Australian Agricultural Stocks

Well, what drives the Aussie economy? Higher commodity prices will add to our exports. Exporters…coal companies, iron juniors, grains marketers and other stocks related to the agricultural industry will make more money from the same amount of work. The world is crying out for food. Will this demand have an input on our fertilizer and agriculture stocks? I think so.

In this series of articles, we shall have closer look at some relevant agricultural stocks.

The middle class in Asia is tending towards western food, therefore the rising demand for food – from China and India in particular – has rapidly increased the global call for these products. This has led to demand outstripping supply, steep price rises and delays in sourcing additional tonnage.Not only will these conditions tend to increase the cost of farm products, it will certainly increase the cost of farm input, e.g. fertiliser, machinery, and so on.So let us first of all have a look at some relevant Australian companies which are actually producing food.

Nufarm Limited (NUF)

Nufarm Limited is an international agrichemical company involved in the registration, manufacture, marketing and sale of branded, off-patent crop protection products. The Company operates in most major global markets. In 2004 the company made a major investment in Brazil, one of the world's biggest crop protection markets.

NUF is truly a global company, with manufacturing and distribution facilities all over the world with product sales in more than 100 countries. In 2009 they began acquiring seed companies, with their most recent acquisition in November of 2011, in an effort to broaden their product portfolio. However, in an effort to move towards higher margin products, they have increased costs, and that, coupled with the European slowdown, led to some Broker downgrades following their 27 March 2012 earnings release. However, Japanese chemical giant Sumitomo – which acquired 23% interest in Nufarm in March of 2010, continues to expand their working relationship with the company.

Chart as at 24 April 2012

This is a daily graph. We can see here that NUF has come out of a down trend and has now commenced a new stage 2 uptrend with a short correction over the last 3 weeks.

Graincorp Limited (GNC)

Graincorp Limited provides handling, storage, marketing and logistics services to the grain growing industry and has a significant share of the eastern Australian market. GNC is also the fourth largest malt producer in the world producing over one million tonnes annually. GNC owns a 60% stake in Allied Mills, a leading Australian flour miller.

GNCs strategy is focused on becoming a fully integrated agribusiness and expanding its grain storage and handling facilities. The company is pursuing an organic and acquisitive growth strategy. GNC continues to streamline costs and diversify its earnings base in order to reduce its reliance on income generated based on the total volume of crops handled. The expansion into malt adds both vertical and geographic diversification. The company continues the marketing expansion both domestically and internationally.

GNC had a difficult time in 2011 but has recovered well in early 2012.  Here is their year over year share price performance chart:

One rumor has it that Canadian grain handler Viterra is interested in GNC, while a UK news report has it that someone made a $5.5 Billion dollar offer to acquire Viterra!  Some agricultural experts claim the demand for wheat in China will double in the next few years, which would obviously be good for GNC.

Weekly chart as at 24 April 2012