The Graincorp Ltd (ASX: GNC) share price has surged higher in recent weeks to now trade around its 52-week highs.
Graincorp shares have rallied 15% in the last month and are now up more than 20% for the year. That also marks an impressive 92% return over the last 12 months.
During the same time, we've witnessed a number of geopolitical events rocking global food indices and contributing to inflation in global food prices.
How has this impacted the Graincorp share price?
Global grain markets have been ratcheting up in 2022 amid a wave of macro-catalysts. Wheat futures recently touched US$1252/Bu [bushel] in March as tensions escalated in Europe. Prices have since levelled off and are now trading around US$1083/Bu.
Both levels are 25-year highs for the commodity.
According to Trading Economics:
Prices remain more than 30% higher than before the Russian invasion amid interrupted exports from the Black Sea.
The FAO [Food and Agriculture Organization] expects Ukrainian wheat production to significantly fall in 2022, with at least 20% of winter plantations not being harvested due to direct destruction, constrained access, or lack of recourses to harvest the crop.
Graincorp's operating lines all stem back to grains. From its annual report in 2021, the company noted "the key commodities and products handled and traded by [the agribusiness] segment include wheat, coarse grains (including barley, sorghum and corn), oilseeds, pulses and organics".
Graincorp is also somewhat a price taker on these commodity price gains. This is because its earnings and cost profile directly reflect market conditions.
The company affirmed this earlier in April when it revised its FY22 guidance upward due to "significant ongoing global demand for Australian grain and oilseeds", alongside favourable planting conditions.
CEO Rob Spurway said:
As we outlined at our AGM in February, we are seeing high global demand for Australian grain and oilseeds and strong supply chain margins for grain exports.
This has been driven by two consecutive bumper crops in east coast Australia (ECA), coupled with supply shortages in the northern hemisphere.
The conflict in Ukraine and resulting trade disruptions in the Black Sea region have created uncertainty in global grain markets, with buyers looking for alternate sources of supply. This has further increased both the demand for Australian grain and oilseeds and export supply chain margin.
In fact, we can see the correlation between the price jump in wheat and the Graincorp share price on the chart below.
Graincorp says it now projects a range for FY22 underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of $590-670 million. That's up from $480-540 million previously.
It also expects FY22 underlying net profit after tax (NPAT) of $310-370 million. That's also well up from previous forecasts of $235-280 million.
