Sunday 20th Oct, 2019

GrainCorp enters 10-year drought insurance plan

The CBH Group will keep its supply chain fees flat in 2019-20, following the $4 per tonne reduction provided to growers and marketers least year.

GrainCorp has entered into a 10-year insurance deal to manage the risks associated with the eastern Australian winter grain production and protect it from severe drought conditions.

Taking effect in the 2019/20 financial year, GrainCorp will receive $15 from insurance firm White Rock for every tonne its winter crop falls below a threshold of 15.3 million tonnes, up to an annual maximum of $80 million.

However, if GrainCorp’s winter crop exceeds an upper production threshold of 19.3 million tonnes, it would instead pay White Rock $15 per excess tonne, up to an annual maximum of $70 million.

The deal includes a clause where neither party would have to pay the other more than $270 million net, over the full ten-year term.

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“The contract will smooth GrainCorp’s cash flow and allow for longer term capital allocation and business planning through the cycle,” GrainCorp CEO Mark Palmquist said.

The contract is not subject to termination in the event that GrainCorp is bought out.

The deal follows GrainCorp’s announcement of a $59 million loss in the six months ending March 31, 2019 to drought conditions and international trade disputes.