Pick of the Crop - Summer 2017

NEWS FROM YOUR CO-OPERATIVE

PICKof THE CROP 2 Chairman’s New Year Message

3 CEO’s New Year Message

4 Road safety campaign

6 Structure and governance review

10 Considering pools this harvest?

12 Community Corner

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Rebate delivers $4.20 per tonne of value to growers Growers who delivered and sold grain to CBH last harvest will receive up to $4.20 per tonne to offset storage and handling fees this harvest through the Grower Patronage Rebate Program.

The rebate is made up of a $3.00 per tonne rebate from Operations and a $1.20 per tonne rebate from Marketing and Trading. For the average delivery and sale of 3,000 tonnes of grain to CBH, this represents a saving of $12,600.

“The rebate provides significant savings for growers by reducing their storage and handling charges for this harvest; this is on top of CBH already providing storage and handling charges that are substantially lower than the industry standard.”

CBH Chairman, Wally Newman, said the per tonne rebate is the second highest ever paid by the cooperative and demonstrates CBH’s continued focus on creating and returning value to growers, keeping them internationally competitive.

The rebates for each grower are calculated based on the tonnes of grain delivered and sold to CBH in the 2015-16 harvest. That combined figure then offsets the storage and handling fees for the 2016-17 harvest.

“Despite challenging conditions, CBH has worked hard to drive value within the business. We’ve taken a good look at how we can operate more efficiently and costeffectively in order to return as much value as possible to our growers through rebates,” Mr Newman said.

To calculate your rebate for this harvest, visit CBH’s online Rebate Calculator at www.cbh.com.au.

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WA L LY N E W M A N C H AI RMAN

Chairman’s New Year Message On behalf of the Board of your co-operative, I wish you and your family best wishes for the year ahead.

As another harvest comes to a close, it is timely to reflect on what has been a record breaking harvest for Western Australian grain growers, albeit one that has been tarnished by frost in some areas.

For those who have been affected or who would like to assist those affected by frost damage this year, you can find information on how to donate or receive support through the CBH Frost Appeal at the back of this edition of Pick of the Crop.

2016 was certainly an interesting year for your co-operative. In February, we received a proposal from Australian Grains Champion Pty Ltd (AGC) to take control of all the issued share capital of the co-operative. While this proposal was rejected by your Board and subsequently withdrawn, it did highlight the need for CBH to continue to adapt and do things smarter in order to face challenges and capture future opportunities.

The review clearly indicated that our growers want a co-operative, with most growers supporting a non-distributing co-operative.

On governance, while there was no single issue that stood out for reform, we will look at a number of potential changes for the future. You can read more about the findings and outcomes of the Structure and Governance Review on pages 6-8 in this edition of Pick of the Crop.

This year, CBH also announced the Network Strategy, which will see investment of $750 million over five years, focused on the 100 sites that currently receive 90 percent of the annual average crop. Our network is the core of your co-operative and this strategy is aimed at delivering a cost effective and efficient storage and handling service to growers and marketers for generations to come.

I hope you were able to enjoy some quality time with your families over the Christmas season and CBH looks forward to working with you again in 2017, continuing to create and return value for all our growers.

This was a great opportunity for your board to engage with members and, for the first time, actively include them in a review of the structure and governance of the co-operative, consulting with more than 2,600 (or 63 percent) of our grower members about the structure and governance options for CBH going forward.

A record breaking harvest!

On 29 December 2016, Western Australian grain growers made history with harvest deliveries surpassing the existing record of 15.86 million tonnes, making 2016-17 WA’s biggest harvest ever.

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Given the highs and lows of the season, this is an incredible achievement and we celebrate this outstanding result and thank growers for their efforts, patience and working with us to get the grain safely into our sites this harvest.

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DR ANDREW CRANE C H I EF EXEC U TI VE O F F I C ER

CEO’s New Year Message How quickly a year passes!

Before we head into the start of a brand new season, it’s good to look back at the achievements of the year just passed.

Our focus throughout 2016 was on our single measure of performance – the dollar per tonne charged to growers minus rebates – this is the focus of everything we do. One of the major decisions taken in 2016 that will have a material longterm impact on this measure was the introduction of our Network Strategy.

This will shape the network to ensure it remains efficient and viable and can continue to match the increasing speed and productivity of our growers.

Another initiative for 2016 was our strategy to Drive Business Efficiency. This is about reducing our operating costs and doing things more efficiently. Through this initiative, we have been able to achieve

recurrent annual savings of $16 million across the Group and we will look to further reduce costs by another $10 million over the coming year.

