There has been considerable debate in the market over the introduction of full-recourse products, the value of underwriting and its benefits to growers.
As Australia's market leading harvest finance specialist, AWB is assisting growers by giving them some key facts on underwriting. This helps growers make an informed decision about their preferred harvest finance option.
What is Underwriting?
Underwriting protects growers against certain market risks that are out of their control including:
- Fluctuating EPR's
- Changes in increment payments
- Volatility in supply chain costs
- Interest rate increases
- Changes in the value of the US dollar
- New exporters entering the market, challenging our existing markets
- Crop quality and bio-security risks e.g. Karnal Bundt and iron fillings
- Effects of record world production
The AWB Loan and AWB Advanced Payment solutions are all fully underwritten.
Where a relevant AWB Harvest Finance product is underwritten, you will not generally have to repay the shortfall if your total AWB Pool distributions, after deductions, are lower than your total loan, credit limit or payment amount, including Dynamic Top Ups made by AWB.
In general, underwriting provides a protective buffer against uncontrollable market factors that affect prices.
With AWB, growers have certainty and peace of mind that should prices fall and/or costs rise causing shortfall in net returns, they are fully protected and will not have to repay the remainder if their loan or payment is underwritten.
What factors should I consider when making a decision about Underwriting?
When making your decision, ask yourself the following questions:
- What is my attitude towards risk management?
- What percentage of my farm income can I live without?
- How prepared am I to expose myself to unforseen market volatility?
- Am I comfortable to take on the financial risk and potential economic burden of self-insuring?
- Underwriting costs $1.50 per tonne. Is this too much to pay for protection against market factors I cannot control?
- Do I insure against adverse events
When was Underwriting last triggered?
Underwriting - in some fashion - is triggered every season. This is the result of many compounding factors at different times impacting world prices, supply chain costs and many other variables which AWB manages on behalf of its growers in order to maximise returns.
Fortunately, AWB growers who select AWB Harvest Finance products are ordinarily protected against those risks, as AWB repays any outstanding balance on their loans and payments, if required.
Why doesn't AWB offer a non-recourse product solution to growers?
AWB fully understands the risks associated with offering non-recourse harvest finance products. We know the majority of growers support the provision of underwriting. That is why we provide a range of underwritten harvest finance products to meet their needs.
AWB Harvest Finance does not take your farm as security, unlike many other providers.
If AWB were to offer full recourse products to the market and prices were to fall or costs blow out, some growers could incur significant debts that AWB would have to recover. Some providers may be comfortable doing this - AWB is not.
What does AWB charge for protection against these risks?
AWB charges $1.50 per tonne for the safety net of Underwriting. Overall, in our view $1.50 is a very low price to pay for protection against unforseen and often uncontrollable market factors.
Is underwriting always available?
AWB underwriting does not release the client from repaying their outstanding debit or other obligations if:
- You are in default of your obligations to AWB
- Priority encumbrances or grower liabilities are met
For more information call the AWB Grower Service Centre on 1800 4 GRAIN (1800 447 246) contact your local Grain Marketer, or visit your nearest AWB Office.