(Reuters) - GrainCorp, Australia's biggest listed bulk grain handler, said on Friday it has signed a 10-year deal with a unit of Aon (NYSE:AON) PLC to reduce cash flow volatility linked to eastern Australian grain production, especially during droughts.
The deal would help protect GrainCorp from the effects of crop-damaging hot dry weather, which has wilted its earnings.
Last month, the company posted a larger-than-expected half-yearly loss and also cut its dividend as severe drought withered crops.
Under the deal, GrainCorp will receive a payment of A$15 per tonne of east coast winter crop production when production falls below a set threshold, and will pay the same amount when production goes above a set level.
The size of the payments will be limited over the 10-year term.
"The contract will smooth GrainCorp's cash flow and allow for longer term capital allocation and business planning through the cycle," Chief Executive Mark Palmquist said.
Excluding the production payments the contract is likely to cost Graincorp less than A$10 million ($7.0 million) pre-tax each year, the company said.
($1 = 1.4333 Australian dollars)