The worsening weather outlook and El Nino fears which has compounded an already big dry across parts of eastern Australia, have had a major impact on the profits of GrainCorp (GNC), the country’s biggest listed agribusiness.
As a result, GrainCorp shares ended down 4.6% yesterday after the eastern Australian grain handling and shipping group slashed its profit expectations for 2014-15.
The company told the ASX yesterday that it now expects 2014-15’s underlying net profit to be between $32 million and $45 million, down from previous expectations of $45 million to $60 million.
The company cut its underlying operating earnings forecast to $235 million, below the bottom end of its previous guidance range of $240 million to $270 million.
GrainCorp said it is expecting significant items to come to $12 million after tax, slightly higher than previously indicated due to additional restructuring costs in storage and logistics and oils and an impairment of a malt elevator in Canada
The company reports its full year figures on November 12.
“Lower grain production in eastern Australia resulted in intense competition to originate grain, while bigger crops and stock levels in other regions also generated strong competition from alternative supply origins,” GrainCorp CEO, Mark Palmquist said in yesterday’s statement.
“This situation was exacerbated by lower fuel costs and ocean freight rates, which reduced Australia’s competitive advantage to major export destinations and made Australian grain more expensive, severely limiting the opportunities available,” the company said.
GNC 1Y – El Nino cuts into Graincorp earnings
In fact GrainCorp’s East Coast operations have been under growing pressure from the combination of dry weather which has cut grain volumes and lifted unit costs.
The competition from other global grain origins – such as the Black Sea region and the United States – is compounding the pressure on GrainCorp’s marketing business.
The company said it expects to report sales of 6 million tonnes of grain in marketing in 2014-15 and a full year operating loss in the division of $2 million.
And then there’s the impact of the El Nino dry weather pattern ahead.
“Growers in areas of Victoria and southern New South Wales have had to contend with particularly hot and dry conditions in September and October,” Mr Palmquist said.
"This will temper production forecasts relating to our FY16 years but it is too early to make definitive predictions."
Mr Palmquist, said the weak result from GrainCorp Marketing “has only been partially offset by a good performance from Storage and Logistics, with upcountry receivals of 7.4 million tonnes and grain exports of 3.5 million tonnes in the face of a smaller eastern Australian crop.”
Mr Palmquist said with harvest now underway in the eastern states, GrainCorp had already received 1.4 million tonnes of grain, mostly in Queensland and northern NSW.
The average of the forecasters’ most recent updates is 16.1 million tonnes of winter crop for eastern Australia.
"There is a long way to go before harvest is complete and good finishing rains would still be very welcome in many areas."
In fact parts of South Australia, WA, NSW and Victoria are in the process of receiving the best rains this year this week.
