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With the price of wheat soaring by roughly 29 per cent since the start of 2022, leading agribusiness and food ingredients processor GrainCorp (ASX: GNC) has increased its earnings forecast by a minimum of $110 million two months after issuing bumper FY22 predictions.
Russia and Ukraine collectively provide more than a quarter of the world's wheat exports, so the conflict has benefited those who still have supply. GrainCorp has predicted its underlying earnings before tax (EBITDA) for FY22 will now be between $590-$670 million, almost 25 per cent higher than it projected in February.
Additionally boosted by favourable crop conditions brought about by the recent inclement weather in NSW and Queensland, the upward trajectory of the Sydney-headquartered business, whose share price has risen by 260 per cent in the past two years, is underlined by the increase in its profit after tax (NPAT) FY22 forecast range from $235-$280 million in February to $310-$370 million.
“As we outlined at our AGM in February, we are seeing high global demand for Australian grain and oilseeds and strong supply chain margins for grain exports. This has been driven by two consecutive bumper crops in east coast Australia (ECA), coupled with supply shortages in the northern hemisphere,” GrainCorp CEO and managing director Robert Spurway said.
“The conflict in Ukraine and resulting trade disruptions in the Black Sea region have created uncertainty in global grain markets, with buyers looking for alternate sources of supply. This has further increased both the demand for Australian grain and oilseeds and export supply chain margins.”
“Recent weather patterns and continued La Nina conditions have provided excellent planting conditions for the 2022 winter crop to date, building confidence in grain supplies from ECA and further supporting export sales and supply chain margins.”
Speaking in February, Spurway said GrainCorp’s combined intake across harvest totalled 13.7 million tonnes for the year, slightly below the bumper harvest of 2020/21, with the business providing over 1.5 million tonnes of additional storage capacity for growers across its network, breaking multiple site receival records.
Amongst several factors leading to GrainCorp’s strong outlook in February for FY22 included its supply chain execution, continuous delivery of operating initiatives, and high global demand for Australian grain and oilseeds.
Spurway said the updated outlook reflects the significant ongoing global demand for Australian grain and oilseeds and favourable planting conditions for the upcoming east coast Australian winter crop.
“Despite recent weather-related supply chain disruptions across the ECA, we are continuing to operate our ports at close to full capacity, exporting as much grain as possible to international markets,” Spurway said.
“Our supply chain resilience demonstrates the value of our infrastructure assets and is testament to the capability of our operations and planning teams.”
GrainCorp’s processing business is also performing above expectations, with oilseeds and foods benefiting from strong global demand for crude and refined vegetable oils.
GrainCorp’s guidance on its total receivables of 16.0mmt to 17.0mmt (FY21: 16.5mmt) and exports of 8.5mmt to 9.5mmt (FY21: 7.9mmt) for FY22 has not changed.
Predicting a favourable outlook in its 2021 Annual Report, the business highlighted a total of 4.3 million tonnes of carry-out on 30 September 2021, ensuring a solid ongoing export demand could be met into and beyond the 2021/2022 crop. The expectation was that the company would also have significant grain carry-out at the end of FY22, providing benefits well into FY23.
Founded in 1917, GrainCorp is the largest grain storage and handling business in ECA and the number one edible oil processor and oilseed crusher in Australia and New Zealand.
In March, the business announced a $4.4 million plant-based protein research project with Australia’s national science agency CSIRO to build Australian processing and manufacturing expertise to reduce reliance on imported ingredients.
GrainCorp’s updated guidance remains subject to a range of variables, including supply chain issues and the duration and extent of global trade disruptions.
Shares in GrainCorp (ASX: GNC) have risen by 5.29 per cent, as of 11.15 am AEST, on the back of today’s updated earnings.
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