The other key measure of performance is rebates and we were pleased to be able to announce a rebate up to $4.20 per tonne to offset storage and handling charges for the 2016-17 harvest. Part of this rebate was from our Marketing and Trading arm, which experienced an improved performance, returning to profitability. The world of grain trading has evolved into one where margins are small and the market can be volatile. I’m not sure if this will change in future, but for now Marketing and Trading’s strong relationship with our growers and customers, who look for security and quality and like the idea of buying direct from a farm, sets us apart from our competitors.

Unfortunately, we were unable to provide an Investment Rebate this year due to a difficult trading year and increased competition for our joint venture investment, Interflour. I have no doubt this decline in performance is cyclical and

will improve through new market growth in Interflour’s key markets of Indonesia, Malaysia and Vietnam. What is also promising, is Interflour’s expansion projects in Vietnam and the Philippines. Both are on-track to be completed in 2017 and will allow us to more directly tap into market opportunities in these regions. I am pleased to report of our other investment decision to acquire the oat milling business and now build a new processing plant in Forrestfield, through Blue Lake Milling (BLM). Through this investment, we are confident we will generate value for growers that can drive investment rebates.

Looking forward to 2017, we are nearing the completion of a record harvest, despite the impact of frost across some areas of the state. We’ll keep focussed on our Network Strategy and investing in the 100 sites of the future. I also very much hope to see a new long-term rail access agreement achieved in 2017, which will be the product of a number of years of concerted effort on the part of CBH. Obviously I can’t finish without talking about safety both at CBH and on the farm. We have been working in the last year more closely with the Board on how we implement safety at CBH to care for employees and deliver productivity at the same time. I am convinced that good safety is not at odds with, but contributes to, good business. At the time of writing our safety record had improved compared to the same time last year whilst at the same time taking in eight million tonnes in the month of November. Tragically, one of our harvest employees lost her life in a car rollover near Dalwallinu during that same month reminding us how fragile life can be and how close life threatening injuries are in even the most common task.

By the time you read this most of you will have finished harvest whilst others are working to get the final loads in for the season. I hope you all have the opportunity to enjoy a well earned break post-harvest and I wish you and your family all the very best for a successful 2017.

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It wasn’t long before we encountered an instance of sub-par driving. Heading north along South Western Highway, a two-door white Toyota Corolla rushed to pull out in front of us.

“Of course, they can’t wait for the truck,” Chris says.

“I understand that they don’t want to be stuck behind me, but I don’t think people understand that trucks can’t just slam on the brakes like a car and slow down at the same rate.”

People rushing to get in front of heavy vehicles is just one of things that Chris tells me makes his job challenging.

“People that pull out in front of you, people that don’t merge, people that go to pass you when they don’t need to and just general road awareness I guess,” Chris says when I ask for examples.

Chris Magee from Marley’s Transport

Safe driving ingrained in habits of CBH drivers Spending six days a week on Western Australia’s regional roads has given Marley’s Transport driver Chris Magee a unique insight into his own and others’ driving habits.

CBH’s Digital Marketing and Media Advisor, Shanna Crispin, recently jumped in for a ride to understand road safety from a truckie’s perspective and shares her journey with us.

The day we met, Chris was destined for Narrakine to pick up one of the first loads of canola of the 2016-17 harvest, but his work day had started well before we shook hands at 7:15am.

Chris’ job began outside the truck, doing an obligatory check of the Kenworth K200 we were going to be riding in for the 300-kilometre trip ahead.

“We’ve got to do a thorough pre-start checking all the oil, water, lights and tyres,” he told me later on.

“And just have a good look to make sure there are no leaks or anything that looks wrong on the truck.”

With the documented pre-start done and the Kenworth “deiseledup” we were out on the road.

“Especially passing… people just get impatient, they see a truck and they’ve got to pass it and that’s all they think about - they don’t worry about what’s coming.”

Chris is well aware of the general frustration towards heavy vehicles on the road, especially when cars start banking up behind him like they did a lot on our way back from Narrakine with 60 tonnes of canola.

“It’s a slow trip home with a load full of grain,” Chris says – and he’s not wrong. We crawled up hills, speed hampered by the weight, while Chris was restricted to a maximum speed of 40 kilometres per hour descending another. If Chris breaks the speed limit, a fitted GPS system sends an alert back to the Marley’s head office.

