Australia | Mar 07 2007
By Greg Peel
Australians living on the east coast do not to be informed that El Nino has now passed, with many still cleaning up after torrential rains. Over the next few months the Bureau of Meteorology is expecting a return to average rainfall in the east which, if nothing else, should send both sides of NSW politics scurrying to find a new angle on the upcoming election that doesn’t focus on desalination versus recycling.
This is not necessarily an indication that the drought is over, however, and no one would be foolish enough to suggest future weather patterns will be predictable. But at least it is a positive development.
So it is that the Australian Bureau of Agriculture & Resource Economics has now updated its crop outlook to a much more healthy level. ABARE expects a much improved winter 2007 crop production of 38.4mt – 144% above last year.
Assuming the rain does fall, ABARE anticipates a 15% increase in area sown to winter crops. As grain prices around the world have soared, largely on the back of the biofuel bonanza, this should prove a doubly beneficial boost for Australia’s beleaguered farming industry.
Macquarie analysts believe this bodes well. They are quick to note, however, that optimistic expectation of rain has often led to disappointment in the past. But strong recoveries usually follow a year after a drought, and higher grain prices will provide support.
Macquarie has reiterated its Outperform ratings on current market darling Incitec Pivot (IPL) (never has a market been so enamoured with s**t), and also on agricultural chemical manufacturer Nufarm (NUF).
As we continue to await the ultimate fate of disgraced grain monopolist AWB (AWB), competing grain producers/distributors such as ABB Grain (ABB) and Graincorp (GNC) are looking at potential upside, while a plethora of other listed agricultural stocks will be anticipating better fortunes as well.
