|
National Australia Bank has written its first Precipitation Option, effectively protecting a customer against low rainfall. The National's General Manager Agribusiness Mike Carroll said: "This is a breakthrough. National Australia Bank has effectively enabled a client to protect himself against low rainfall in the critical growing month of September." Under the milestone deal, the customer will receive a payment for every millimetre or part thereof that September rainfall falls below the agreed strike of 21.19 mm. Picolo Fyfe of Fyfe Family Farming, wheat growers of Tullibigeal in South West NSW, who bought the product, said it was an ideal way to help ensure cashflow. "I've used hedges and currency swaps to manage price risk in the past, but this product will help offset the adverse impact on my wheat yield if I don't get enough rain in September," Mr Fyfe said. "On the other hand, if rainfall is above 21.19mm, the increased wheat yield should more than compensate for my upfront option premium. Mr Fyfe said he is interested in variations of the rainfall options that the National can provide, including hedging against too much rain in November, and deferring the option premium payment until after harvest. Mr Carroll added: "The sale of this product is indicative of a trend among primary producers to adopting more sophisticated risk management services. "This Precipitation Option is another example of the National's commitment to the agribusiness sector and quest to develop innovative products. Good farm returns depend on good rains at the right time. We are very excited about the prospects for this type of financial product to help customers manage the uncertainty of weather. We expect this will be the first of many similar deals."
Regulatory qualifying criteria apply, including specified asset and turnover levels. "This innovation follows the introduction three years ago of the National's Wheat Advance. According to an independent report from the Grain Growers Association, the full potential benefits to growers of competition in the harvest finance market, to which the National's Wheat Advance has contributed, are estimated to exceed $50 million per year," Mr Carroll said. "Another of the National's innovations has been the introduction of its soft commodity price risk management products that provide growers with increased flexibility compared to traditional alternatives. These are available to farmers with over $1million in gross assets and a $300,000 annual turnover. " We have a team of over 525 Agribusiness specialists as well as Agribusiness Risk Management specialists to advise on wheat, cotton and other commodity price risk management products plus interest rate and currency risk management."
|