After 15 years in the drivers’ seat, Chris has become reasonably immune to average driving on regional roads, but making sure he’s fit for the driver’s seat helps him keep his wits.

“You’ve got to have all your breaks and follow the rules about not driving more than 14 hours in one day,” Chris said.

“Everyone has those moments when you feel yourself getting a bit tired and if you get like that you stop.

“I normally stop every couple of hours anyway to get out and have a stretch. I have a bit of a kick of the tyres and a look around the truck – it gives you a bit of a break too.”

After dropping the load of canola into the Kwinana Terminal, I was ready for a cup of tea and a lie down. But as harvest cranks up, it would only be halfway through Chris’ work day, as he would head straight back for Narrakine.

Help us to keep our kids safe Recently, we have seen an increase in the number of young people trespassing on CBH sites, tampering with trains and climbing bulk storages – not only putting themselves in danger but breaking the law while doing it.

While we have signs alerting people not to enter CBH sites, and also around storage’s under fumigation, as our sites are generally un-manned outside harvest and out-loading

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activities, it is difficult to regulate.

We’re especially concerned as we start to fumigate storages with phosphine, as it’s a toxic gas which can make people quite sick if they come into contact with it.

If you have kids, we’d encourage you to have a chat about keeping away from CBH sites. We’re also reporting any activity to local police as we become aware of it.

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Did You Know?

Grower freight costs estimated to decline Growers delivering to CBH this harvest can expect an estimated 4 percent reduction in their freight rates for 2016-17.

CBH General Manager Operations, David Capper notes the estimated reduction is due to larger than average harvests bringing down the cost per tonne.

“We’ve had a number of good harvests that have had a positive impact on our fixed freight costs, which are based on a five year average,” Mr Capper said.

On average 36 people are killed every year on Wheatbelt roads

6X

Higher road fatality rate in Wheatbelt compared to Perth metro

Wheatbelt

“The more tonnes the freight fund handles, the more cost-effective it is per tonne and we are pleased that we are able to forecast a reflection of this in freight rates for the 2016-17 harvest.”

The final freight rate figures will be determined and communicated to growers in February 2017.

Metro

13 IN

65%

Wheatbelt road fatality victims not wearing a seatbelt

of Wheatbelt crashes caused by driver choices such as

SPEED, DRINK DRIVING, INATTENTION

Mirambeena opens for business CBH’s new receival site at Mirambeena opened for business during the 2016-17 harvest.

58%

of Wheatbelt drivers admit to SPEEDING on country roads

Mirambeena received its first grower delivery on Tuesday, 22 November 2016; a 55 tonne load of malting barley.

The new site, located just outside of Albany, provides an additional 140,000 tonnes of storage to service growers and customers in the region.

6 SECONDS BLINDFOLDED That’s the impact of texting whilst driving.

The first load of grain being delivered into the new Mirambeena site.

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Have you considered adding us to the mix?

CBHFertiliser new products CBH Fertiliser has recently added some new products to its mix, including an NPK compound and coated Copper and Zinc.

CBH Fertiliser Business Manager, David Pritchard, said the new products complement CBH Fertiliser’s existing range of high quality MAP, MOP, Urea, compound NPS and unique blends using Potash and trace elements.

“Our NPK compound comes from an established supplier into the WA market and our product testing ensures growers get the best quality fertiliser for their business,” Mr Pritchard said.

“We also have the ability to custom blend fertiliser to match specialised competitor products and the new liquid coating options of Copper and Zinc means growers can customise exactly the trace elements they require without paying for any unwanted analysis.

“Fertiliser is a major farm input cost for growers and our aim has always been to deliver a versatile product range at a competitive price to help growers reduce their on-farm costs.”

“In addition, CBH Fertiliser offers a low cost finance option through Grain for Fert, which gives growers the ability to free up their farm capital by using future grain sales to help finance putting their crop in.

“Our blending and loading facilities are first class and we constantly get comments from truck drivers that the time to load is the quickest of any warehouse in WA.” For more information on our fertiliser product range or Grain for Fert finance option, contact your local Business Relationship Manager or visit www.cbhfertiliser.com.au to use our new online quote request form.

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WINTER 2016

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What’s the deal with wheat prices?

Australian wheat prices are currently on multi year lows. Here, CBH Group Wheat Trading Manager, James Foulsham explains the main factors driving market conditions and who is most likely to buy Australian Wheat in 2017.

