In morning trade the Graincorp Ltd (ASX: GNC) share price has been one of the worst performers on the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).
At the time of writing the food ingredients and agribusiness company's shares are down 6% to $8.04.
Why are its shares lower?
This week the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) released its latest crop update.
Unfortunately that update revealed that Australia's winter crop production is expected to decrease as a result of unfavourable conditions in key cropping regions.
According to the report, winter production is forecast to decrease 39% in 2017-18 to 36.3 million tonnes.
While a good portion of this decline can be attributable to a freakishly strong crop in 2016-17, it is still a disappointing 9% lower than the previous ABARES forecast three months ago.
ABARES now expects wheat, barley, and canola production to fall 38%, 40%, and 33%, respectively, as a result of these unfavourable conditions.
Should you avoid Graincorp?
Although its shares are not too far away from their 52-week low, I would suggest investors stay clear of Graincorp for the time being.
I think this disappointing crop and the strong Australian dollar will make life hard for the company over the next 12 months and weigh heavily on its results.
Instead of Graincorp, I would suggest investors look to gain exposure to the food industry through the likes of Collins Foods Ltd (ASX: CKF) or Tassal Group Limited (ASX: TGR).
