Drought may have savaged this year’s winter crop earnings prospects, but GrainCorp is raising a glass to toast strong results from its malt business thanks to solid sales to North America’s craft beer market.
The big eastern states grain handler, processor and marketer has lifted earnings guidance for its 2017-18 trading year to a net profit after tax of up to $75 million – up from previous forecasts in the $50m to $70m range.
Its trading year ends on September 30, after which GrainCorp is bracing for a further “deteriorating outlook” for its grain receival and export network as it experiences “ongoing challenging operating conditions in eastern Australia”.
The business is flagging a strong focus on cost control, asset utilisation and disciplined capital expenditure in the bush.
Demand for specialty products in the craft beer and distilling sectors continued to grow
- Mark Palmquist, GrainCorp
In the meantime, GrainCorp has tipped between $255m and $270m in earnings before interest tax, depreciation and amortisation (EBITDA) when its results are posted in October.
That’s up from previous expectations of $240m to $265m made in May, after which parched cropping conditions grew more pronounced in Queensland, NSW and parts of Victoria and South Australia.
Managing director, Mark Palmquist, said the company was enjoying the benefit of positive performance by its global malt business and a strong market position in the North American craft beer sector.
Malt business earnings were helped by a full business contribution from the new US plant in Pocatello, Idaho.
The Pocatello business was operating at high utilisation, servicing a broad mix of brewing and distilling customers globally.
Beer, whisky demand
“Demand for specialty products in the craft beer and distilling sectors continued to grow, with GrainCorp Malt well positioned to participate in these markets,” he said.
International grain trading activity and a solid result by its liquid terminals businesses were also providing good revenue streams as in the face of limited domestic grain receival expectations for the new trading year.
Dry conditions had already slowed export grain volumes as farmers and domestic market processors moved to buy or retain remaining supplies for themselves.
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Mr Palmquist said GrainCorp would be further adapting its network to better match the size and location of the 2018-19 crop, which will again be focused on southern NSW and Victoria.
Drought had also impacted on oilseed crush margins, with the smaller 2017-18 canola crop also having a higher proportion of quality issues.
“However, the benefits of our diversified business model are again being demonstrated in the face of the substantial drought challenges in eastern Australia,” he said.
“We have also made good progress in the foods unit within GrainCorp Oils.”
International business busy
Meanwhile, growth in the company’s international grain origination footprint continued.
It had commissioned of the second of four GrainsConnect Canada sites in June and opened a Black Sea trading office in Ukraine, in Kyiv.
Despite the tightness in supply in Australia, the company had benefited from the integration of its storage and handling and trading businesses prior to last harvest.
That helped it achieve a higher share of domestic grain trade and off-farm grain origination.
The oilseed crush expansion project at Numurkah in northern Victoria was now being commissioned to enable a 40 per cent boost in crush capacity to 1000 tonnes a day.
GrainCorp’s liquid storage terminal business was enjoying strong customer demand and the foods business had achieved a more streamlined structure during the past year.
Improved demand for oil ingredients for the infant formula sector had also helped earnings from the company’s West Footscray processing plant where improved operational efficiencies were also being achieved.
GrainCorp has however, foreshadowed “significant challenges” for its domestic grains business relating to its take-or-pay rail contracts and the small crop outlook for the year ahead.
Tight supplies and limited export volumes anticipated in 2018-19 would leave little grain to be moved, despite its rail commitments already being locked in until the end of FY19.
Mr Palmquist said new rail contracts would come into effect in 2019-20 and provided greater flexibility to manage transportation costs through the crop cycle.
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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).
