GrainCorp shares soar as global wheat trade tightens on Ukraine invasion

The escalating conflict in Ukraine has sent GrainCorp’s shares surging amid fears the invasion and severe sanctions on Moscow will spark global food shortages.

Russia and Ukraine supply about a third of the world’s wheat, feeding billions of people via bread, pasta, noodles and processed foods. Picture: AFP

Russia’s escalating conflict in Ukraine has sent GrainCorp’s shares surging as high as 7.5 per cent amid fears the invasion and severe sanctions on Moscow will spark global food shortages.

Russia and Ukraine supply about a third of the world’s wheat, feeding billions of people via bread, pasta, noodles and processed foods.

But supply of grain is being curtailed on two fronts: Russian troops moving to cut off Ukraine from the Black Sea and its grain terminals, and the US and its allies expelling much of Russia from the network that connects all banks.

SWIFT – or the Society for Worldwide Interbank Financial Telecommunication – is a secure messaging system that allows rapid payments between banks, and Russia’s removal from the system set to disrupt trade of key commodities from oil and metals to grains.

For GrainCorp, it will tighten an already taut global wheat market. Wheat prices have soared in past months to their highest level since 2008, following drought across the northern US and Canada, sparking greater demand for Australian grain.

Already, GrainCorp has forecast its full-year net profit to double, with chief executive Robert Spurway saying: “our clear priority at the moment is getting grain from Australia to the world”.

On Monday, its shares jumped as high as 7.5 per cent to a record $8.60, before easing to a close of $8.40 – near doubling its gains over the past 12 months.

Morgans equities analyst Belinda Moore said GrainCorp had entered the “perfect storm”.

“GrainCorp’s extremely strong FY22 guidance reflects a combination of another bumper crop, well above average carry-in grain of 4.3mt, outstanding supply chain execution, continued delivery of operating initiatives and high global demand for Australian grain and oilseeds,” Ms Moore wrote in a note.

The company has also capitalised on higher global prices.

GrainCorp CEO Robert Spurway said earlier this month his main focus is ‘getting grain from Australia to the world’.

For example, the price of wheat on the Chicago Board of Trade was $95 a tonne higher than Newcastle track markets.

Rabobank analyst Dennis Voznesenski said it was not yet certain if food would become the target of sanctions, but it would be difficult to “block out” Russia from global grain markets.

Indeed, China ended its restrictions on Russian wheat imports just hours before Moscow invaded Ukraine last week.

“The world’s going to split into two camps. The first camp is going to be the one that agrees with Western sanctions and no longer buys from the Black Sea,” Mr Voznesenski said.

“And then you‘re going to have the other camp where it’s going to be countries who either don’t agree with the sanctions that the West imposed on Russia and buy grain from there anyway, or you will have countries like Egypt who are very food insecure and they have no option but to buy from them because it’s not like 10 per cent or even 5 per cent of global grain trade.

“For wheat, 30 per cent comes from Ukraine and Russia.

“You can’t just block that out. It’s a third of global grain trade, it‘s a massive deal.”

The surge in the price of grains could, analysts warn, eventually impact the cost of local bread and cereals. “If the rest of the world really needs it, they‘re going to be offering high prices to get that out of the country,” Mr Voznesenski said. “And then in order to keep that in the country, domestic consumers – manufacturers of food – are going to have to give up against them the price of wheat to make sure it stays here.”

Australia’s wheat production is set to hit a record of 34.4 million tonnes this season, 3 per cent higher than the previous record set in the 2020-21 season.

It typically exports 65-75 per cent of total production, accounting for 10-15 per cent of the world’s 100 million tonnes of the annual global wheat trade, according to the Australian Export Grains Innovation Centre.

GrainCorp expects to export 8.5-9.5 million ­tonnes, compared with 7.9 million tonnes last year.

It has forecast full-year earnings before interest, tax, depreciation and amortisation of $480m to $540m. This compares with $331m in 2021. Meanwhile it has forecast underlying net profit of $235m to $280m versus $139m last year, and Mr Spurway, its chief executive says the company is well placed for next season.

“What we call carry, the inventory that we’re holding, will certainly flow into next year and benefit next year, irrespective of weather conditions. So we’re in a very strong position that will extend into 2023,” he said.

“Our combined grain intake across the harvest period has totalled 13.7 million tonnes, year to date, supplemented with a high opening grain inventory position of 4.3 million tonnes. We also expect good summer crop receivals … which are benefiting from optimal weather conditions.”

ANZ’s head of agribusiness Mark Bennett, in a note on Monday, said it was estimated that grain crop hit new records in the past financial year.

“The situation in Ukraine of course will deliver tremendous volatility for several commodities and supply chains at least for the foreseeable future,” he wrote.

“The need to make the most of these good times will be the next iteration of that hard work.”

Originally published as GrainCorp shares soar as global wheat trade tightens on Ukraine invasion