It’s been a perfect storm for wheat prices this year. With a record harvest sitting between 31-33 million tonnes, Australian exporters face tough competition from the other major exporting origins Black Sea, US and Canada, all of whom are also sitting on large exportable surpluses.

Demand has also been inconsistent. Political issues in the Middle East have made exporting into the region, which has long been one of the biggest buyers of wheat, highly risky and unpredictable.

Imports into Egypt have been inconsistent, with disputes over Ergot levels and payment terms. Wars in both Iraq and Yemen, who have historically been long term buyers of Australia Wheat, have slowed the trade with Australia to almost nothing.

At the moment, demand for Australian wheat is being driven more than ever by price. Australian wheat has traded at a significant premium to Black Sea over the past couple of years, but with such a big crop this year, Australian exporters have had to buy back demand from the Black Sea and price it to be more competitive in global markets.

The big demand for Australian wheat will continue to come from our most reliable markets in Asia. There are already signs that Indonesian buyers are reducing their demand for Ukrainian and Russian wheat and switching back to buy Australian APW and ASW. This is expected to continue and demand for Australian milling wheat from Indonesia, Vietnam and the other key buyers in South East Asia is anticipated to increase in 2017.

India, which only a few years ago was a net exporter of wheat, has had issues with recent harvests and has been importing large volumes of wheat in bulk for the past couple of seasons.

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The government recently removed the import tariff to help curb local inflation and the price of imported wheat now competes with wheat that has been grown domestically. Their preference is for higher quality Australian wheat, but they have also been buying cheaper Black Sea wheat. If the government continues its current tariff policy, India is expected to be a consistent buyer of Australian wheat in 2017.

China is another market that could increase their demand for Australian wheat in 2017. China traditionally buys ASW, so this year’s Australian quality profile should suit their demands. With the low price of Australian wheat, China may also look to build stockpiles to cover any future supply shocks.

The feed market is the big unknown. With the price of wheat falling significantly relative to the price of corn, a lot of Asia feed millers have been changing their feed formulas to include more wheat.

The price of feed wheat is highly price sensitive, but Australia has favourable trading terms with the Philippines and Vietnam, both of which are large feed markets. If Australian wheat continues to be priced competitively with Black Sea wheat then, at some stage, a lot of buyers will start looking to Australia.

The forecast for Australian wheat certainly isn’t all bad, despite the worldwide oversupply of wheat at the moment. With Australia now more competitive on price, we are better placed than a lot of our competitors. However, we can still expect a sustained period of low prices and low volatility while the world works through its current supplies.

For further information on wheat pricing in 2017, contact your local CBH Business Relationship Manager.

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New Interflour mill to live in the Philippines

Customer Profile Eastern Pearl Flour Mills CBH’s Marketing and Trading team was recently joined by a delegation of customers from Eastern Pearl Flour Mill (EPFM), a valued client of CBH. Ten delegates visited us at Head Office in West Perth to get a first-hand look at where the grain they purchase comes from and CBH’s supply chain at work.

CBH’s value chain partner, Interflour, has been busy laying down the foundations for a new flour mill in the Philippines.

The delegation enjoyed a two day, action packed itinerary, including a presentation and BBQ lunch in Head Office, a Kwinana Terminal tour, a visit to the Avon receival site and a farm visit in the Avon Valley.

The mill, named Mabuhay, will be located in Subic on the northern coast of the Philippines.

Mabuhay has a mixed meaning of ‘welcome’ and ‘long live’ when translated to English and is a traditional form of greeting in the Philippines.

Here, we talk to the Interflour Group’s Managing Director and Chief Executive, Greg Harvey, about the Philippines market and Interflour’s decision to expand into the region.

What can you tell us about the new mill?

The new Mabuhay mill will have capacity to produce 500 metric tonnes of flour a day. We commenced construction of the mill in late 2015 and we anticipate it will be completed by mid-2017.

What we hope to do with Mabuhay is to bring the Philippines affordable, high quality flour to help local bakeshop entrepreneurs.

The majority of flour produced from the mill is intended for direct sales to local consumers, distributors and retailers.

Interflour already has seven flour mills under its belt – why build another one in the Philippines?

The Philippines doesn’t produce wheat, making it heavily reliant on imports. At the moment, the majority of milling quality wheat supplied to the Philippines comes from the United States.

In recent years, we have seen wheat consumption in the region continue to grow from 2.6 million tonnes in 2004-05 to 4.7 million tonnes in 2015-16 and the country currently has an estimated 25,000 bakeshops in operation.

