Surging overseas demand for Australian grain has revved up profit expectations for GrainCorp which is lifting its full year forecast by another $40 million.
The big east coast grain logistics, marketing and processing business will officially post its 2020-21 financial results in November, but has hinted net profit after tax will jump from earlier forecasts of between $80m and $105m to at least $125m - maybe as high as $140m.
Total exports for the trading year are expected to be close to 8m tonnes, while stored grain carry over at the end of September was likely to land at the high end of a range between 3.5m and 4.5m tonnes.
It's the second time GrainCorp has upgraded its earnings forecasts since May, thanks largely to another promising harvest on the horizon and soaring export grain demand in the wake of northern hemisphere crop setbacks.
Fortunately good seasonal conditions continued around Australia and GrainCorp told its shareholders agribusiness was enjoying an "outstanding year".
Share price jumps
Its latest tip for earnings before interest, tax, depreciation and amortisation in the $310m to $330m range sent GrainCorp's share price to an eight-year high by the end of last week, hitting $6.23 each before settling about $6.10.
The company's last share price rise to similar peaks was in the $5.50 to $5.70 range in 2013.
Previous 2020-21 earnings EBITDA expectations for were to a maximum of $285m.
"We're hearing reports of good potential in the upcoming crop, based on factors including area planted, subsoil moisture levels, season-to-date rainfall and longer term weather forecasts," said managing director Robert Spurway.
Current heightened demand for Australian grain had followed a strong intake of post harvest receivals after the bumper 2020-21 winter crop and a revival in summer crop intake figures this year.
Current export demand was being supported by strong forward contracted sales and supply chain margins.
"July delivered our biggest month of contracted sales on record," Mr Spurway said.
"It is also great to see the benefits of our significant capital investment in prior years, and the full delivery of our operating initiatives, flowing through our network."
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Planning was well under way to increase the Victorian, NSW and Queensland network's storage capacity with a strong maintenance and capital investment program.
Although GrainCorp's upgraded earnings guidance remained subject to several market variables including the timing of grain exports, the strength of the new crop and prevailing weather conditions, the US Department of Agriculture's latest crop expectations for US, Canadian, Russian, French and Spanish wheat yields are all down, suggesting prospects for Australian exporters are unusually good.
Chicago Board of Trade wheat prices responded to the USDA's forecast by moving to three-month highs, around $US7.53 a bushel.
Oilseed prospects
Mr Spurway said GrainCorp's oilseed business continued to perform well, too.
"Global demand for vegetable oils remains elevated and this is supporting value across our oils portfolio, ensuring high utilisation of our oilseed crush facilities and strong crush margins," he said.
"I want to acknowledge the hard work of all our ECA teams in achieving these strong returns and in their continuing preparations for the upcoming harvest.
"Our teams are working to ensure our network is equipped to handle the new crop at the right time, and in the right locations."
"The supply chain was pushing through a big grain outloading agenda via road and rail to shift last season's crop to domestic and overseas buyers.
Upgrading capacity
At the same time the company was building 1m tonnes of new storage capacity for the upcoming harvest and re-opening "flex" sites to accommodate the anticipated demand."
"We're also recruiting over 3000 harvest casuals to help manage that demand across 160 up-country sites and ports," Mr Spurway said.
Total 2020-21 capital expenditure was likely to be about $55m - above the company's sustaining capex target of $35m to 45m because of the additional storage capacity and other upgrades to accommodate another large crop.
"On behalf of everyone at GrainCorp, I'd like to thank our growers and customers for their continued support," he said.
"We wish them all the best as we all prepare for the upcoming harvest."
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Andrew Marshall
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
