AWB Limited - 2003 Annual Report

Active Pool Management
The past marketing year presented a challenging environment for
the AWB National Pool management team, with a highly volatile
world wheat market, a rising Australian dollar and a war in one of
its most important markets.
Yet, AWB finalised its largest ever AWB National Pool, announcing
a Gross Pool Value of $5.3 billion for the 2001/02 Pool, and
captured significant value for participants in the drought affected
2002/03 Pool.
The record pool returns from 2001/02 were the result of active
and innovative Pool management, involving two “Pool extensions”.
By modifying its sales and shipping program, carrying stock rather
than competing at heavily discounted prices and then “extending”
the Pool, AWB was able to protect an estimated $300 million that
could have otherwise been eroded.
International Sales and Marketing
In 2002/03, AWB had to manage and ration customer demand
across a significantly smaller crop.
A feature of the world wheat market during the year was the
substantial increase in trade from non-traditional exporters such as
Eastern Europe, the former Soviet Union and India. Exports from
these non-traditional exporters rose by about 70% from 2001/02
to 2002/03, and as part of their aggressive sales campaign, that
wheat was at times discounted by as much as $US70 per tonne to
US parity values.
Despite the smaller harvest in 2002/03, AWB has continued to
foster new market opportunities in north and west Africa, which will
be capitalised on in future higher production years.
The biggest market challenge for 2002/03 was Iraq. Despite this
challenge, AWB has been successful with its Iraq export program
during 2003, and is confident it can retain its leading supply
position to Iraq in the future. Increased competition is expected, but
AWB will build on its 50 year trading history, a proven wheat
product and the strong relationships with Iraqi customers and
consumers.
The bigger challenge now is to sell a significantly larger crop during
2003/04. AWB remains committed to securing end user demand
for Australian wheat, by delivering a high quality product, made to
order. AWB is also broadening its services to international
customers via value added packages that include finance, credit
and risk management components, along with chartering and
technical wheat processing expertise.
Risk Management Services
AWB uses hedging instruments to protect the AWB National Pool,
and growers, against risk associated with commodity and currency.
During the life of the 2001/02 Pool, the Australian dollar ($A)
appreciated significantly within a range of 20 cents against the US
dollar ($US). AWB limited the exposure to this by delivering an
average $US/$A currency hedge rate of 0.5215 cents, compared
to the seasonal average of 0.5526 cents, and a Wheat Industry
Benchmark result of 0.5261 cents.
The currency hedging program for the 2002/03 Pool is well
advanced, and is on track to achieve an average hedge rate below
0.55 cents, against a seasonal average of above 0.58 cents. AWB’s
currency hedging strategies have also allowed it to capture
favourable exchange rates for the 2003/04 AWB National Pool in
a climate of a weakening US dollar.
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