Here’s how four major ASX beef stocks are affected by the drought
Health & Biotech
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Listed beef cattle stocks say they are focusing on the elements within their control with the severe drought showing no signs of slowing down as the 2019 financial year gets underway.
As parts of eastern Australia battle through the driest period for more than half a century, The Australian Meat Industry Council warned of a crash in fresh meat supply and higher prices over the coming months.
The Eastern Young Cattle Index, an indicator of cattle markets in Australia, finished 2017 down 11 per cent at $5.69; it currently sits at $4.89.
The ASX’s four major beef cattle stocks aren’t hiding from the drought.
Each has released public statements attempting to put investor worries at ease.
Australian Agricultural Company (ASX:AAC) chief Hugh Killen said his company’s strategy was simply to focus on “managing factors within our control”.
“Macro conditions were challenging coming into the year and that looks set to continue,” he said. “Rainfall was below average and we are experiencing a significant shortfall against ten-year averages on a number of our properties.
“Our focus remains firmly fixed on turning challenges into advantages that benefit the overall business.”
The company said it would look to improve efficiency and accountability for allocation of its capital resources to drive growth for FY19.
Here’s a table of major ASX beef stocks showing their recent share price performance:
Elders (ASX:ELD), perhaps the best known of the ASX’s four beef cattle stocks, admitted that retail earnings had been impacted by “unseasonally dry conditions across many parts of Australia”.
However, the $799 million company said that sheep and wool prices and volumes have helped to offset that damage, forecasting a marginally improved profit.
Chief Mark Allison told investors of the power of the company’s strategic plan.
“The forecast results reflect the company’s commitment to the strategic eight point plan and the resolve to achieve continuous high-quality growth, despite the difficult trading conditions,” he said.
“We believe Elders remains well-placed to achieve our target of 5-10pc EBIT growth through the agricultural cycle to 2020.”
It was a similar message coming out of Ruralco (ASX:RHL), saying it expects to deliver an underlying full-year profit of up to $29 million.
In May the company warned investors that the dry conditions could potentially shape profit in the second half.
Similar to Elders, it said a buoyant wool and sheep market had helped to offset the impact from decreases in cattle prices.
“Our focus in the fourth quarter is supporting our customers through this challenging cycle,” chief Travis Dillon said.
On the other hand cattle exporter Wellard (ASX:WLD) sees possibilities for opportunity in the dought — ans is “expecting to start FY2019 in a better position than FY2018”.
The severity of the drought varied across the country “and hence its impact will vary depending upon location, animal type and weight”, Wellard said in its annual report out last month
“In general, drought conditions result in a herd liquidation during which prices reduce and are then followed by a herd rebuild as growing conditions improve, during which prices increase.”
The current “liquidation” phase had helped increase live export volumes in recent months. Heavier, “ready-for-processing” cattle had a higher value during this phase.
If the drought worsened, the price of lighter cattle “may reduce and become more attractive for customers in Indonesia who prefer feeder cattle”, Wellard said.
But “customers in countries which import heavy “ready for processing” cattle, such as in Vietnam and China, may be forced to pay higher prices.
“The opposite will be true as conditions revert to a rebuilding phase.”