Shares in GrainCorp tumbled after the Australian grain handler said that it was to report its first full-year loss in more than a decade, with trading opportunities drying up amid the country’s drought and global market disruptions.
The Sydney-based group said that it would report an underlying loss of Aus$70m-90m for the year to the end of next month.
That would be its first full-year underlying loss since 2008, and its biggest such loss on available data going back to 1998.
GrainCorp shares plunged 10.1% at one point, to Aus$7.71, before closing in Sydney at Aus$8.13, down 5.4% on the day.
‘Extremely difficult year’
The group – which in May reported an underlying loss of Aus$48m for the October-to-March half, but stopped short of giving a detailed outlook on full-year prospects – said that Friday’s guidance reflected setbacks “arising from the ongoing disruption of international grade trade flows and Australian wheat markets.
“New crop trading opportunities in Q4 are no longer expected to materialise due to reluctance from international market participants to consider new season contracts.”
GrainCorp raised to Aus$60m-70m its forecast for the “negative impact” on ebitda (earnings before interest, taxation, depreciation and amortisation) of these headwinds, up from a Aus$40 estimate released in April.
“This is an extremely difficult year for GrainCorp, due to the significant disruptions we’ve seen in global grain markets, compounded by the drought in eastern Australia,” said Mark Palmquist, the group’s chief executive.
While many exporters have been able to exploit US-China trade tensions by providing alternative supplies, Australian exporters have been held back by successive drought-hit harvests, evident in particular in GrainCorp’s east coast stronghold.
“The extraordinary circumstances in eastern Australia are highlighted by the fact we expect to ship 2.3m tonnes of grain from South and Western Australia to meet east coast domestic demand,” Mr Palmquist said.
Furthermore, China has had its own disputes with Australia, and amidst a probe into whether to introduce tariffs on barley imports from Australia, after Canberra countered Beijing’s growing influence in the Pacific.
GrainCorp highlighted that Australia’s eastern states looked on course for another below-par winter crop harvest this year, noting a forecast from the official Abares bureau of production of 14.4m tonnes for New South Wales, Queensland and Victoria, 22% below the 10-year average.
“Independent crop forecasters are predicting another below-average production year in 2019-20,” the group added.
Earlier this week, the Australian Oilseeds Federation cautioned of only a small rise in Australian canola output this year, thanks largely to dryness in New South Wales.
Separately, Rabobank on Friday said that below-average rains in July mean that “parts of central and New South Wales and Victoria, which previously held their best prospects in two to three years, now sit on a knife edge, awaiting August rains”.
An “ongoing dry outlook” supported expectations for east coast grain price basis levels “persisting or growing over the next months”.
By contrast, in Western Australia, which has received better rains, basis levels for benchmark Australian premium white wheat (APW2) had fallen 6% last month “and is now sitting in the second lowest range for 18 months” of about Aus$280 a tonne.
“Strengthened harvest potential is weighing on the market” in Western Australia, Rabobank senior analyst Cheryl Kalisch Gordon said.