Graincorp rallies to a 3 month high: A closer look at ASX-listed agriculture stocks
A closer look at grain fundamentals and other soft commodities like cattle and corn.
Source: iStock
Mentioned
KEY POINTS
- Wheat closed at its highest price since June amid a worsening Russia-Ukraine war
- Graincorp shares buck the trend of a weak market, trading around 3-month highs
- Cattle and corn prices have also picked up in recent weeks
Graincorp (ASX: GNC) has bucked the trend of the broader market, mustering up a 5% rally on Tuesday to a 3-month high.
Agriculture and soft commodity peers including Australian Agricultural Company (ASX: AAC), Nufarm (ASX: NUF) and Elders (ASX: ELD) have also held up well amid recent turbulence, on a relative basis.
A resurgence in wheat prices
Graincorp's rally comes hand-in-hand with the resurgence in wheat prices, up 7.8% in the last month to a similar 3-month high.
Wheat price chart (Source: TradingView)
"As Russian aggressive against Ukraine increases significantly after the bridge attack, we're seeing spikes in the price of wheat and corn. Earlier palladium was up as well," said Traderade.
"All three serve as geopolitical risk barometers. The harder they're bid, the more angst there is."
Ukrainian farmers complete the 2022 wheat and barley harvests in early October, threshing 19.2m and 5.5m tonnes respectively, according to Reuters. The figures represent a -40.4% and -41.5% decline compared to 2021.
"Furthermore, hot temperatures and dry conditions in big producing regions like the US, Europe, India and Argentina could put future wheat crops at risk," warned Bloomberg on Tuesday.
Back to Graincorp
Graincorp operates a broad range of grain and oilseed related services including storage, handling, processing and logistics. It's not exactly a wheat producer per se but its operational and share price performance ties in heavily with wheat prices.
On August 10, Graincorp upgraded its FY22 profit guidance to $365-400m (previously $310-370m) thanks to an improvement in supply chains, an above average east coast crop forecast and a favourable 3-month rainfall outlook.
Be warned
"Australia's eastern coast is expected to witness more-than-average rains in the next 15-20 days, with parts of New South Wales experiencing higher-than-expected rainfall over Oct. 10-16, a trend which could force quality downgrade of wheat crops in the region," market sources told S&P Global.
NSW is the second-largest wheat producing state in Australia, expected to harvest 10.2m tonnes for the 2022-23 marketing season (October to September).
S&P Global said wet weather forecasts for both NSW, WA and Queensland is expected to pressure the protein content of wheat.
Corn and Cattle on the rise
Cattle prices are trading near year-to-date highs. While corn is making similar moves as wheat, back to a 3-month high.
Cattle (top) and corn (below) price chart (Source: TradingView)
High cattle prices play favourably into names like cattle and beef producer Australian Agricultural - that posted a 105% increase in operating profit in FY22, underpinned by a 21% increase in average meat sales price per kilogram.
Likewise, Elders bulked up its inventory levels in the first half of FY22, to "allow us to meet anticipated increases in winter cropping demand," according to CEO Mark Allison.
Elders said expects to finish 2022 positively, with livestock prices remaining elevated and favourable cropping outlook.
