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%.