Drought in Queensland and northern New South Wales, combined with recent frosts in Victoria and southern NSW, will put pressure on the 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 in the wake of soft earnings in the year to September, with the net 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 102¢.
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 maiden 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 a year earlier.
Total grain throughput fell to 23.8 million tonnes from 28.5 million tonnes, reflecting drier conditions.
The focus remains the status of the takeover offer for GrainCorp, with the federal Treasurer Joe Hockey to decide by December 17 whether to approve the offer.
The other outstanding approval is from the Chinese government, although the timing is still unclear.
With the development of a new grain port in Newcastle, GrainCorp is in discussions with the competition watchdog, the Australian Competition and Consumer Commission, over continued regulation of some of its ports.
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.