El Nino talk scorches ag share prices as fickle investors retreat

While expert weather opinions vary on the extent of El Nino's impact in 2023-24, or if drier conditions will linger, the likelihood of a smaller national grain crop, lower average livestock prices and leaner, recession-bitten export earnings has seriously eroded the sentiment for agriculture among some share market investors.

Among the most notable agribusiness names to suffer share market slides have been Elders, whose share value has fallen 50pc in 12 months, Australian Agricultural Company, down about a third, and GrainCorp, Incitec Pivot and Cobram Estate Olives, down about 20pc.

Nufarm shares are ending the financial year roughly where they began after dropping 20pc in the past six months, while Bega Group has regained some momentum to be down just 7pc for the year.

Select Harvests and Costa Group slipped only about 5pc in 12 months, but unlike most, they also weathered losses the year before.

Not even the decision by applauded Elders boss, Mark Allison, to remain as managing director and guide the farm services company through drier trading conditions was enough to halt a spectacular six-month price dive for that agribusiness.

RELATED READING

Elders shares traded around $13.23 each last November, but fell about $3 almost overnight after Mr Allison announced plans to exit at the end of this year.

The combined impact of his planned departure, weakening commodity markets and seasonal prospects, and then a 45 per cent drop in half-year net profit compared to impressive 2022 results, have continued to gnaw at the big agribusiness' share value.

It was down to $6.35 by early June, only managing to rally briefly above $6.50 when Mr Allison agreed to change his plans and stay with Elders for the next couple of years or so.

This week the price sank dangerously close to dropping below $6 a share, before recovering slightly above $6.10.

That compares with target values well above $7 suggested by leading agribusiness brokers such as Bell Potter and Morgans.

"The share market is unsettled for a number of reasons, but I'm confident our price will respond over time," Mr Allison said.

"Like anybody who's serious about agriculture, I'm playing the same long game, as before.

"Over the cycle I think we've performed better than just about any other listed Australian agribusiness."

Agribusiness research analyst, Belinda Moore, said there was still plenty of strength in the farm sector and it was very well placed for the long term.

However, seasonal factors had started to weigh on many companies.

"In general ag stocks have found themselves a bit out of favour lately," said Ms Moore, from Morgans.

"I think it's fair to say it's largely because forecasters in Australia, and overseas, expect tougher weather conditions here, which would impact on farm production and create uncertainty.

"However, keep in mind 2021-22 delivered some very good operating conditions for agribusinesses - a combination of good rain, good prices, big production numbers and high property market values.

"So we'd generally expect earnings to decline after that peak."

She said Elders' high profile share price setback reflected the reality that some investors were largely interested in short term opportunities, while others saw agriculture through a long term lens.

"Mark Allison is generally considered to have done a tremendous job with the business over 11 years," she said

"Given a more difficult seasonal outlook may be ahead, with lower sheep, cattle and wool prices and reduced demand for crop inputs, I think it's good to have him still at the helm."

Start the day with all the big news in agriculture! Sign up below to receive our daily Farmonline newsletter.