Elders revealed that the agriculture operations it has put
up for sale, attracting "a high level of interest", have joined the agribusinesses
hurt by dry weather in Australia, and dragged the group back into the red.
The veteran feedlot-to-wool trading group said that its
rural services operations had been hurt by "weak industry-wide conditions" in
Australia, blamed on a dearth of rainfall which is beginning to raise concerns
over prospects for the wheat crop for which sowings are due to start next
"Dry and hot weather conditions over the summer have led to
a reduction in demand for agricultural chemicals across the cropping and
livestock sectors," Malcolm Jackman, the Elders chief executive, said,
revealing a 10% drop in sales of farm supplies.
"Similarly dry conditions have led to reduced pasture and
lower restock demand in the livestock agency business, which sees commissions
down 28% compared with the same time last year."
The group, which has previously shied away from guiding on
earnings for this year, said it now expected a "small underlying operating loss",
before mark-to-market adjustments for changes in prices of assets such as
livestock at its feedlot operations.
In the October-to-March period of its last financial year
achieved an operating profit of Aus$14.8m.
Difficult times for
The caution adds Elders to the list of agriculture groups
which have warned over the impact of Australia's hot summer, which brought
record temperatures to southern areas.
While some eastern parts received heavy rains in January, precipitation
was "relatively isolated with large areas still experiencing below average
rainfall", US Department of Agriculture farm officials said earlier this week,
trimming expectations for growth in the Australian cattle herd because of
deteriorated pasture conditions.
Indeed, other Australia farm groups to warn on profits
include Australian Agriculture Company, or AAco, which warned two weeks ago
that dry weather had hurt sales of cattle last month, as producers rein in
Ironically, the drop in cattle prices comes at a time of
elevated beef prices, dynamics expected to fuel a rise in Australian beef
exports to a record high this year, potentially usurping Brazil as the second-ranked
Elders said that its own feedlot operations, fattening
cattle for the beef market, "continue to perform strongly".
Elders' comments come amid longstanding talks over the sale
of its rural services division, which it said had received a "high level of
interest", with a "number of parties" potentially interested in the business.
"No one interested part has been granted preferential status
by Elders," the company added.
The group has also received interest in a takeover by rival RuralCo,
its biggest shareholder, prompting Australian competition authorities this week
to launch an informal review of a potential tie-up.
Elders said on Wednesday that "no formal takeover offer" has
been received from RuralCo.
The dry weather in Australia has brought some benefits to
farmers, in speeding the sorghum harvest.
Sydney sorghum futures for May have retreated some Aus$18 a
tonne from an early-month high, closing on Wednesday at Aus$263.00 a tonne.
However, it is beginning to raise alarm bells over prospects
for the important winter grains crops for which sowings start next month.
Luke Mathews, at Commonwealth Bank of Australia, cautioned last
week that "attention will soon focus on the upcoming 2013 winter crop seeding
"The current record-long heatwave in Victoria, South Australia
and southern New South Wales has ensured the region has minimal soil moisture
"These low soil moisture reserves will result in mounting
anxiety leading into the autumn planting season."
Australia's dry spell also coincides with a drought in nearby New Zealand, billed as the most widespread in 30 years, which has sent dairy prices soaring, lifting whole milk powder values to the highest since at least the 1990s.