GrainCorp to spend $30m on Canadian venture

GrainCorp chief executive Mark Palmquist says a key part of the company’s value proposition is the ability to source grain from multiple locations across the globe. Photo: Arsineh HouspianGraincorp will spend more than $30 million to help shield itself from Australia’s extreme weather and its effect on production.
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The company, Australia’s biggest agribusiness, has partnered with Japan’s Zen-Noh Grain Corporation to establish a joint venture in Canada aimed at strengthening their North American grain marketing business.

Graincorp will spend $C30 million ($30.4 million) to help fund the project’s construction and commissioning, which is scheduled for the end of FY18.

The 50:50 joint venture will raise another $C60 million from financial institutions for the project, which will be based in Calgary and operate grain receival sites across Alberta and Saskatchewan.

Graincorp chief executive Mark Palmquist said he expected initial receivals to be modest before ramping up in the years following commissioning.

“Initially it’s not going to have much of an impact but as we go further over the years and get the facilities built up, it should be pretty dramatic,” Mr Palmquist said.

The venture will complement Graincorp’s existing Canadian operations, including the Canadian Malting Company and its marketing office at Calgary.

“We have got two container loading facilities… so this just integrates our supply chain at a deeper level,” Mr Palmquist said.

Construction is expected to begin in FY16. The venture will increase GrainCorp’s capacity to export grain to Japan, elsewhere in Asia and other markets such as the Middle East.

Morgans Analyst Belinda Moore said the project was part of GrainCorp’s well promoted strategy.

“It’s about getting bigger in grain marketing and having a greater geographic diversification so you can supply your customers all year round, so you’re not purely an east coast [of Australia] story,” Ms Moore said. Greater relevance

“It’s all about becoming relevant to the end customer.”

Mr Palmquist said the Canadian project would give customers more variety, particularly in flour and malt markets.

“On the wheat side, we have customers who are continuously looking to produce certain flours. Sometimes it can be the high protein wheat you can get out of Canada or it can also be the durum, which would supplement the durum we are shipping out of Australia,” he said.

This year’s Australian wheat crop looks set to be another below average year, on par with 2014.

But Mr Palmquist said the result was pleasing considering it’s an El Nino season, which is associated with hotter and drier weather over spring and summer.

“We are getting through harvest, we are just about done. Our receival numbers are sitting at just over 7 million tonnes right now,” he said.

“All things considered, we actually feel pretty good in terms of crop size. Quality actually ended up better than we anticipated.”

A heat wave in the first week of October, however, knocked some crops, which were at the point of flowering and resulted in smaller grain sizes, known as screenings.

“You are seeing a big variability in the crop. You don’t have to travel too many kilometres to see a big difference in yield, and quality difference in terms of protein levels,” Mr Palmquist said.

“But that hot weather in early October really was a negative situation because otherwise things were looking pretty good.”

Zen-Noh president John Williams said the partnership with GrainCorp would help boost supply to its customers in Japan and elsewhere in Asia.

“This is a good opportunity to grow our business in Canada with a trusted partner,” Mr Williams said.

“It allows us to strengthen further our ability to supply our customers in Japan and Asia and we look forward to a bright future for the joint venture.”

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