GrainCorp boss says industry won't be weather beaten

GrainCorp tips climate change to yield more grain, and volatility


Agribusiness
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Despite drought concerns, GrainCorp's climate change research estimates average crop outputs will lift

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The droughty seasonal setbacks giving many east coast grain growers a walloping in recent years are certainly not an indicator that future crop productivity will be devastated by climate change, says GrainCorp boss Mark Palmquist.

In fact, despite apparent increasing production challenges from the weather, research by the big grain business anticipates, on average, more crop output rather than less.

"I'm confident eastern Australia will be a very important grain production area for a long foreseeable future," Mr Palmquist told share market analysts after reporting the company's drought-savaged $59 million loss for the six months to March 31.

GrainCorp's grain division earnings before interest and tax (EBIT) slipped into negative territory in the first half of 2017-18 with a $2 million loss after significantly reduced grain receivals of 5.6m tonnes.

EBIT then fell significantly further this year to an $82m loss after just 2.3m tonnes were delivered to the company's silo sites by late March.

East coast canola production also fell dramatically, from 2017-18's 1.3m tonnes to just 400,000 tonnes, subsequently contributing to GrainCorp's oils business EBIT dropping from $12m to $5m.

We still have strong confidence in the business prospects for grain production - Mark Palmquist, GrainCorp

Mr Palmquist conceded drought had had a significant impact on Queensland, NSW and Victorian grain crops, cutting total winter and summer production by about 54 per cent to about 7.7m tonnes.

However, taking a longer term view of the grain industry's seasonal challenges in the next 30 years, GrainCorp's own environmental research into likely production impacts from changing climate patterns suggested a slight rise in yields, accompanied by less rainfall predictability.

"We expect a lot more volatility, which is why we are pursuing our plans in the grain derivatives space," he said.

"We still have strong confidence in the business prospects for grain production."

While much also depended on market forces and economic returns on offer to growers, he personally felt developments in crop genetics were likely to make grain production more frost hardy and adaptable to varying moisture stresses.

Mark Palmquist

Mark Palmquist

Meanwhile, although still to be signed off with the financial instrument backer involved, GrainCorp's proposed weather risk management process will give insurance style coverage for its expected receival tonnages which will effectively pay compensation for each tonne not delivered in bad seasons.

In good seasons GrainCorp would pay for every tonne above the nominated threshold.

The service is likely operate in a similar way to a put or call option on futures markets, limiting exposure to downside and upside risk.

Mr Palmquist said the weather derivative deal was hoped to be completed in coming months to coincide with the merger of its grains and oilseed businesses.

The merger would go ahead to simplify the company's business activities, "even if, for whatever reason, we do not proceed with the derivatives plan".

"We're still in negotiations and its confidential, so we are not providing any more detail at the moment."

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The story GrainCorp boss says industry won't be weather beaten first appeared on Farm Online.

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