Weekly Agribusiness News Recap

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By Georgia Devenish - Agricultural Research Analyst at JLL

Agribusiness

Last week The a2 Milk Company announced a 41.40 percent jump in revenue to $A 1.234 billion, surpassing the $A1 billion mark for the first time. Shares in the company have fallen 18.50 percent since the announcement, partly due to the general decline in stocks on the ASX over the past week, but also because announced profits fell below market expectations. Net profit after tax increased 47 percent to $A272.2 million.

A 73.40 percent increase in value of infant nutrition sales across China and other markets in Asia highlight strong performance in that region of the world. There was growth trends observed in the US market as well, with liquid milk sales more than doubling over the year. Managing director, Jayne Hrdlicka, said the a2 distribution network in the US had expanded 118 percent to 13,100 stores. Hrdlicka also said that the company saw Australia, New Zealand, China and the US as key markets which would provide the most significant growth opportunities in the medium term. The a2 Milk Company expects earnings growth for 2019/20 to continue at approximately 28 percent.

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Nestle has announced the impending closure of its dairy factory at Tongala. The factory largely produces tinned milk products, the production of which Nestle general manager, Andrew McIver, said would be moved to the company's factories overseas during the next 12 to 18 months. McIver cited slowing demand for tinned milk and cheaper imports had eroded the viability of the business. Closure of the Tongala plant is planned between late 2020 and mid-2021.

Higher competition and lower supply of raw milk has sent Bega Cheese's after-tax statutory profit in a tail spin down 60 percent to $11.8 million. This occurred despite the company having lifted revenue by 13 percent to $1.42 billion last financial year. Chief executive officer, Paul van Heerwaarden, said Bega fully understood the challenging circumstances its suppliers and the wider Australian dairy industry had to tackle in the past year. Bega Cheese chairman, Max Roberts, said, "Our investment in advancing over $38 million to suppliers via our Bega supplier premium and related supply agreements should buffer some of the intense competition for milk into 2019/20."

Rural Funds Group (RFF) has instructed its lawyers Clayton Utz to commence legal action against Bonitas Research LLC for its deliberate and malicious publication of the document it released about the financial position of the RFF on 6 August 2019. The action comes after an Ernst & Young report found the disruptive short-seller's assertions on the publicly listed accounts weren't substantiated. That aside, Rural Funds Management (RFM), the responsible entity for RFF, has announced the lease of 'Rewan' to Australian Agricultural Company which will commence 1 October 2019. It also advised the purchase of 'Cygnet' was expected to settle in November 2019. RFM has the intentions to develop the property to a 40 hectare macadamia orchard.

Water

A $7.3 million water storage project is on the cusp of commencement in the McLaren Vale wine region of South Australia. The 600 megalitre water storage facility to be built at Seaford Heights is anticipated to contribute to an additional $5.5 million in grape production and an estimated $33 million increase in wine production annually in the region. The storage facility will redirect recycled waste water from the Christies Beach Waste Water treatment plant to McLaren Vale irrigators.

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20 irrigators in Penfield and surrounding northern Adelaide suburbs are the first to sign up to the $155.6 million Northern Adelaide Irrigation Scheme (NAIS). Deputy Prime Minister and Minister for Infrastructure, Transport and Regional Development, Michael McCormack, said, "This scheme will help expand the region's agriculture industry and increase its export potential-things that previously have been hampered by limits on water availability and high costs...Providing long-term contracts will ensure water security for new horticulture investments and expansions and encourage investment." Federal Member for Grey, Rowan Ramsey, said the Coolanie Water Scheme was also progressing, with the Federal and South Australian governments recently signing a funding agreement.

Cropping

SunRice has revealed contracts for 2019/20 for medium grain Reiziq reached $750 per tonne while $950 per tonne was offered for Koshihikari and $1,500 per tonne for organic paddy. To make comparison, last season's medium grain rice contract was $411 per tonne. The increase in the contract prices offered comes as a bid to compete with other crops vying for low water availability. The announcement came at the recent annual general meeting where the financial results for the year ending April this year were presented. Consolidated revenue was reported at $1.2 billion while net profit after tax dropped 27 percent compared to the previous year, to $32.8 million.

Simplot announced a second offer to potato growers at a meeting in Deloraine earlier in the week. The proposed offer of a $35 per tonne increase for all varieties of potatoes in the upcoming season and a minimum of $10 per tonne increase next year was accepted by more than 80 growers. Simplot's initial offer of a $20 per tonne price increase was rejected by growers in July. TFGA Vegetable Council chairperson, Nathan Richardson, said the revised offer was a step in the right direction but growers had initially calculated a $70 per tonne increase was required over the next two years.

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A strong cotton season for trials taking place in Western Australia's Kimberley region brings the dream of building a cotton gin in the north a step closer to reality. Currently cotton being produced by Chinese-owned Kimberley Agricultural Investment has to be transported 3,500 kilometres to Dalby in south-east Queensland. Cotton from 'Tipperary Station', south of Darwin, made the 3,000 kilometre journey down to St George, Queensland for ginning. Bruce Connolly, farm manager at 'Tipperary Station', said that a feasibility study was already underway for a cotton gin to be built in the Northern Territory. The development of this growing crop producing region is gaining considerable interest as reports suggest that the current drought in Queensland and New South Wales has crippled this year's crop, wiping $2 billion off production compared with two years ago.

Trade

The value of Australian trade grape exports has exceeded $500 million for the first time. Approximately 146,000 tonnes of fruit were sent overseas in the 2019 season which represents a 32.5 percent increase year-on-year. The growth in exports has come off the back of new vines coming into production, as well as a very strong growing season. Demand from Japan has also been instrumental. Australian Table Grapes Association Chief Executive, Jeff Scott, said, "We are now the biggest southern hemisphere supplier to that country. It's quiet remarkable given the fact we're only allowed to export three varieties to Japan, so we actually exported more to Japan than say Chile did, which is our main competitor."

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