Why is the GrainCorp share price racing higher today?

The government agriculture and resources research bureau is tipping Australia will have a bumper winter crop.

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Key points

  • The GrainCorp share price is outperforming the market today thanks to a bullish winter crop forecast by ABARES
  • While that's good news for GrainCorp's forecast earnings, UBS believes the good news is already in the price
  • Another ASX agriculture share that could represent better value is Elders, according to Shaw and Partners

The GrainCorp Ltd (ASX: GNC) share price is outperforming today as the government forecasts winter crop planting to be the second highest on record.

Winter crops across the country are tipped to come in at 23.4 million hectares this year, according to the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES). That’s only a bit below last year’s record.

This should result in winter crop production of 50.9 million tonnes, the fourth highest on record. Yield prospects are forecast to be well above 10-year averages in New South Wales and Queensland, and more modest in other states.

While investors have largely cottoned on to the solid outlook for Australia agriculture, that didn’t stop the GrainCorp share price from jumping 4.16% to $10.51 in mid-afternoon trade.

GrainCorp share price makes hay while the sun shines

This is in part because the revised forecast from ABARES is well ahead of its first estimate for the FY21 crop, according to UBS.

The broker said:

Commentary in the ABARES report is positive, noting strong rainfall supporting high moisture profiles for planting of the winter crop, and a high chance of above-median rainfall over the next 3 months.

As such, UBS upgraded GrainCorp’s earnings before interest, tax, depreciation and amortisation (EBITDA) by 12%. It also upped the company’s earnings per share estimate by 18%.

Is the GrainCorp share price a buy?

However, UBS believes the good news is largely in the GrainCorp share price as it kept its neutral recommendation on the shares.

Its 12-month price target of $10.05 is below where GrainCorp is currently trading.

Another ASX agriculture share that’s benefitting

But there may be a better way to gain leverage on the strong crop outlook. Shaw and Partners noted that ABARES’ forecast is also good news for the Elders Ltd (ASX: ELD) share price.

The broker explained:

ELD is a very well-run company delivering strong results in excellent market conditions. Whilst we do forecast a mean-reversion in these conditions from FY24 onwards, the upcoming winter cropping season, combined with the Northern Hemisphere supply issues, should result in solid earnings growth for Australian farmers over the next 12-24 months.

How the GrainCorp and Elders share prices compare

Shaw and Partners is recommending the Elder’s share price as buy with a 12-month price target of $20.

The GrainCorp share price has outperformed Elders over the past year as it more than doubled in value.

In contrast, the Elders share price gained 19% while the S&P/ASX 200 Index (ASX: XJO) declined 2%.

Motley Fool contributor Brendon Lau has positions in Elders Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Elders Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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