GrainCorp Limited (ASX: GNC) is one ASX-listed agriculture share that has been in the firing line of China's 80% import tariff on Australian barley.
As Motley Fool has previously reported, the tariffs were imposed after China claimed that Australia used the illegal practice of dumping. A claim vigorously denied by Australia.
Despite the loss of a major part of its market, the GrainCorp share price has enjoyed a bit of a renaissance of late, rising 19% in the last 3 months. We explore the possible reasons.
GrainCorp succeeds in finding markets outside China
In May, GrainCorp reported revenue of $2,63.5 million for the half-year ending 31 March, delivering a 30.8% increase on the prior corresponding period. Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) from continuing operations grew to $140 million.
For several years, GrainCorp has made it a priority to focus on other markets, not just as a response to the barley tariffs but because it equated to good business.
In an interview with the Australian Financial Review, GrainCorp managing director Robert Spurway said:
What we have seen is that Australian grain remains competitively priced in most destination markets and that has created opportunities and, as a result of the tariffs, as you always do with tariffs when they are applied, a bit of disruption and dislocation to global trade but the underlying demand remains there.
Crop forecast to hit peak in June
A report out of Bell and Porter last month pointed to the June Australian Bureau of Agricultural and Resource Economics crop report. It highlighted an east coast winter crop forecast of 22.1 megatonnes (mt), the highest June forecast ever and above last year's previous high of 21.5mt.
Further, Bell and Porter added that the "current soil moisture profiles, the three-month rainfall outlook and grain futures pricing, all look supportive of another above-average crop size and trading margin outcome for GNC".
Despite the positive forecast, Bell and Porter downgraded the GrainCorp share price from buy to hold, Analysts cited the main reason for the downgrade being the high likelihood that a seasonal peak in earnings was close to being reached.
Meanwhile, GrainCorp's earnings guidance upgrade reflected strong margins due to high global demand for Australian grain and oilseeds. The turnaround demonstrates that exporters can succeed in finding markets outside China.
The GrainCorp share price is trading at $5.19 up 0.48%, at the time of writing.
