El Nino: Agribusiness share prices turn on the forecast

Agribusiness share traders are punting their cash on the impacts of El Nino and La Nina on agriculture.

The saying goes that if playing the stock market was easy we’d all be millionaires – and that gamble can be harder to predict for agribusiness, with Mother Nature rolling the dice.

Extreme La Nina weather that ravaged great swathes of agricultural land in 2022 and 2023 caused significant balance-sheet carnage for many producers.

But on the flip side, that damage was isolated to geography and sectors, and far from a disaster for many share traders.

While the diverse ASX agribusiness index, which includes Treasury Wine Estates and Elders, recently delivered an overall negative 12.5 per cent return, on-farm headwinds caused barely a zephyr in the share market for some companies.

RaboResearch general manager Australia and New Zealand Stefan Vogel said La Nina delivered strong positives for many farm businesses, including high soil moisture levels that drove a record grain crop, strong fodder production for dairy, beef and sheep operations and good irrigation water supplies.

Damage on a farm following a dump of more than 300mm of rain in 2022. Picture: NCA NewsWire / Nathan Edwards

The up-ticks then raised investor interest in lock stock traded companies in the more fortunate sectors. GrainCorp, for example, last month forecast a second-best net profit on record of up to $220 million.

“These results led to prices inflated by geopolitical complications and La Nina drought conditions reducing crops in other countries,” he said.

Mr Vogel said the weather pattern that actually crimps trading confidence is the drought-inducing El Nino cycle.

“For now, it is not yet clear when exactly and how strong the El Nino will be, and we may just make it through this season with limited impact,” he said.

“But if El Nino comes fast and strong it might reduce production of crops and result in a reduction of livestock inventories.”

Almond grower Select Harvests is one of many businesses that blamed La Nina for crop losses and quality downgrades that saw the fully integrated business recently report a $96.2 million net loss.

But while shares initially fell on that news, the market soon rallied with promises from managing director David Surveyor that an El Nino pattern “is typically favourable for growing almonds”.

Meanwhile, Mr Vogel said water access was, “and always will be”, a key investment decision for every investor in Australian farm businesses.

This news places additional pressure on a federal government about to unleash a tidal wave of water buyouts across the southern Murray Darling Basin to claw back another 790 gigalitres of water from irrigation communities.

Experts suggest share swapping may cool until the Albanese government reveals its full plans.