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Good July rains across Victoria and South Australia will help boost Australian winter crops by 2% to 62 million tonnes, providing a tailwind for agricultural stocks such as Graincorp Limited (ASX: GNC), and logistics providers Qube Limited (ASX: QUB) and Aurizon Limited (ASX: AZJ).
The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) Australian Crop Report, released in September, says that despite an unfavourable start to the winter cropping season in South Australia, Western Victoria, and Southern New South Wales, the season ended up being bountiful.
Above average July rainfall in South Australian and Victoria, combined with follow up rainfall in August has provided enough moisture for crop emergence and establishment, and although 3-4 weeks late, yield potential is positive.
Rainfall in southern New South Wales has not been as favourable with crops receiving just enough to maintain growth. Further rainfall will be crucial for current yield potential to be realised. By contrast, conditions have been favourable in Western Australia, Queensland, and northern New South Wales, reflecting timely rainfall that has maintained soil moisture profiles. These conditions have placed crops in an excellent position heading into spring.
RBC Capital Markets says the report is positive for agricultural stocks, with a number of logistics providers set to benefit.
Across our coverage, our preferences are now for post-harvest exposures, led by Graincorp (revised price target $10.50) the dominant soft commodity trader and supply chain provider, followed by NSW-exposed Qube (price target $4.30) and West Coast/Central exposed Aurizon (price target $3.20).
Elsewhere, early-mid stage exposures include the remaining fertiliser production assets of Dyno Nobel Limited (ASX: DNL, price target $3.60) and crop protection provider Nufarm Limited (ASX: NUF, revised price target $2.75) that leverage the land preparation phases.
Graincorp shares are currently trading at $8.46, Qube shares are changing hands for $4.08, and Aurizon stock is $3.17.
Dyno Nobel shares are changing hands for $2.96, and Nufarm shares for $2.31.
