The September crop report from the Australian Department of Agriculture, Fisheries, and Forestry forecasts fiscal 2026 east coast winter grain production of about 30 million metric tons. This is about 6% lower than last year, but 29% above the 10-year average. This is good news for GrainCorp (ASX: GNC).

Why it matters: Fiscal 2026 is set to be another bumper crop, thanks to above-average rainfall forecasts from the Bureau of Meteorology, good soil moisture content, and a larger planted area than average. We raise our fiscal 2026 EBITDA forecast by 11% to $332 million.

  • The September 2025 revision is an increase of about 10% compared with the forecast from June. The increase mostly reflects higher yields and area planted, with a strong start to the winter cropping season.
  • We also raise our fiscal 2025 EBITDA forecast by 1% to $313 million, based on a slight upward revision to 2025 winter production estimates in the crop report. Our forecast remains within the company’s EBITDA guidance range of $285 million to $325 million.

The bottom line: We raise our fair value estimate by 5% to $8.30 per share. This increase is due to the increase to our near-term earnings forecasts and time value of money. Shares in GrainCorp are fairly valued.

  • Our valuation is based on an average year with average conditions. Beyond fiscal 2026, we expect eastern Australian winter grain production to normalize at about 18 million metric tons, based on a reversion to long-term historical averages.

Long view: Despite similar harvest sizes, our EBITDA forecasts for the next two years are about half the levels enjoyed in fiscal 2022 and 2023. This reflects normalization of supply chain margins, rather than merely operating leverage.

  • Three consecutive bumper crops, a poor Northern Hemisphere crop, and disruptions from the Russia/Ukraine conflict encouraged exports, affording GrainCorp pricing power amid limited export capacity. We think these conditions are unlikely to repeat, even with bumper crops.

Business strategy and outlook

GrainCorp enjoys significant market shares in grain storage, handling, and port elevation services along the eastern seaboard of Australia. Earnings are heavily affected by seasonal conditions, but the diversification into oilseed crushing and refining reduces earnings volatility and provides growth opportunities. But we don’t think the firm has carved an economic moat, and forecast returns on invested capital to trail the cost of capital over the long term.

GrainCorp’s core Australian grain storage and logistics business is heavily reliant on favorable weather patterns. It has had some strong years during bumper grain harvests, but with a high fixed-cost base, even after substantial asset reduction, earnings can quickly evaporate in poor seasons. While the company’s up-country storage network would be difficult to replicate from scratch, on-farm storage is a competitive threat, particularly in drought years when a larger share of the crop moves direct from farm to customer, bypassing GrainCorp’s storage network. Port competition has also increased in recent years, and regulation remains high. In a bumper harvest year, GrainCorp has historically handled up to 60% of the east coast grain crop and 30% of the country’s total grain exports, but in a poor year, these market shares can trend closer to 30% and below 5%, respectively. We expect GrainCorp’s market share of eastern grain production to stabilize near 40% and export share above 20% over time, representing an average crop year.

Beyond storage and logistics, the grain marketing segment competes domestically and internationally against other major commodities trading houses such as Cargill and Glencore. This is a competitive market, and we do not view GrainCorp as having any advantage relative to these large global players. The firm will likely remain at the mercy of Australian grain competitiveness relative to global pricing. Similarly, GrainCorp’s oil crushing and refining business remains competitive. While we expect profitability in this segment to improve due to cost-saving measures and ongoing growth, we don’t think the segment enjoys durable competitive advantages.

Bulls say

  • With strategic processing, storage, and transportation assets, GrainCorp’s size gives the company scale advantages over regional competitors.
  • Global thematics, such as increased food demand, particularly in Asia, should benefit agribusinesses such as GrainCorp.
  • Despite divesting the malt business, GrainCorp has entered into a new grains derivative contract, which assists with smoothing out earnings through the cycle.

Bears say

  • Despite positive long-run themes, earnings and returns on invested capital can be quite volatile, given exposure to annual weather events.
  • The commodity products GrainCorp moves around the world are readily available from competitors, and the company has little pricing power over the products it buys and sells, making for slim margins.
  • GrainCorp has a high fixed-cost base, meaning that earnings can quickly evaporate in poor seasons. Prolonged periods of drought can pressure the balance sheet as well.

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

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Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.