Drought in Queensland and northern NSW combined with recent frosts in Victoria and southern NSW will put pressure on current earnings of the country's largest grain handler, Graincorp, which is the subject of a $3.4 billion agreed takeover bid from Archer Daniel Midlands, of the US.
And, since the grain crop will be larger in Victoria, South Australia and southern NSW where competition is more intense and margins thinner, this will result in a double whammy for earnings.
Graincorp made the disclosure after soft earnings in the year to September, with profit slumping to $140.9 million from $204.9 million a year earlier, even though revenue surged to $4.5 billion from $3.3 billion. Earnings a share fell to 61.6¢ from $1.02.
The grain handler blamed a smaller crop for the downturn, coupled with acquisition integration costs. During the year, Graincorp spent $472 million buying its way into the oils and liquid terminals businesses, which contributed a pre-tax profit of $45 million.
The malt division, another recent area of expansion, contributed a pre-tax profit of $63.4 million, down from the $97.4 million earned a year earlier.
Total grain throughput fell to 23.8 million tonnes from 28.5 million, reflecting drier conditions.
The focus remains the status of the takeover offer for Graincorp, with Treasurer Joe Hockey to decide by December 17 whether to approve the offer.
With the development of a new grain port in Newcastle, Graincorp is talking with the competition watchdog, the Australian Competition and Consumer Commission, over continued regulation of some of its ports.
The new Newcastle port will be looking to handle grains from northern and western NSW, which poses a competitive threat to Graincorp.
Of the 11 grain export ports, Graincorp operates seven, with three of the four other ports not subject to government controls, the managing director, Alison Watkins, told analysts on Thursday.
As well, about a quarter of the nation's grain crop is exported by containers, which are not regulated, she said.
Archer Daniel Midlands is offering $12.20 cash a share, with provision for shareholders to be paid up to $1 in dividends in total. So far, shareholders have received 25¢ in dividends, with Graincorp on Thursday declaring a final dividend of 20¢ a share.