ASX agribusinesses that have been impacted by the three-year long drought won't find much relief anytime soon. Australia is facing its smallest winter crop in more than a decade and conditions in the industry are only going to get tougher, according to Rabobank.
The agriculture finance company believes our winter crop will only hit 27.7 million tonnes as farmers start harvesting in some parts of the country, according to a report in the Australian Financial Review.
Rabobank's estimates is six million tonnes below the federal government's forecast, which was released last month.
Graincorp's $40m safety net
The Graincorp Ltd (ASX: GNC) share price fell 0.7% to $7.64 in after lunch trade when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index inched 0.1% lower.
Graincorp's port terminals along the east coast of Australia have exported just about nothing over the past year and it's a good thing it took out insurance against the drought with insurance group Aon to smooth out its cash flow.
The poor grain outlook means it could reap more than $40 million in payout from the insurer, although that probably won't be enough to turnaround its underperforming stock.
Graincorp's share price is down around 16% since the start of the 2019 calendar year when the top 200 stock benchmark is sitting on a near 20% gain.
ASX shares dodging the bullet
That's considerably worse than other large cap agribusinesses on the ASX. The Nufarm Limited (ASX: NUF) share price rallied around 6% over the period, thanks to a recent surge in the stock after it announced the sale of its South American business to Sumitomo Chemical Company Limited for $1.2 billion.
Fertilizer and chemicals company Incitec Pivot Ltd (ASX: IPL) is also sitting on similar year-to-date gains. Both Nufarm and Incitec have more diversified businesses to Graincorp, and Nufarm in particular looks interesting as it's starting to sell its omega-infused canola seeds into the European market.
Rare weather phenomenon
Back home, the news isn't so upbeat. Rabobank is expecting the Australian government to lift grain imports by 50% to cope with the dismal harvest. Australia imported 360,000 tonnes of high protein wheat from Canada this year.
The poor winter harvest is due to an unusual weather phenomenon called "sudden stratospheric warming", which is caused by record high Antarctic temperatures in August and September.
The Extinction Rebellion will be seething at this factiod. This year's sudden stratospheric warming is worst than the last (and only time) the condition had been observed in 2002.
Rabobank senior grains analyst Cheryl Kalisch Gordon said "tough times are getting tougher and the tail of enduring impacts of the drought is getting longer".
Even if the drought breaks today, it will be a long road to recovery for the industry.