Heatwaves hurt summer crop
The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) said on Tuesday heatwave conditions in early to mid-January and, until recently, below average rainfall, resulted in a less than favourable summer cropping season.
Compared with record production last year, ABARES forecast total summer crop production to be about 13 per cent lower in 2012-13, at 4.8 million tonnes. This was around 14 per cent higher than the average of 4.2 million tonnes over the five years to 2011-12.
Grain sorghum production was forecast to drop by 23 per cent to 1.7 million tonnes in 2012-13 and production of cotton lint and seed is forecast to fall by 21 per cent each to 945,000 tonnes and 1.3 million tonnes, respectively. In contrast, rice production is forecast to rise by 15 per cent to about 1.1 million tonnes.
Generally dry conditions during the growing season in the winter cropping zone are estimated to have resulted in winter crop production falling by 22 per cent in 2012-13 to 35.8 million tonnes, but represent a marginal upward revision from the forecast of 35.1 million tonnes released by ABARES last December.
ABARES executive director Paul Morris said the winter-crop harvest in Queensland and NSW was completed before the recent flooding and was largely complete in south-eastern Australia before the recent bushfires started. "The recent flooding in some summer cropping regions has so far only caused minor damage to summer crops," he said.
Wilson HTM analyst James Ferrier said the recent rains were a "saving grace" for summer crops.
Queensland and Northern NSW now had "a decent amount of moisture in the soil" for winter plantings but central and southern NSW and Victoria had been dry since July-August, and were approaching winter cropping season with lower levels of moisture in the soil.
Mr Ferrier said the sorghum downgrade was a "minor negative" for GrainCorp but it was too early to make an accurate prediction on the size of the winter crop this year.
Graincorp shares traded flat on Tuesday, closing down 1¢ to $12.08.
Mr Ferrier said GrainCorp would likely finish the 2012-13 financial year with carry-out volumes much closer to historical levels and this partly explains why consensus forecasts assume earnings will decline in the 2013-14 financial year. Mr Ferrier said when the sharemarket was flat or trending downwards, GrainCorp had been a "decent place to have money [but] now, when the wider market is trending up, if you're an investor sitting in GrainCorp, you're starting to get a bit anxious."
Frequently Asked Questions about this Article…
ABARES said Australia's summer crop was downgraded — heatwave conditions in early to mid-January and below-average rainfall led to a less favourable summer cropping season. The agency forecast total summer crop production for 2012–13 to be about 13% lower than the previous year (around 4.8 million tonnes). For investors, lower crop volumes can affect the earnings outlook for grain and cotton-related companies and put pressure on commodity supplies and prices.
ABARES forecast grain sorghum production to fall 23% to about 1.7 million tonnes. Cotton lint and cotton seed production were each forecast to fall about 21%, to roughly 945,000 tonnes and 1.3 million tonnes respectively. In contrast, rice production was forecast to rise about 15% to roughly 1.1 million tonnes.
ABARES estimated winter crop production to fall about 22% in 2012–13 to 35.8 million tonnes, although this was a small upward revision from an earlier 35.1 million tonne forecast. A significant drop in the winter crop can tighten overall grain supply, which may influence prices and the revenue prospects of agribusiness companies that handle storage, processing and trading.
Heatwave conditions in January and generally below-average rainfall caused the weaker summer crop. ABARES noted recent flooding has so far only caused minor damage to some summer cropping regions, and much of the winter harvest in Queensland and NSW was completed before recent floods and before bushfires started in south-eastern Australia. Overall, weather variability was a key driver of the revised production forecasts.
Wilson HTM analyst James Ferrier said recent rains were a 'saving grace' for summer crops. Queensland and northern NSW now have a decent amount of soil moisture for winter plantings, while central and southern NSW and Victoria had been dry since July–August and are entering the winter cropping season with lower soil moisture.
James Ferrier described the sorghum downgrade as a 'minor negative' for GrainCorp but said it was too early to predict the size of the winter crop. On the day covered by the article, GrainCorp shares traded essentially flat, closing down 1 cent at $12.08. Ferrier also noted GrainCorp would likely finish the 2012–13 financial year with carry-out volumes closer to historical levels and that consensus forecasts assume earnings will decline in 2013–14.
Investors should monitor follow-up crop reports, regional rainfall and soil moisture updates, company announcements (particularly from grain handlers like GrainCorp), and market commentary on carry-out stocks and earnings expectations. Those factors will influence supply, commodity prices and agribusiness earnings — all relevant to investment decisions tied to the agricultural sector.
The article does not give direct buy or sell advice. It reports that analysts view the sorghum downgrade as a minor negative for GrainCorp and that consensus forecasts expect earnings to fall in 2013–14. The article also shows GrainCorp shares were essentially flat on the day reported. For everyday investors, the takeaway is to stay informed, watch company and crop updates, and consider broader market trends rather than acting on a single report.
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