SYDNEY, Australia (Reuters) — 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 move comes as the country faces the threat of drought from a looming El Nino.
The Australian weather bureau recently 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,” GrainCorp chief executive officer Mark Palmquist said after the release of half-year results.
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“An El Nino does have the ability to put us in a drier weather forecast as we work our way through the winter.”
The country’s largest listed agribusiness, which is 20 percent owned by Archer Daniel Midland Co., posted a 40 percent drop in profit for the six months to end of March to US$28.4 million.
Its main grain handling business was hit by an east coast crop that was more than 20 percent below the recent five-year average last season.
“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 ex-ports.”
Palmquist said an El Nino could affect this year’s results but said the bigger impact would likely come next year from reduced crop sizes.
To help weather the impact, GrainCorp plans 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 the end of March, up from 30 percent in recent years.
Growth in the malt business was being driven by strong demand for craft beer in the United States, particularly as North American barley production stalls, the company said.
It 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 slightly less than 20 million tonnes, Australian government data shows.