This continued growth makes the Philippines essential to the development of the flour industry and one of the biggest flour markets in Asia. The Philippines also has one of the highest flour prices in all of South East Asia.

The new mill in the Philippines adds to our existing operations in East Indonesia, East

Interflour Group Managing Director and Chief Executive, Greg Harvey.

and West Malaysia, South Vietnam and Central Anatolia in Turkey and allows us to more directly tap into one of the biggest growing flour markets in Asia.

Since 2007, Interflour has exported flour to the Philippines from our operations in Vietnam, Indonesia and Turkey and is one of the largest flour exporters to the Philippines in total. With those exports, we have established solid ‘beach heads’ in most of the market segments, including with industrial customers. Now the time has come for us to bring the production base on-shore and grow our volumes well beyond what our exports could achieve, through local production, logistics and customer service.

What is flour traditionally used for in the Philippines?

In the Philippines, flour is mostly used for baked goods, including traditional pan de sal (dinner roll), loaf bread and cakes. It is also used for noodle production and for producing biscuits and crackers.

What is the opportunity for Australian grain imports to the new mill, once it’s completed?

Traditionally, Australia has provided significant tonnes of feed wheat to the Philippines, but only a minimal amount of milling wheat. The milling wheat market in the Philippines continues to be dominated by the US. However, there is always scope for increasing this share of the milling wheat market and Interflour will continue to work with Australian growers and marketers to source the wheat required to meet the specifications of the flour market in the Philippines, where the opportunity presents itself.

Here, we take a closer look at EPFM and their relationship with CBH.

Who is EPFM and what do they do?

A part of Interflour Indonesia - Eastern Pearl Flour Mills is located in Makassar, Sulawesi and processes approximately 2,800 tonnes of wheat per day, which equates to over 700,000 tonnes of flour per year. EPFM products are widely distributed throughout Indonesia and they possess the second largest market share relating to flour consumption in Indonesia.

Quality is paramount to EPFM and, as such, their product range commands strong brand loyalty. Products from EPFM are dominant in Sulawesi, Kalimantan, Nusantara, Maluku and the other parts of East Indonesia.

How long has EPFM been a customer of CBH? EPFM have been purchasing wheat from WA growers and CBH since 2007.

What do they generally buy from WA? EPFM purchase AH, APW and ASW wheat from CBH.

What is the grain purchased from WA mainly used for?

The flour produced from EPFM goes on to have a range of uses including bread and Martabak – a stuffed pancake which can be used for sweet or savoury purposes – noodles, biscuits, cakes and pastries.

The Eastern Pearl Flour Mill delegation visiting a farm in the Avon Valley

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Community Corner Frost Appeal A number of growers have been adversely affected by frosts this season. To help support these growers, CBH has set up a Frost Appeal and invites growers to donate grain to be sold after harvest.

The proceeds of grain donated to the appeal will be distributed to those growers who are unable to recover enough seed for planting next year’s crop.

For those who have been impacted by frost, our mental health partners Black Dog Institute, have a range of resources available online at www.blackdoginstitute.org.au to assist those feeling under pressure. For urgent support, please contact Lifeline on 13 11 14.

To donate to the Frost Appeal: CBH has set up a delivery number which growers can use to complete a ‘grower to grower’ transfer for any tonnes that they would like to contribute to the appeal.

Delivery Number: 40418592 Delivery Name: 2016 CBH Frost Appeal For details on how to complete a ‘grower to grower’ transfer, visit the CBH website or contact the Grower Service Centre on 1800 199 083.

CBH’s Nuffield Scholar announced for 2017 Congratulations to Lara Ladyman who will receive a 2017 Nuffield Scholarship, supported by the CBH Group.

Lara will use her scholarship to investigate the ‘Future of Food’, from the lab to the paddock to the plate and the technologies or drivers of change that will shape how and what we will be farming and eating in the future.

Lara is a Director of her family’s farming business – a 5,680 hectare diversified cropping and livestock operation, located in Katanning. Lara returned to the farm full-time in 2014 after a career in agricultural journalism and still works as a freelance journalist.

Lara Ladyman Nuffield Scholar for 2017

Please submit your story ideas to: The Editor Corporate Affairs, CBH Group 30 Delhi Street, West Perth WA 6005

T (08) 9237 9580 F (08) 9322 3942 E nicole.penter@cbh.com.au

cbh.com.au

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