Home' AWB Marketing Guide : Marketing Guide 2012 Contents // 18
How is the EPR quoted and does the EPR take account of fees
The AWB Pools' published EPR is quoted on a Free On Board (FOB)
basis and is net of all pool establishment, operating and marketing
costs. While these particular costs are shared by all participants
in a particular pool the EPR does not include site-to-sea costs of
receiving, storing and moving grain to port which are 3rd party
costs. These costs are charged to you in relation to each delivery of
In relation to the AWB Wheat Pool, due to regional differences in
price, demand and supply factors and certain costs and liabilities
we publish different EPRs for Western Australia, South Australia and
the east coast. However, despite the different EPRs the AWB Wheat
Pool strategies are managed on a national basis and growers may
share in the benefits and risks of a larger pool as determined by us.
This also applies to the AWB Feed Barley Pool which is limited to the
Victorian and South Australian regions.
Our estimates and projections are based on assumptions made
by us as to developments in the relevant grain market. They are
estimates and projections only and we cannot guarantee that the
estimates and projections will be met. A range of factors (including
those identified in this document) affect the performance of AWB
Pools, many of which are beyond our control.
How do we manage the risks of pooling?
There are risks involved in marketing grain in the Australian and
International commodity markets. Due to the nature of the risks,
quantifying and managing such risks is a complex task.
As part of Cargill's global network of businesses we seek to manage
and mitigate the risks associated with pooling as follows:
• Fluctuation in expected volumes of supply or demand:
Cargill, with 20,000 people in 46 countries working within the
international grain and oilseed industry, provides AWB Pools with
global perspectives and a high level of access to information
and support. Utilising Cargill's global network AWB Pools review
and analyse key factors that impact the global grains market,
including macroeconomics, weather, supply and demand,
exports, production changes, consumption and government
programs with a view to formulating marketing and risk
management strategies that support estimated pool returns.
• Fluctuation of grain prices: Management of grain price risk can
be broken into currency (FX), commodity price and basis risk.
(1 & 2) Currency & Price Risk: In today's volatile markets,
growers look for a steady hand of experience to help them
manage their exposure to price risk. For years, Cargill has been
identifying, measuring and managing its own exposure to risk.
We also offer this service to the AWB Pools. As the AWB Pools
are largely (but not exclusively) export focused, the vast majority
of the AWB Pools' transactions are denominated in USD, while
operating costs and returns are denominated in Australian
dollars. To minimise the effects of adverse movements in the
exchange rate we have in place a hedging framework (including
the use of FX forwards and options) specifically designed to
reduce currency risk and maximise value over the term of the
Similarly, in relation to price, our hedging strategy will use
commodity derivatives alongside physical sales to capture
additional value or reduce loss over the term of the AWB Pools.
Cargill's extensive global information network is accessed to
provide us with the most up to date supply and demand analysis
to make decisions in physical and derivative markets.
(3) Basis Risk: Broadly, basis can be described as the
difference between any two price points. This is generally a cash
price and the futures price of a particular commodity on a given
The factors that affect basis include expected supply and
demand for grains at the storage and receival sites, supply
and demand for transportation, variations in grade between
what is grown and the futures contract, and the unavailability
of substitutes at a particular location. To manage basis risk we
employ a number of strategies including leveraging the Cargill
domestic and global information network to structure and plan
a targeted physical sales program with mandated minimum
physical sales targets over the term of the AWB Pools.
• Deliveries outside specifications: To minimise the risk of
your deliveries being outside of the Grain Receival Standards
which could lead to your grain being rejected we publish
acceptable grades and links to applicable Bulk Handler or
Grain Trade Australia receival standards at www.awb.com.au.
This is particularly important if you have entered into an 'Early
Commitment Contract' or a 'Pool Access Contract' and the
load is rejected because you will still be expected to deliver
the Contracted Tonnage. AWB accepted grades and receival
standards are also available by calling our Grower Service Centre.
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