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Ruralco Holdings earnings down from lower livestock prices, drought conditions

Agribusiness supplier of products and services Ruralco Holdings (ASX: RHL) released its 2013 annual report, and although it did have a 2% rise in revenue, net profit after tax and abnormals was down from $13.8 million to $5.7 million.

The company explained that the lower earnings were brought about by lower livestock prices compared to the prior year, as well as from an oversupply in underweight livestock, which had lower marketing alternatives. It added that should there be significant rainfall in Queensland, the Northern Territory and New South Wales, this would flow on to improve the return of previous livestock prices and supply rates.

The earnings underperformance was said to have occurred mostly in the first four months of the financial year, and the remaining months were in line with corresponding months of the previous year.

Noting that Australian agricultural products like grain and meat are in demand from overseas markets, it stated that if the coming months have sufficient seasonal conditions and rainfall, production should be driven higher.

The Australian agriculture industry is in a state of flux where international businesses are trying to secure adequate supply for growing demand of quality food. The dairy industry is going through a change, and could emerge as a bigger player on the global stage. Foreign companies are even buying agricultural land to produce here rather than buying products on the open market.

Livestock feed and nutrients supplier Ridley Corporation (ASX: RIC) had a hard 2013, with a net loss of $21.7 million compared to a $19.2 million gain in 2012. It attributed the loss to price pressure in the dairy industry, oversupply and fierce competition in the packaged product sector, and the effects of restrictions on rendered product exports to certain Asian countries due to concerns of Avian influenza.

It is currently conducting a strategic review of its existing mill assets, and is looking for “bolt-on” acquisitions to prepare for the expected growth in agribusiness due to the increased Asian imports.

In its outlook, it wrote, “Regional imbalances between population numbers and animal production capacity continue to provide long term growth opportunities for Ridley.”

Foolish takeaway

The Graincorp (ASX: GNC) merger talk with US agribusiness giant Archer Daniels Midland (NYSE: ADM) highlights the attraction that overseas buyers have for Australian companies. Dairy producer Warrnambool Cheese (ASX: WCB) and its three-way takeover offer battle show what’s at stake in the near future for Australian food producers.

Investors can take part in this future, but concentrate on the stocks of the lowest cost producers and market leaders, which have economies of scale to implement long-term growth plans.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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