, it allows fixed capital to be deployed to different locations (when supply changes as it might during a drought), and for different purposes (for example, trucks can be redirected to alternative haulage when the seasonal demand for grain haulage reduces),” says Ms Kalisch Gordon. “In the case of on-farm storage, it allows more flexibility in a farmers' marketing program but also allows greater capacity utilisation of other assets such as headers because grain can be harvested and delivered into on-farm storage without delays that may occur when delivering to distant bulk handling sites.”
Maintenance of quality is the most important consideration of on-farm storage, as Ms Kalisch Gordon explains. “This requires a professional approach to the pest and moisture management and storage investment that supports it (sealed storage units, aeration, efficacy in pest management, monitoring).”
The other issue is the need to ensure that the cost of carry and capacity utilisation rates are incorporated in marketing plans to maintain a favourable rate of return for on-farm storage investments. “Direct loading in Australia has initially attracted more stringent governmental monitoring and compliance requirements as export protocols have been developed.”
However, with precedents now established, the biggest risk to direct loading is the prevailing cost of shipping. “Direct-to-ship loading can take as much as 10 times as long as fixed bulk grain-loading belts, so increases in the variable costs of shipping (daily rates, demurrage) disproportionately increase the cost of direct -to-ship loading compared to fixed bulk loading,” says Ms Kalisch Gordon.
Cost is also an issue with regards to on-farm storage. Compared to the costs of warehouse storage offered by major service providers, on-farm storage is often more expensive. “Silo or harvest bags, for example, have relatively high inload, outload and monitoring costs per tonne,” explain Mr Kingwell and Mr White. “Conversely, for very large operations, farm storage may offer cost advantages against several commercial warehouse service providers.”
However, some new, high-quality storage options and contracting services are being developed that may reduce the cost of grain storage on-farm in the future.
In eastern Australia, the trend toward increased on-farm storage of grain is likely to continue. “In the other grain-producing regions of Australia where grain export is the main source of farmers' profits, low-cost grain storage will always be essential,” say Mr Kingwell and Mr White. “Large commercial bulk handlers are likely to cost-effectively provide those storage and handling services and thereby slow the rate of increase in often more expensive on-farm storage.”
Rabobank forecasts that on-farm storage will increase to 20m tonnes by 2025, up 14% from estimated current capacity of 17-18m tonnes. “Cyclical elements, such as grain pricing and drought, will influence the rate of growth in on-farm storage between years,” explains Cheryl Kalisch Gordon. “However, structural changes in the sector (consolidation, grain marketing options, bulk-handling network focus on efficiency) support increases to the order of 20m tonnes by 2025. The growth in on-farm storage generates more opportunities for alternative paths to export, such as containerised and direct-to-ship loading, so you can expect those to increase also.”
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