Growing up on a farm taught me many things, not the least of which was to appreciate a good downpour. As quoted from Tom Barret "If the rain spoils our picnic, but saves a farmer's crop, who are we to say it shouldn't rain?". Lo and behold, I find myself looking at the Bureau of Meteorology's 2021 forecast, even though I have no lawn – just a habit, I guess.
Agriculturally geared ASX shares have been just as sporadic with their performance as the rainfall. Let's take a look at how these ag shares fared the 2020 storms.
Elders Ltd (ASX: ELD)
Elders provides a wide array of foundational agricultural goods and services, including livestock and wool agency services; and financial services for primary producers. The Elders share price has increased 52.24% in the last year, while also paying a dividend yielding 2.22% based on today's price.
The retail products area of the company benefitted from a strong winter crop season. Product margins were substantially improved also by the sale of whole products through the acquisition of AIRR.
Agency services (acting as a broker in agricultural goods), experienced uplift from the strong prices for cattle and sheep.
Elders' FY21 market outlook forecasts production to grow, but the value to hold steady as the price will reduce as a result of increased supply. However, the ongoing trade tensions with China leaves a question mark over the head of performance for 2021
Citigroup has a "buy" rating on Elders with a price target of $13.
Select Harvests Limited (ASX: SHV)
Select Harvests on the other hand has had a rough year. The agribusiness grows almond orchards; and processes and distributes an assortment of edible nuts, dried fruits, natural health foods, etc. The company has seen its share price fall 37.5% in the last year, from $8.34 to $5.21 at the time of writing. Where did it all go wrong?
Apparently, conditions were near perfect in the United States, leading to an oversupply – putting downwards pressure on almond prices. In addition to this, the company experienced shipment delays and record or near-record high spot prices for water across its operations.
The culmination of challenges led to Select Harvests' earnings per share falling more than 53% for FY20.
CEO Paul Thompson mentioned in the September results that the improved weather conditions coming into the new financial year had moved water prices back towards long-term averages. However, the CEO declined to give a forecast for the 2021 crop.
Select Harvests market capitalisation stands at $633.98 million.
Nufarm Ltd (ASX: NUF)
It's been a trialing year for the Melbourne based agricultural chemical company. The share price started out the year at $6.13, since then it has been a case of taking the stairs up and the elevator down – only the stairs go up 1 floor, and the elevator goes down 2. Currently, the share price sits at $4.26, having fallen 30.5% since the start of the year.
The company struggled through the dry seasons across multiple geographies, with large issues stemming from Europe. Nufarm noted that the European market is complex, it has much more cautionary regulations and the devalued currencies in those areas impacted the business.
Supply chain disruptions by COVID-19 also impacted the company's ability to meet demand when more favourable weather arrived.
However, Nufarm showed in its Annual General Meeting Presentation that with improved weather conditions returning, all regions have improved in terms of revenue compared to the same time last year. This resulted in second half revenue for 2020 growing to $2,847 million, compared to $2,674 the previous year.
The recent revenue growth also has Morgan Stanley retaining an "overweight" rating with a price target of $4.80 on Nufarm shares.
Will it be flip flops or gummies?
Well, there is no certain correlation between weather and share performance, not that I have discovered as of yet anyway. But there can be implications from various weather events on how a company can carry out its business.
With that being said, if you were still interested, the Bureau of Meteorology is forecasting above-average rainfall for much of the country, better pack the brolly.
