NZX may use Grain Exchange to expand offering of farm commodities

Tuesday 6th October 2009

NZX will use the technology and platform it gains via the acquisition of Australia’s Clear Grain Exchange to expand into other farm commodities, says chief executive Mark Weldon.

New Zealand’s stock exchange operator is buying Clear Group for A$6.4 million, including Clear Interactive, the technological expertise behind the Grain Exchange, the Wellington-based company said in a statement today.

Australia has a A$10 billion grain market, and the Grain Exchange is looking to capture part of the A$100 million to $150 million growers pay in commissions each year to sell their products. Grain Exchange was set up in November to take advantage of the break-up of the Australian Wheat Board monopoly. It is a scalable enterprise that breaks even at low market share, Weldon said.

“This is a greenfields opportunity,” he said. “You can’t just buy these spot trading platforms off the shelf, this stuff just doesn’t exist. It is really hard to get all the information at one place at one time for one product.”

He said the purchase provides a blueprint for up to half a dozen other agricultural commodities where the combined New Zealand/Australia output ranks in the global top three.

More than 1100 grain growers, 100 brokers and 200 buyers and bulk handlers across Australia are registered with Grain Exchange, which is soon to link with a further 13,000 growers registered with GrainCorp, that country’s largest grain bulk handler.

Grain trading will add to a suite of agricultural products NZX plans to roll out including milk powder futures as it seeks to diversify away from stock trading, where volumes have dwindled this year.

Shares of NZX were unchanged at $8 and have climbed 66% so far this year, making them the second-biggest gainers on its own board. The company is rated ‘outperform,’ based on the average of four recommendations compiled by Reuters.

Weldon has bolstered earnings at NZX by acquiring or developing assets, while expanding into the primary sector and electricity markets. NZX sold the assets of its carbon units arm, TZ1 Registry, to financial services group Markit for a $52.1 million gain and sold 22% of Bond Exchange of South Africa for $10.2 million, a return of 83%.

Clear Group is a neat fit for NZX because it uses the same software development languages as NZX’s Energy Markets business, and provides expertise, experience and a platform to launch into other traded commodities. The initial purchase price may increase if the grain trading platform meets certain performance targets, NZX said in a statement.

“Its no secret that we believe for markets to work well you need such an information set and capability,” said Weldon.

NZX’s stable of agricultural and market information assets includes ProFarmer, an Australian grain market data business, NZX Agrifax, Dairy Week and eight agri-media publications including Farmer’s Weekly.

Businesswire.co.nz

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