After an earnings windfall from three big harvests, GrainCorp is looking at potential new investments in the stockfeed, fuel and food sectors as it braces for an inevitable slide in seasonal conditions and grain receivals.
The big east coast grain player posted a record $380 million profit after tax last financial year and is tipping its second biggest-ever profit in 2022-23, despite the past season's wet weather setbacks and crop losses.
However, the company is also wary of its exposure to dry seasons, with earnings from its Canadian grain handling operations badly depleted by drought early last year.
Memories of recent Australian drought years and its $113m loss in 2018-19 are also still raw.
No longer able to fall back on a steady off-farm revenue stream from its malt processing division, which was spun off and listed as United Malt Group in 2020, GrainCorp has told shareholders it was looking at several opportunities.
It hoped to announce expansion moves or new capacity to help bolster earnings sustainability in the year ahead.
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Demand for oilseed and used vegetable oils for the burgeoning agri-energy sector and stockfeed protein markets, plus its oilseed and food processing market prospects have been highlighted as target areas on its growth agenda.
GrainCorp's stockfeed business ambitions in Australia and New Zealand also extend to a share in FutureFeed's methane neutralising seaweed-based product for feedlot and dairies.
Without giving any details away, company chairman, Peter Richards, and managing director, Robert Spurway, told last week's annual general meeting, options to invest in growing GrainCorp's agri-energy interests and canola crushing capacity were being considered.
Renewable fuels
"The feeds, fats and oils business continues to benefit from strong demand for renewable fuel feedstocks," Mr Spurway said.
"We believe agri-energy is a significant opportunity due to growing demand for renewable fuels globally and an increased requirement for renewable fuel feedstocks."
GrainCorp was already a leading supplier of used cooking oil, tallow and canola and uniquely positioned to be part of the market's growth.
Its links with the biofuel sector may also lead to partnership opportunities with existing fuel production players and expansion prospects into new geographies.
"Our strategy involves pursuing targeted growth opportunities in areas with strong potential where GrainCorp has a right to win," Mr Spurway said.
Second bowstring, please
The company's diversification strategy provided some comfort to shareholders at the AGM such as Sydney investor, Giles Edwards, who urged the board to have a "second string to its bow".
He noted for a decade the malt business helped stabilise a balance sheet often at the mercy of the weather as GrainCorp reacted to varying crop production results.
"Do you have another United Malt or oils business plan in mind which can help the company handle the grain industry's feast or famine fluctuations?" he asked directors.
Mr Richards responded noting GrainCorp's strategy was twofold - improving its available capacity and supply chain structure so as to reduce costs, while also using available capital to build a higher more sustainable earnings base.
"I can assure you we have opportunities that are being considered by the board," he said.
Fake meat
Other growth target areas for GrainCorp include the alternative protein segment where it is working with fake meat maker v2food and CSIRO in a $4.4million research project to bolster local processing expertise, and a digital connectivity project with specialist rural telco, Zetifi.
Speaking after the meeting, Mr Spurway, also highlighted that while United Malt's revenue backup had gone, GrainCorp's exposure to drought was now partly protected by its crop insurance arrangement with global insurer, Aon.
"We are far more resilient than in the past," he said, also pointing to healthy market growth in the oilseed processing division and oilseed product demand.
For an annual investment of $6m Aon pays up to $80m in seasons when the east coast grain crop slips below 15.3m tonnes.
However, in good years, such as the most recent harvest, which is currently forecast to total almost 27m tonnes, GrainCorp has to up to $70m extra.
Cautions transition
Mr Spurway described the agri-energy and livestock nutrition markets as "an important part of our transition".
GrainCorp did, however, have to move carefully to balance strategy and earnings so its investment in growth areas did not undermine shareholder dividends or its priorities to farmer and processor customers.
The company was also cautious about moving too far from its existing geographic strengths - Australia, Canada, NZ and marketing footholds in Asia, Britain, Ukraine and trading desks in China, India, Vietnam, Thailand and Korea.
"In particular, we have an existing advantage that probably makes Australia and NZ a greater priority for us, where we have a right to win."
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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).
