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GrainCorp flags Australia dryness, foresees harvest fall

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GrainCorp highlighted rainfall needs in eastern Australia, where the onset of an El Nino has spiked concerns of drought ahead, even as the group revealed the dent to its profits from a disappointing 2014 harvest.

Mark Palmquist, the GrainCorp chief executive, said that plantings of winter grains were "well advanced in many growing areas", progress in sowings "progress has slowed substantially" as farmers await rainfall.

"Further rain is needed across the grain belt to complete planting and help crops establish," he said.

Although "generally, conditions are looking more favourable in the eastern half of the eastern Australian grain belt, areas further inland remain very dry", he said, in comments which echo those earlier this week from fertilizer group Incitec Pivot.

Grain harvest to fall

The comments come amid mounting worries over prospects for eastern Australia's grain harvest prospects, after the declaration on Tuesday by the country's Bureau of Meteorology of an El Nino, which has a history of bringing undue dryness to the region.

"El Nino does have the ability to definitely put us in a drier weather forecast as we work our way through the winter," Mr Palmquist said.

"Having rain at critical periods during the crop growing season is going to be very important to us."

He urged against exaggerating the threat to the region's crops at this stage.

"I don't want to dismiss the warning in that there is some concern with it, but I don't to be too bearish with it at this point in time and we've got long season to go on," he said.

Nonetheless, the grain handing-to-malt group said it was preparing for a grains harvest in eastern Australia of 16.3m tonnes this year - down from 17.3m tonnes last year, and 18.3m tonnes in 2013.

'Tougher period'

The relatively weak crop last year, when meteorologists noted mild El Nino conditions, fuelled a drop of 40% to Aus$30.2m in GrainCorp earnings for the October-to-March half, on revenues down 3.9% at Aus$1.98bn

"The smaller crop in eastern Australia last year means it's been a tougher period for storage and logistics, and marketing," Mr Palmquist said.

"Lower production translated to reduced grain throughput and exports."

In the six months, GrainCorp received 6.4m tonnes of grain into its silos, down 1.0m tonnes year on year.

'Greater competition'

Indeed, GrainCorp's pre-tax profits in storage and logistics tumbled by 93% to Aus$2.5m, "due to below-normal grain production."

The marketing division fell to a pre-tax loss of Aus$3.4m, compared with a profit of Aus$6.5m a year before, as the dent from lower volumes was compounded by "greater competition" among Australian merchants, and on export markets between different origins too, in a time of richer global supplies.

The performance declines more than offset improvements in the oilseeds division and at the malt business, which reported a 24% rise to Aus$43.3m in pre-tax profits for the half year.

GrainCorp highlighted a boost to its malt performance from high capacity utilisation at its malt facilities, following cutbacks.

The group forecasts earnings before interest, taxation, depreciation and amortisation (ebitda) for the year to the end of September at Aus$240m-270m, and underlying earnings of Aus$45m-60m, in line with guidance provided in February.

GrainCorp shares closed down 2.5% at Aus$9.86 in Sydney.

By Agrimoney.com

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