GrainCorp (ASX: GNC) expects fiscal 2026 underlying EBITDA of $200 million-$240 million and underlying profit of $20 million-$50 million—below last year. Despite a bumper East Coast crop, global grain oversupply led to lower prices and discouraged growers from selling. Shares fell 13% on the day.

Why it matters: Lower grain volumes are driving a sharper-than-expected unwind in operating leverage. We cut our fiscal 2026 underlying EBITDA forecast by 28% to $220 million. But we expect stored grain to return once pricing recovers from fiscal 2027. Our long-term forecasts are little changed.

  • Global grain markets are oversupplied after several years of high prices and strong harvests. In response, local growers are holding grain in storage or using it as feedstock, reducing volumes flowing through GrainCorp’s network.
  • We lower our fiscal 2026 receivals forecast to 11 million tons, from 12 million previously. However, lower throughput magnifies operating deleverage, so we are lowering our fiscal 2026 group EBITDA margin forecast to 3% from 4%, reflecting weak utilization.

The bottom line: We cut our fair value estimate for no-moat GrainCorp by 5% to $ 7.90 per share on lower short-term earnings. Shares are undervalued. We think the market is placing too much weight on near-term earnings pressure inherent in GrainCorp’s cyclical business.

Long view: We expect oversupply to resolve as supply rationalizes, given poor returns. Our valuation is based on an average year under average harvesting conditions. We expect eastern Australian winter grain production to normalize to about 18 million metric tons, reflecting a return to long-term averages.

  • GrainCorp is exposed to factors largely outside its control, including global grain pricing and seasonal weather patterns, underpinning our no-moat rating. But periodic oversupply isn’t a new phenomenon; it has pressured pricing and returns from time to time.

GrainCorp’s valuation hinges on a normalized cropping year

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 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.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

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.