It was a year to remember for the Graincorp Ltd (ASX: GNC) share price in 2021. While the S&P/ASX 200 Index (ASX: XJO) returned 13%, the integrated grain company yielded a mindboggling 97.1% gain for shareholders.
The market-beating rally follows several years of largely sideways movement in Graincorp shares. Prior to 2021, investors were grappling with an investment that was often range-bound between $3.50 and $4.75.
During this time Graincorp's profitability waved like leaves in the wind — going from $26 million in 2016 to $112 million in 2017, and back down to $70 million in 2018. Meanwhile, the company's revenue was trending downwards, creating uncertainty for shareholders.
However, those that have stuck it out with the Graincorp share price were rewarded in 2021. But what exactly were some of the key drivers behind this renewed momentum? Let's take a look.
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Grains align for a bumper season
Much like many other commodities last year, grains enjoyed a major strengthening in price due to attractive supply and demand dynamics. Graincorp benefited from this through its supply chain, origination, and processing activities.
While historically it has often been the case that high grain prices have been concurrent with low yields across Australia, this was not the case last year. Instead, Aussie crop growers relished in above-average levels of grain production.
This positive environment was still prevalent last month, as grains analyst Malcolm Bartholomaeus noted:
In South Australia we have the highest ever prices for both wheat and canola and it is even getting close to records in NSW, where we had those really high prices during the 2018-19 drought when there was very little grain about.
We've averaged $407 [per tonne] for the early part of December, compared to a previous high of $390 per tonne.
According to its full-year result, the company witnessed strong global demand for Australian grain, oilseeds, and vegetable oils during the financial year. In turn, revenue rose 50% to $5,491.5 million from the prior corresponding period.
Perhaps most important for shareholders was the substantial increase in net profits. For the full year ended September 2021, Graincorp delivered net earnings of $139.3 million, up nearly fourfold from $35.2 million in 2020.
Rain and shine expected for Graincorp share price
Although the wet weather might have put a dampener on your holidays, it has the opposite impact on grain projections. For instance, analysts at RBC highlighted rain forecasts to be a catalyst for the Graincorp share price looking forward.
With the Bureau of Meteorology expecting high rainfall across Australia into early autumn 2022, RBC sees a good year for Graincorp's Agribusiness segment.
Specifically, the broker has forecast $294 million in FY22 earnings before interest, tax, depreciation, and amortisation (EBITDA). This would suggest a 7% increase in the company's Agribusiness EBITDA from FY21.
