3 ASX shares that could get a slice of a record $81bn farm output this year

It could be blue skies ahead for these ASX agriculture shares…

Brendon Lau

Brendon’s passion for shares started by accident in 2003 and he has worked in various roles around capital markets ever since as a trader, stock analyst and markets reporter with the Australian Financial Review. Most of his wealth has come from share investing than any other asset class, and that has given him the financial freedom not to work full-time, if he chooses to. Brendon is a medium to long-term investor who aims to hold positions for a year or longer and is focused on fundamental analysis, although he will occasionally use technical indicators to time his entries and exits. Brendon has an MBA from Melbourne Business School and is RG 146 certified. He lives in Melbourne with his wife, three kids and two dogs.

Published March 1, 2022 10:34 am AEDT

ASX agriculture shares could be on a new bull run amid predictions that Australia's farm gate output will hit a record-breaking $81 billion this financial year.

That's $3 billion higher than the previous estimates given in January, reported the Australian Financial Review.

The soft commodity boom is getting less coverage than oil, lithium, and other "green" metals.

But if the forecast from the Australian Bureau of Agricultural and Resource Economics (ABARE) is correct, several ASX shares linked to the rural sector could record strong earnings during the August reporting season.

Graincorp share price farming asx share price rise represented by rejoicing farmer in field — Image source: Getty Images

What's driving the soft commodity boom?

Near-perfect growing conditions and the surge in soft commodity prices to around 32-year highs are driving the bullish outlook.

While the value of Australian farm production is expected to moderate in FY23, it's still tipped to come in at $76 billion. That's the second-highest on record, noted the AFR.

But the war in Ukraine is also bolstering the outlook for Australian commodities, including wheat. Russia and Ukraine account for around 30% of global wheat output.

That leaves a big hole that is unlikely to be completely filled. Most of Australia's bumper harvest will be exported to the tune of $64 billion.

Sun shining on these ASX agri shares

One possible beneficiary from any supply deficit could be the Graincorp Ltd (ASX: GNC) share price. The company owns Australia's largest grain storage and handling network on the east coast, although the devasting floods hitting Queensland and New South Wales could present a near-term headwind.

But it isn't only Graincorp that could benefit from these powerful tailwinds. The cash from the soft commodities boom will help top up government coffers. Farmers and rural communities will also likely partake in the feast.

This means any ASX company that provides products and services to the sector could get an earnings boost.

Other ASX shares making hay

You can count the Nufarm Ltd (ASX: NUF) share price among the possible winners. It provides seeds and herbicides to more than 100 countries, including Australia and Europe.

While the Nufarm share price has been gaining ground recently, it's only up around 12% over the past year.

Another beneficiary could be the Elders Ltd (ASX: ELD) share price. The group provides a wide range of products and services to the rural sector, including insurance.

The Elders share price is faring even worse than the Nufarm share price. It has essentially gone nowhere over the past year.

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