Contract reprieve for some oats

Premium Grain Handlers has provided a solution to growers who took out contracts to supply milling grade oats this harvest, but are having quality issues because of dry conditions in September and October.

PGH managing director John Orr said the dry finish to the season meant much of the WA oats harvest was lighter in density and weight than expected, meaning farmers could have been at risk of defaulting on contracts because their grain did not meet the required oats1 or oats2 quality standards.

He said PGH, after negotiating with international customers, had introduced a new lightweight oats segregation which meant growers could still deliver product as low as 45kg/hl against existing contracts.

"There will be a discount compared to the oats1 and oats2 segregations as the costs of freighting and milling lighter and lower density grain will be reflected in the price paid by our customers," Mr Orr said.

"However, it means growers are still delivering against their contracts and won't be in a contract default situation where they potentially face washout penalties because their product didn't meet the required standards."

Mr Orr said the level of discount was yet to be determined but the amount paid would be significantly higher than if the poorer quality oats were sold as stock feed.

"We have sent samples of the product to our customers and are waiting on the final yield results so we can determine exactly what that pricing discount will be," he said.

"It will be significant as we will get less tonnes in the container for shipment and our customers will suffer yield losses in their processing mills."

Mr Orr said it was too early to determine what proportion of the 2015 season's contracted oats would go into this lower weight segregation.

"It is still early days, we are preparing for the worst case of 40 per cent of our contracted oats going into this segregation, but are hoping for a best case scenario of about 10 per cent," he said.

"We are hoping that if farmers put a fair bit of work into their harvesting set-up and technique, they may be able to minimise how much of their harvest will be affect- ed.

"However, for some the season end has been so poor that they will not be able to do anything about the quality."

Oats are currently trading at a 10-year high because of strong demand, with the higher quality oats1 grade fetching about $350 a tonne.

Mr Orr said because the oat price was so high, even with the discount for lightweight oats, the return to growers would still be reasonable. At this stage PGH is offering the lightweight segregation to growers with existing contracts.

Mr Orr said he could consider opening the segregation to other growers once those who had contracts had delivered and had met their obligations.

Premium Grain Handlers supplies milling grade oats to customers in the Asian region, Indian subcontinent and Middle East.

The Grains Industry Association of WA, in its October Crop Report, said it expected WA growers would produce 587,000 tonnes of oats this year.