Lack of rain hurts farming stocks

Dry weather driving down demand and profits.

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The recent trading update by the nation’s largest beef producer Australian Agricultural Company (AACo) (ASX: AAC) should draw investors’ attention to the severe lack of rainfall across much of Australia’s farming districts over the past seven months.

As the Bureau of Meteorology records in its monthly drought statement, the Northern Territory is experiencing its driest wet season in 20 years. Plenty of other records are being set too, including the driest January in South Australia for 24 years and the warmest January in New South Wales since 1939.

For AACo the dry weather has forced the company to issue a market update which warns the market that it may need to downgrade profits if current trading conditions continue. AACo sells a substantial quantity of breading cattle and due to the low rainfall many of AACo’s customers are not restocking their herds, in turn this lower demand is driving down prices.

To diversify its reliance on the domestic market and due to the on-going issues in the live export market, AACo is looking to secure an equity partner to help build an abattoir in Darwin. This would appear to be a smart move by the company and hopefully one it can commission sooner rather than later.

Few farming stocks benefit from severely dry conditions regardless of whether they have direct exposure — such as AAco, PrimeAg (ASX: PAG), and Tandou (ASX: TAN) or indirect exposure through the provision of services — such as GrainCorp (ASX: GNC), Ridley (ASX: RIC), and Nufarm (ASX: NUF). Perhaps one bright spot is companies that hold valuable water rights including PrimeAg and Tandou, and sandalwood plantation owner TFS Corporation (ASX: TFC), which has access to the Ord River irrigation scheme.

Foolish takeaway

The weather is an always present factor when investing in farming related stocks. This makes the industry undesirable for many investors but the volatility from weather related events can also provide investment opportunities for the alert investor.

In the market for high yielding ASX shares? Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »