If you thought that the terrible floods afflicting the New South Wales central coast would be bad news for ASX agri shares, think again!
The “rain bomb” that is hammering prime agriculture land doesn’t seem to be hurting ASX shares exposed to the sector.
NSW floods not without costs
This isn’t to say that farmers that have been hit by the deluge aren’t suffering. For instance, the price of blueberries is likely to surge as crops are damaged.
The NSW central coast accounts for 75% of blueberry production in the country, reported the Australian Financial Review.
The article also highlighted cattle farmers who have been badly affected by yet another 100-year natural disaster.
Luck smiles on ASX agriculture shares
There are clearly those who will be doing it tough, but the pain isn’t widespread thanks in part to good timing.
“We note that flooding, at this point, has not been observed within NSW’s main row-crop (grain) production regions, which are located further inland,” said UBS.
“We also highlight that planting for the main east coast winter crop does not usually begin until April/May, meaning recent rainfall in farming regions could be supportive of improved soil moisture content levels, following the drought conditions observed in recent years.”
If anything, the broker believes the agriculture sector is set for a big recovery even with the NSW floods. Subsoil and topsoil moisture levels point to a decisive break in drought conditions that have gripped the region in the last three years.
Talking about good timing, any bumper crop will coincide with soft commodity prices.
For instance, wheat makes up around 60% of Australian crop production and prices are up by approximately 50%, added UBS.
ASX shares best placed to benefit
A number of ASX agribusiness shares are well placed to benefit from the recovery. One of UBS’ key picks in the sector is the Incitec Pivot Ltd (ASX: IPL) share price.
The broker’s “buy” recommendation on Incitec is driven by a strong outlook for international fertiliser prices and improving conditions for its local fertiliser business.
Another stock the broker is bullish on is the Nufarm Ltd (ASX: NUF) share price.
“We are also Buy-rated on Nufarm, where recovering agriculture conditions, reversal of cyclical input cost pressures and the re-basing of the group’s cost base are driving a significant earnings recovery,” said UBS.
The broker’s 12-month price target on the Incitec share price is $2.85 and Nufarm share price is $5.70 a share.