Environment and Sustainability, Freight Rail

Take-or-pay deals could challenge GrainCorp

A GrainCorp shed at the Port of Portland. Photo: David Sexton

GrainCorp managing director and chief executive officer Mark Palmquist has warned a dry 2018/19 season could result in poor grain production figures, which would leave the receival and marketing operator in a tight spot in terms of its take or pay rail contracts.

Looking ahead to the 2018/19 season in a financial update last week, Palmquist warned prevailing dry conditions across most of Australia’s eastern grain belt would present serious challenges for growers, with dry-sowing occurring in many areas.

“The current production outlook emphasises the importance of the steps we are taking to diversify GrainCorp’s grain origination footprint while keeping a strong focus on managing our cost base,” he said.

“In the event of a smaller harvest, our existing take-or-pay rail contracts will present a challenge, however these commitments expire in FY19.

“Our new rail contracts will provide greater flexibility to manage transportation costs through the crop cycle, further reducing our fixed-cost base,” he said.

GrainCorp reported a 40% drop in crop production in Australia’s east led to a 64% decline in underlying net profit after tax in the first half of FY18.

It reported $119 million underlying EBITDA in the first half, down 49.6% year-on-year, and a $36 million underlying net profit after tax, down 64% year-on-year.

Palmquist said the grains operator had done well to deliver a solid profit despite significantly lower volumes.

“Our grains team has done a good job of adapting the network to the smaller harvest and closely managing its cost base,” Palmquist said on May 11.

“Pleasingly, the formation of the grains business unit ahead of harvest has been effective with improving performance in a low-volume year while also improving customer service, rail utilisation and absorbing the cost of integration.”

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