Global glut hits grain handler as farmers hold back
Global grain supply has squeezed margins for a leading Australian agribusiness and food processor, causing a slump in interim earnings.
GrainCorp on Thursday reported a net profit of $5 million for the six months to March 31, down from $58 million a year ago.
Excluding the impact of the GrainsConnect Canada business, underlying profit fell to $33 million from $69 million.
The company’s earnings before interest, taxes, depreciation and amortization fell to $136 million, compared to $202 million previously.
GrainCorp general manager Robert Spurway said that all grain production areas in the world performed well over the past 12 months, there was no global drought, which created a grain oversupply.
“What this means is that grain customers are not particularly concerned or urgent about buying grain because they know there is plenty of grain out there,” he said.
Mr Spurway said it also meant prices were lower than long-term averages and Australian grain had to compete with grains from around the world.
He added that Australian growers were not thrilled with current prices and were holding on to their grain in the hope prices might improve.
GrainCorp’s main business is receiving and storing grain for growers on the east coast, and the company said total grain handled fell 11 percent in the first half to 26.5 million metric tons.
On the positive side, the diesel shortage that hit growers in late March and early April due to the Middle East war has eased, and farmers say they have enough fertilizer to cover planting.
“Of course, the farmers I have spoken to directly over the last few weeks have made good progress in the southern areas with a full establishment and typical rotation of the types of crops they plant,” Mr Spurway said.
“So we are encouraged by the resilience of the industry.”
GrainCorp on Thursday also reaffirmed its guidance for full-year underlying earnings of $200 million to $240 million and underlying full-year profit of $20 million to $50 million.
However, weather conditions will be a significant factor in the final result.
Mr Spurway said suitable planting conditions existed in Victoria and southern NSW, but more rain was needed in northern NSW and Queensland.
“We are encouraged by the short-term forecast and together with growers we would expect further rain to continue in these areas over the coming weeks and months,” he said.
RBC Capital Markets analyst Owen Birrell said the earnings result was generally in line with expectations, but GrainCorp’s core net cash position was lower than expected at $163 million.
By mid-afternoon GrainCorp shares were down more than 15 percent to $5.27.
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