Severe dry to cut grain harvest in half

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This was published 6 years ago

Severe dry to cut grain harvest in half

By Darren Gray
Updated

The severe dry that has smashed crops in NSW and southern Queensland is expected to slash total grain production this season and affect business conditions in farming communities where grain is a key industry, the nation's largest agribusiness has warned.

Discussing GrainCorp's bumper full-year results for fiscal 2017, including an underlying net profit that nearly tripled to $142 million, managing director Mark Palmquist said this year's harvest would be "tremendously smaller", and in response the company would run a leaner harvest operation, with some sites to stay closed because of the lower volumes.

GrainCorp's underlying net profit surged in fiscal 2017 to $142 million.

GrainCorp's underlying net profit surged in fiscal 2017 to $142 million.Credit: Michele Mossop

GrainCorp, an integrated grains handler, exporter and processor, said while the crop would be substantially smaller than last year, production would be skewed towards Victoria and southern NSW.

Rabobank senior grains and oilseeds analyst Cheryl Kalisch Gordon said Rabobank had forecast a "national drop of 41 per cent from last year's record grain harvest. This is also down 19 per cent on the five-year average prior to last year, which really puts the drop in context.

"We expect east-coast total winter grain production to be down 47 per cent on last year, and 22 per cent on the five-year average.

"We will see lower harvest volumes this season and that will affect communities in the hardest-hit areas of southern Queensland, northern and central-west NSW. However, this is in the context of a high-volume harvest in 2016-17: despite lower prices, this put many farming businesses in a good cash-flow position."

A bumper grain harvest last year saw GrainCorp's underlying net profit nearly triple to $142 million for fiscal 2017, with the company rewarding shareholders with a sharp increase in the full-year dividend to 30¢ a share, from 11¢ a share last year.

GrainCorp's fiscal 2017 results included revenue of $4.58 billion, which rose 10 per cent on the previous year, and underlying earnings before interest, tax, depreciation and amortisation of $390 million, up from $256 million last year. Statutory net profit was $125 million, almost four times greater than last year's $31 million.

But investors, possibly concerned about the smaller crop this year, reacted negatively to the news from GrainCorp, pushing the stock down 42¢ to close at $8.13.

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GrainCorp also joined a growing list of Australian companies to highlight the impact of surging energy costs on their operations. It revealed energy costs were expected to jump $4 million at its Australian malt operations and $5 million at its Australian oils operations in fiscal 2018.

"Rising energy costs continue to be a serious challenge for the long-term sustainability of food and malt processing in Australia and we are evaluating a range of energy-efficiency and alternative-generation options to mitigate the impact of energy price volatility. This is important to remain internationally competitive," Mr Palmquist said.

He said the company's balance sheet was "in a very good position and prepares us well for the challenging year coming ahead".

Morgans analyst Belinda Moore said GrainCorp's underlying EBITDA for fiscal 2017 and its net profit "were below our expectations and at the lower end of guidance".

She said the highlight of the result was "the strength in operating cash-flow, plus 98 per cent on the prior corresponding period to $300.5 million and materially ahead of our forecast".

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