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the Graincorp Ltd (ASX: GNC) The stock price has surged in recent weeks and is now trading around its 52-week highs.
Graincorp shares are up 15% in the past month and are now up more than 20% for the year. This also marks an impressive 92% return over the past 12 months.
Over the same period, we have witnessed a number of geopolitical events tipping global food indices and contributing to global food price inflation.
What impact has this had on Graincorp’s share price?
Global grain markets rose in 2022 amid a wave of macro catalysts. Wheat futures recently hit US$1,252/bushel [bushel] in March as tensions rose in Europe. Prices have since stabilized and are now trading around US$1083/bu.
Both levels are 25-year highs for the commodity.
According to Trading Economics:
Prices remain more than 30% higher than before the Russian invasion amid disruption of Black Sea exports.
FAO [Food and Agriculture Organization] expects Ukrainian wheat production to drop significantly in 2022, with at least 20% of winter plantings unharvested due to direct destruction, limited access or lack of recourse to harvest wheat harvest.
Graincorp’s business lines all trace back to cereals. In its 2021 annual report, the company noted “the main products and raw materials processed and marketed by [the agribusiness] include wheat, coarse grains (including barley, sorghum and maize), oilseeds, pulses and organics”.
Graincorp is also somewhat of a price taker on these commodity price gains. Indeed, its profit and cost profile directly reflects market conditions.
The company affirmed as much earlier in April when it revised its FY22 guidance upwards due to “continued strong global demand for Australian grains and oilseeds” as well as planting conditions. favorable.
CEO Rob Spurway said:
As we highlighted at our Annual General Meeting in February, we are seeing strong global demand for Australian grains and oilseeds and strong supply chain margins for grain exports.
This was driven by two consecutive bumper crops on Australia’s East Coast (ECA), coupled with supply shortages in the Northern Hemisphere.
The conflict in Ukraine and the resulting trade disruptions in the Black Sea region have created uncertainty in world grain markets as buyers seek alternative sources of supply. This has further increased both the demand for Australian grains and oilseeds and the export supply chain margin.
In fact, we can see the correlation between rising wheat prices and Graincorp’s stock price on the chart below.
Graincorp says it now expects a FY22 underlying earnings before interest, tax, depreciation and amortization (EBITDA) range of $590 million to $670 million. This represents an increase from $480 million to $540 million previously.
It also expects underlying net profit after tax (NPAT) of $310 million to $370 million for FY22. That’s also well above previous guidance of $235 million to $280 million.