Australia: GrainCorp raises profit forecast on big winter crop expectations

GrainCorp raised its profit forecast on August 10 as Australian farmers prepare to harvest another big winter crop and the war in Ukraine disrupts international trade flows, the Australian Financial Review reported.

A trickle of grain has started to flow out of Ukraine, but GrainCorp believes it will be at least two or three years before the Black Sea region re-emerges as a big force in global grain supply.

The disruption in global supply continues as Australian farmers close in on a third consecutive bumper harvest and international buyers clamour for grain.

GrainCorp said on Wednesday that it had exported 7.9 million tonnes of grain year-to-date and its supply chains were operating at close to full capacity.

The East Coast grain handler and exporter is in the thick of recruiting about 3000 casual workers to help with another huge harvest and remains confident it can find those needed despite nationwide labour shortages.

GrainCorp raised its underlying net profit after tax forecast to a record A$365 million to A$400 million, up from A$310 million to A$370 million, and now expects earnings before interest, taxes, depreciation and amortisation of A$680 million-A$730 million (previously A$590 million-A$670 million).

The company’s share price was up almost 6 per cent to A$8.09 by late on August 10.

Managing director Robert Spurway said GrainCorp was in sight of a record profit after a strong performance across its agribusiness and processing arms, and expectations for the 2022-23 east coast crop.

GrainCorp is gearing up for another well above-average harvest based on what it is seeing across paddocks in Queensland, NSW and Victoria, and a favourable three-month rainfall outlook.

Mr Spurway said the positive outlook was driving an increase in fourth-quarter activity and supporting export volumes, forward contracted grain sales and supply chain margins.

GrainCorp’s processing and feeds, fats and oils businesses have also continued to perform well in light of strong demand for crude and refined vegetable oils, and renewable fuel feedstocks such as used cooking oil and tallow.

Crop forecasters have Australia on target to produce one of its biggest grain harvests after good rainfall across most of the nation’s broadacre farming regions.

The latest figures from official government forecaster ABARES issued in June had winter crop production reaching close to 51 million tonnes, which would represent the fourth-biggest crop on record.

National wheat production is forecast to reach more than 30 million tonnes, way above the 10-year average, amid a global food crisis sparked by the war in Ukraine.

A deal to unblock grain shipments out of Ukraine was supposed to ease the crisis, but Grain Corp says the supply issues will continue.

“We remain of the view that grain supply out of the Black Sea, and Ukraine in particular, will remain disrupted for two or three years,” Mr Spurway said.

“The reason for that is there are significant challenges with damaged infrastructure, road and rail and storage facilities within the country, so moving grain to port is very challenging.”

He said another big hurdle was finding ship owners and insurers willing to take the risk of entering ports to try to get cargoes out.

“Vessel operators are reluctant to put their vessels in harm’s way when there are still hostilities under way and mines in the port areas,” he said.

GrainCorp retains a staff of more than a dozen Ukrainian nationals who moved from Kiev to the relative safety of the country’s west after Russia’s invasion.

GrainCorp remains on track to ship 8.5-9.5 million tonnes of grain before its financial year ends on September 30.

It is a far cry from the height of the drought when it had to put its supply chain into reverse and ship grain into some East Coast ports.

Mr Spurway said commodity prices remained firm, demand continued to outstrip supply, and doubts were emerging about the size of the crop in the northern hemisphere after some dry weather.

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