November 12, 2009

Australian winter crop forecasts upgraded

A production forecast for Australia's winter crops has been revised up a little from September, with some regional variations driving different impacts on grain companies, brokerage Goldman Sachs JBWere said Thursday (November 12).

Using state and federal agency forecasts, total winter grains production now is forecast at 37.3 million tonnes, up 4.2 percent from a September forecast of 35.8 million tonnes, it reported in an agricultural update.

Crops will be larger than previously expected in Western Australia and South Australia states, with this likely to be partly offset by downgrades to the New South Wales state crop, with expectations unchanged for Victoria and Queensland states, it said.

The likelihood of a larger crop is positive for the sector in general but the impact varies on listed companies, the broker added.

GrainCorp Ltd.'s earnings are negatively impacted by the downgrade for New South Wales, with the brokerage reducing fiscal 2009-10 forecasts to reflect a small decline in total receivals and export volumes.

The company is rated a Buy, "given the stock is trading at a significant discount to its domestic peers that we believe isn't fully justified", with a 12-month target price of A$8.33  (US$7.78) compared with GrainCorp's trading price at 2341 GMT of A$6.72 (US$6.28), the brokerage said.

AWB Ltd. will benefit from the larger crop and its fiscal year estimates have been upgraded a little, with a Hold recommendation maintained, and a 12-month target price of A$1.42 compared with its trading price at 2341 GMT at A$1.23.

Elders Ltd.'s business depends more on crop planting levels than production, so fiscal forecasts have been left unchanged with the brokerage putting a Hold recommendation on the stock with a 12-month target price of 19 Australian cents compared with its trading at 17.5 cents at 2341 GMT.

US$1 = A$1.06 (Nov 12)