SYDNEY (Reuters) — Facing the threat of drought from a looming El Nino, Australia’s GrainCorp Ltd. plans to expand its malt and international units in an effort to offset a potential hit to its core grain handling earnings.
The Australian weather bureau this week confirmed the formation of a strong El Nino, traditionally associated with dry weather across eastern Australia, where many regions are already suffering drier than normal conditions.
“We do have to be concerned about it,” said GrainCorp chief executive Mark Palmquist, after the release of half-year results. “An El Nino does have the ability to put us in a drier weather forecast as we work our way through the winter.”
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The country’s largest listed agribusiness, which is 20 percent owned by U.S. group Archer Daniel Midland Co., posted a 40 percent fall in its profit for the six months to end-March to US$28.4 million.
Its main grain handling business was hit by a smaller east coast crop last season, which was more than 20 percent below the recent five-year average, according to government figures.
“The smaller crop in eastern Australian last year means it’s been a tougher period for storage and logistics and marketing,” said Palmquist. “Lower production translated to reduce grain throughput and exports.”
Palmquist said an El Nino could affect the 2015 results, but said the bigger impact would likely come in 2016 from reduced crop sizes.
To help weather the impact, GrainCorp aimed to expand its wheat origination team in Europe and North America, which sources wheat with different protein and other characteristics for sale to its usual customers.
GrainCorp also planned to further expand its malt business which contributed about half of its pre-tax earnings in the latest half-year to end-March, up from about 30 percent in recent years.
Growth in the malt business was being driven strong demand for craft beer in the United States, particularly as North American barley production stalled, the company said.
GrainCorp said it expects 2015-16 grain production across the Australian east coast to total 16.3 million tonnes, down from 17.4 million tonnes in 2014-15, and below an historical average of just below 20 million tonnes, Australian government data shows.
