wheat futures went up last night, page-3

668, chibrown.Josh01 and bigboozer,

Guys I don't think you understand the dynamics of how AWB derives it's income from grain trading.

Essentially they are a vehicle for the transferrence of grain from the producer, ie farmer, to the end user being millers, stckfeeders ect.

Ther is two main methods by which AWB can secure grain from the producer.

(1) Cash contract
(2) Pools

Under the cash contract method AWB will offer a cash price on any given day, which I can tell you will be somewhere in the region of what the (CBOT futures price multiplied by 36 and then divide by the exchange rate) + or - basis for that particular grade of wheat. For this the AWB will pick up a selling fee per tonne, and if anyone can find out what this is on any particular day then good luck, because it is never accounted for in any RCTI.

The second method of pooling requires AWB to atract many growers to supply grain into a exactly what it implies a Pool. This is a more long term play for growers which hopefuly gives them a better average price over the life of the pool. AWB will in turn undertake a hedging program to protect the EPR (Estimated Pool Return) AWB derives it's income from pool selling by also charging a fee. It should be noted that AWB will not suffer any losses due to bad hedges or sales as these are simply reflected in the final return to growers for the pool. They will also not gain on any upside either as they are duty bound to pass this onto the grower. There is plenty of pressure on them in this particular department as there are a number of now reputable Pool Providers.

So why you ask is the current share price on the skids? It's pretty simple really; AWB by it's own forcasts needs to attract >25% of the wheat to be exported nationally, somewhere in the region of 5 million tonnes to make their projections work. Unfortunately for them there are lots of other vehicles out there trying to fill their boots with the same grain. Sentiment at the moment would indicate that they may be falling short.

Anyhow that is just the grain trading arm of AWB, it should be remembered that they also have a merchandising section as well in the form of Landmark Operations. I can also tell you that there is plenty of competition in this sector as well especially with farm input costs being as low as they have for a couple of years.

But the big thing to remember with AWB is that no matter what happens in the immediate future the results will not be reflected on AWBs balance sheet for quite some time and they MUST have the grain SECURED to be able to trade.