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New pool for W. Australian wheat growers
GENERAL, April 22, 2004
CBH subsidiary AgraCorp, in partnership with a new commodity management company, is pitting its services against big player AWB to offer WA growers a unique managed wheat pool.

The new product - Professional Choice Managed Wheat Pool - which is now open for business, is said to be the first of its kind in Australia.

Nathan Omodei, a director of commodity business Plum Grove which has teamed up with AgraCorp to offer the new managed wheat pool, said it would give WA growers a simple and effective wheat marketing alternative for the 2004-05 season.

"The beauty of the product for growers is that there is a team of professional managers to determine the best time to lock in foreign exchange, futures, basis and other elements of wheat pricing," he said.

Another Plum Grove director, Tony Smith, said returns to participants would be benchmarked against the AWB National Pool return.

Mr Omodei likened the alternative offered by the pool to the fund management industry where anyone could either buy shares directly or operate through a professional fund manager where the managers would pool the investments of participants and manage the portfolios.

He said one of the areas they anticipated would create value for growers was the smaller size of the new pool would offer greater flexibility in management, compared with a possible 16-18-million tonne pool the AWB had to manage.

But he said the product was not really in competition with AWB's national pool, in fact it supported the AWB pool because most of the wheat that came into the new pool was backed off to the national pool.

"It's more in competition with the basis pool and professional risk managers trying to manage growers' risk," Mr Omodei said.

Agracorp's Matthew Rutter said the pool would offer growers a level of risk management, where they did not necessarily have the time or expertise to spend in this area.

"An important feature is that it is benchmarked against the AWB National Pool," he said.

"Our goal is to outperform the benchmark. If it outperforms it, we share in some of these profits.

"But there is still the risk it will under perform the national pool."

The pool size is limited, and the product information also states there is a risk that if growers do not have the quantity of wheat specified in the contract due to seasonal conditions they may be required to "wash-out" the contract.

Growers can contract upwards from 100t.

Mr Omodei said there was a $5/t hurdle before a performance bonus was taken out.

If this hurdle was reached then the management team would get 20 per cent and the grower 80 per cent of the extra above the hurdle rate.

For example, if the final AWB pool return to growers was $200/t and the grower equity in the Professional Choice managed wheat pool, was $210/t, after 2.5 per cent management fees were taken out, no bonus would be paid on the $5/t above the benchmark but the management team's bonus would be 20 per cent of the amount above the hurdle rate - $1/t - and the grower would get $209/t.
MGR Archive 23.4.2004
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