Floods have put a huge dent in Duxton Farms’ winter harvest

Agricultural companies are downgrading their expectations with weather a major factor as rural sentiment dips.

Duxton fFarms’ winter wheat harvest will be well-down on the previous year.

Australian agricultural producers are suffering crop losses as a result of extreme weather events, with New South Wales-focused Duxton Farms reporting a nearly 80 per cent fall in this year’s winter harvest due to flooding.

The announcement follows almond grower Select Harvests also downgrading its 2023 harvest outlook this week following a 2022 harvest “the quality of (which) was the worst the company has experienced over the last 10 years’’.

It’s not all bad news however, with GrainCorp last month forecasting earnings guidance of $470m-$530m and net profits of $180-$220m, which while down on last year’s record net profit of $380m, would still be the company’s second-best set of numbers on record.

The headwinds faced by the agricultural sector are reflected in the performance of the S&P/ASX agribusiness index, which is sitting near year-lows at the moment, and has delivered a negative 12.53 per cent 12 month return.

That index is diverse, including companies such as Treasury Wine Estates, A2 Milk, Nufarm and Elders.

Duxton, which is not an index member, said on Wednesday its winter crop production across wheat, barley and canola were 78 per cent lower overall, with wheat - its major output - to be down 84 per cent from 28,651 tonnes the previous year to just 4324 tonnes.

“The 78 per cent reduction in total harvest is indicative of the severity of the 2022 flood events, which according to the Insurance Council of Australia were the costliest natural disaster in the nation’s modern history, and contrasts heavily with the company’s 2020/21 winter harvest, which came in at 60,486 tonnes,’’ Duxton told the ASX.

“This difference is almost entirely attributable to the loss of significant arable areas

to inundation, which meant that the company only planted half of its planned cropping schedule, some of which had to be abandoned such that only 4855 hectares remained productive for this season at harvest.’’

Duxton said about 70 per cent of its core portfolio in the Forbes area of NSW was subject to inundation which affected both harvesting and the planting out of cotton for the summer crop.

“The board note that the company’s financial performance for FY2023 will be materially negatively impacted by the overall loss in volume,’’ Duxton said.

The company said its earnings update late last year, which predicted full year revenues of about $8m and a forecast net loss of $6.2m, remained accurate.

Select Harvests managing director David Surveyor said this week that it expected its 2023 almond crop volume to be lower than initially forecast.

“The financial impact of this volume downgrade should be somewhat offset by global almond prices starting to rise, driven by increased key export market activity, strong recent US and Australian shipment reports and inclement weather conditions impacting the US 2023 crop bloom process,’’ he said.

“As previously stated in Select’s announcement on January 27 ... the quality of the 2022 crop was the worst the company has experienced over the last 10 years.

“The remaining portion of this crop is undergoing a detailed assessment and a plan is being progressed to sell marketable almonds and utilise the remaining balance through the company’s value-add process.’’

Select said initial data on the 2023 harvest indicates the volume of the nonpareil variety of almonds - about 50 per cent of its production volume - was “potentially 25-35 per cent lower than initially forecast’’.

“The reduction in volume for nonpareil is due to a combination of the previously communicated poor bloom period and unusually colder and wetter conditions throughout the growing season,’’ Select said.

The company also updated the progress of negotiations around its banking facilities and said its banking partners had provided credit approval for an increase of $30m above current limits and adjusted its covenants taking into account current trading conditions.

“Despite the 2022 crop revaluation and the 2023 crop volume downgrade, the company is forecast to remain within its current/revised banking limits, Select said.

“Debt to equity at 1H FY2023 is expected to be approximately 37 per cent (based on market value of assets gearing would be approximately 28 per cent).”

Mr Surveyor said the company had a well capitalised and flexible balance sheet and added that the company’s portfolio of permanent water rights, worth more than $100m, “adds to the company’s financing flexibility’’.

Select shares dropped sharply on Monday when the update was released, however recovered during the day. The stock was trading at $4 on midday, down 1 per cent, but well off the 12-month high of $6.62 seen around late April last year.

Duxton Farms shares were 1.4 per cent higher at $1.49, compared with a 12-month high of $1.95.

The most recent Rabobank Rural Confidence Survey, released earlier this month, indicates sentiment among Australian farmers has dropped to its lowest level in more than four years in the current quarter, after a rally at the end of the end of last year.

The survey found the number of farmers expecting the agricultural economy to improve over the coming 12 months dipped to 11 per cent in the first quarter of 2023, compared with 15 per cent in December 2022.

“Although just over half of Australian farmers continue to expect business conditions to stay the same (51 per cent, marginally up on 50 per cent), more are anticipating conditions to worsen (36 per cent, up from 31 per cent),’’ Rabobank said.

“The main factor driving those with negative outlook is falling commodity prices, a worry for 68 per cent of those expecting conditions to worsen, a significant increase on 21 per cent previously, while rising interest rates were also an increasing concern (20 per cent, up from 11 per cent).

“While not currently ranked as a major driver of negative outlook, there were also signs emerging of a growing concern about a return to dry conditions.’’