GrainCorp flags grains boom, in quest to evade ADM

GrainCorp touted a position at the heart of a boom in grains trading as the Australian grain handler rebuffed a takeover offer from Archer Daniels Midland, adding that it was not in a "selling" mode.

The group, unveiling earnings for the year to the end of September up 19.2% to Aus$205m, in line with market expectations, said that it was "ideally positioned" to exploit a doubling in world trade in its grains by 2050.

Demand growth will be driven by the Middle East, North Africa, Asia and sub-Saharan Africa, accounting for 85% of extra 110 tonnes in world wheat imports by 2050, regions in much of which Australia "has freight advantages", GrainCorp said.

Indeed, Australia's agricultural exports will double over the period - rising 20% within the next decade, boosted by improved crop varieties and farm practices, and creating opportunities for a group with a stranglehold on shipments from the east of the country.

'Nerve centre'

Alison Watkins, the GrainCorp chief executive, said that the group, which has outlined plans to add an extra $110m to its annual ebitda by 2016, had targets which were "underpinned by strong fundamentals".

"Our infrastructure is strategically located in proximity to the world's major growth markets for quality grains - Asia, the Middle East and Africa," she said, saying the group was sited "in the "geographic nerve centre" for meeting demand.

Archer Daniels Midlands' Aus$2.7bn ($2.8bn) offer "materially undervalues" GrainCorp, Ms Watkins said, adding that the group was not in a "selling ourselves" mode.

However, Archer Daniels Midland, which Ms Watkins contacted overnight to communicate the bid rejection, restated that its offer was an "attractive proposal".

"We approached GrainCorp's board with a proposal that represented a significant premium to the prevailing GrainCorp share price at the time of our approach," the US-based group added.

Rival suitors?

The reaction on Sydney's share market was to edge GrainCorp shares up 0.2% to Aus$12.20, giving the group a stockmarket valuation of $2.9bn, narrowly above ADM's offer price.

Indeed, even if ADM does not raise its bid, there is speculation of a rival offer, given the level of foreign interest in other Australian assets, such as grain handler AWB, which was bought by Agrium, the Canadian fertilizer and farm retail group, which sold on trading operations to US-based Cargill.

Besides Cargill, Louis Dreyfus, which earlier this week highlighted its record of strong investment, and China's Bright Food Group, a serial bidder in agriculture and food, have been touted as potential suitors.

Singapore-based Olam International, which on Wednesday flagged its growing Australian grains business, is also seen as in the frame, although less so rival Wilmar International, in which ADM has a large stake.

Crop forecasts

GrainCorp, which handles some 75% of eastern Australia's grains output either through receivals or through its seven ports, acknowledged a dent to 2013 prospects from a weaker harvest this year, following a dearth of late-season rain.

The group pegged the region's grains output at 18.3m tonnes, dome from some 21m tonnes last season and more than 24m tonnes in 2010-11.

It estimated the Australian canola crop at 2.7m tonnes, in line with estimates from forecasters such as the Australian Oilseeds Federation, but representing a drop of some 15% year on year.

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