Business is buzzing in its North American and European divisions, but eastern Australian grain storage, logistics and marketing kingpin, GrainCorp, is struggling to report much good news on the home front, with profits for 2017-18 likely to be half last year’s – if that.
Even a handy booster shot from President Donald Trump’s recent business tax cuts in the US won’t save GrainCorp from recording an underlying after-tax profit slump to between $50 million and $70m for 2017-18
That’s down from last financial year’s $142m net profit, generated largely from the record 2016 harvest and subsequent big export and storage volumes handled by the network.
Now, withering summer weather is fast eroding prospects for the current sorghum crop in NSW and Queensland.
GrainCorp is also lamenting the fact much of the lean 2017 winter season harvest is being hoovered up by domestic stockfeed buyers or local human consumption markets, rather than shipped offshore.
Export volumes through the company’s seven port sites in Queensland, NSW and Victoria are tipped to be almost 75pc less than last season in what new chairman, Graham Bradley, said promised to be “a challenged year for the industry”.
Not only are Australian export markets in Asia buying wheat shipped from Eastern Europe for $20 a tonne or $30/t less than eastern Australian crops are worth, the 102-year old grain handler faces significantly more competition for recently harvested grain from on-farm storages in the grain belt.
GrainCorp’s silo network has so far received about 5.8m tonnes, compared to a total 2016-17 receivals of 15m.
I am confident, despite the seasonal challenges, we will deliver solid underlying performance
“Significantly lower grain stocks across the eastern seaboard means a large portion of the crop will remain in Australia, either on-farm or secured by domestic customers,” said managing director Mark Palmquist.
“There is particularly strong demand for grain in some northern regions due to the persistent dry conditions.”
He told this week’s annual general meeting summer crop expectations had also deteriorated in recent weeks due to prolonged hot and dry weather in Queensland and northern NSW.
The current sorghum crop was expected to yield about 1.5m tonnes.
Diversifying pays off
However, the company had “extensive experience in successfully managing agricultural volatility”.
Its increasingly diversified grain processing and overseas grain marketing and handling operations were playing an important role in buffering the company from far more serious losses.
“I am confident, despite the seasonal challenges, we will deliver solid underlying performance, and remain disciplined on managing cash flows and capital expenditure,” Mr Palmquist said.
Chairman, Mr Bradley, hinted to shareholders on-going rationalisation and restructuring of GrainCorp’s storage network in the bush was expected as it sought to optimise the supply chain network, reduce costs and “accelerate initiatives to capture further cost efficiencies”.
The company would also take a further hard look at the priorities previously ascribed to a number of on-going capital projects.
Mr Palmquist confirmed growth in farmer-owned storage and the trend towards bigger farming enterprises meant a lot of GrainCorp’s sites were less likely to be needed unless they had the capacity and loading speeds to respond to surges in receivals or export demand.
North American action
As if to highlight its grain handling efficiency goals, and the value of the Australian company’s diversification efforts overseas, he noted its joint venture GrainsConnect Canada had loaded its first trains (about 14,000 tonnes each) in December after opening the new Maymont, Saskatchewan terminal in October.
More fast loading export shipments were booked until May.
A second similar Canadian terminal will open by April and two more will be completed later this year.
In the US, GrainCorp Malt was benefiting significantly from a 120,000t expansion at its Pocatello, Idaho, malting plant, giving it a 220,000 total capacity and cheaper energy costs.
The continuing double digit growth in the US craft beer market, particularly micro-breweries was proving well suited to the company’s production and distribution base across North America, and generating good business in Australia and New Zealand.
Last September GrainCorp, the world’s four largest maltster, bought Cryer Malt, the biggest distributor of craft-brewing ingredients in Australia and NZ.
Meanwhile, despite production efficiency hurdles at its new Melbourne processing plant, GrainCorp’s restructure and cost reduction goals initiated in its oilseed processing business were on track to hit targets this year.
“We continue to identify and pursue further opportunities,” Mr Palmquist said, noting 2017’s sale of the 60pc stake in Allied Mills had helped ensure GrainCorp’s balance sheet could also handle new investment opportunities if they emerged.
“We are building a stronger and more diversified business.”
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The story Profits sliding but GrainCorp diversification helps in dry year first appeared on Farm Online.