GrainCorp: Market Surprised by Profitability Normalizing as Seasonal Tailwinds Abate

After enjoying historically high supply chain margins on the back of three consecutive bumper crops and strong demand for Australian grain, profitability at GrainCorp is finally normalizing as we expected. While annual grain volumes fluctuate, no-moat GrainCorp's value hinges on a normalized crop-growing year—particularly given its volume-based insurance contract. The Australian Department of Agriculture, Fisheries, and Forestry forecasts 2024 east coast winter grain production of about 22 million metric tons, a 27% decline from 2023. This is broadly in line with the 10-year average but still above our normalized estimate of about 18 million metric tons, based on a reversion to longer-term historical averages.