Huge global crop swamps SunRice profit outlook

Global rice prices are now at their lowest point in a decade and rice stockpiles have shot up to their highest levels since 2001-02.
Global rice prices are now at their lowest point in a decade and rice stockpiles have shot up to their highest levels since 2001-02.

The world’s increasing grain stockpiles have started hurting the Australian export rice industry just as it prepares for its biggest harvest season in three years.

National exporter SunRice has warned its net profit after tax for the current financial year is likely to be pruned as much as $10 million to between $30m and $35m.

The farmer-owned company said it expected pool payments to growers for the coming harvest will be down on last year, but still above $300 a tonne (as previously forecast), despite global paddy production heading for record levels of about 480m tonnes.

Payments still owed to farmers for the 2016 medium grain, guaranteed to total $415/t (for reiziq variety), were also assured.

However, global prices are now at their lowest point in a decade and rice stockpiles have shot up to their highest levels since 2001-02, according to SunRice chief executive officer, Rob Gordon.

Ironically a wet winter last year provided a big boost to irrigation water supplies for NSW ricegrowers who responded to SunRice’s earlier calls for more production and are now on track to harvest 800,000 tonnes in autumn.

The 2017 crop will be well up on last season’s 245,000t crop and the 690,000t stripped in 2015.

Adding to export market unease is continuing uncertainty about prospects in the big Papua New Guinea market as the nearby nation’s economy struggles.

PNG’s weak exchange rate and political uncertainty surrounding plans to bring in import quotas and effectively nationalise rice production and marketing represent a big danger for SunRice.

The company generates about 30pc of its revenue from its Trukai joint venture in New Guinea.

Back in Australia SunRice group’s earnings have also being weighed down by difficult trading conditions for its CopRice stockfeed business which suffered reduced dairy sector demand, and stiff competition for food service and imported grocery products division, Riviana Foods.

Last year’s lean rice harvest and poor throughput volumes at its mills have also restricted revenue potential.

Mr Gordon described the global rice market as now experiencing a “once in a decade commodity cycle trough” due to record production levels and fierce selling competition.

Weak macro economic conditions in key Middle East markets and the Pacific were also hurting.

Although January’s overall trading performance exceeded expectations, December had been disappointing, Mr Gordon said.  

Despite the company’s improved business resilience achieved by enhanced value adding activities and growth in the branded products market overseas, he said global forces would hit SunRice’s 2016-17 financial result.

“Nevertheless, it should be highlighted that, although global prices continue to decline, Australian growers will receive a strong paddy price for the 2016 crop and the dividend for 2016-17 is anticipated to be maintained at a similar level, subject to the year-end audit and formal declaration by the board.”

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