SunRice profit dips to $20.8m after lean harvest and price drop

The farmer-owned marketer and processing group lost $15.6m after buying the 2016 crop at $415 a tonne for medium grain (Reiziq), having locked in price guarantees to encourage production through last summer’s hot, water-scarce growing season.

Unusually good seasonal conditions since have also been problematic, hurting the company’s stockfeed division sales.

The six month trading period to October 13 saw the southern NSW-based SunRice report an 11.5pc drop in consolidated revenue to $568.3m.

SunRice said its profit was still in line with projections given challenging global and domestic conditions.

Globally rice markets had been oversupplied and under significant price pressure, while weaker economies in several key markets, particularly Papua New Guinea, (PNG) have hurt export earnings, too.

Hearteningly however, the company’s international rice segment traded greater volumes in the past six months and posted a 4pc lift in pre-tax profit as US division, SunFoods, returned to profitability on the back of a recovery in the Californian crop’s size.

Impressive pre-tax profit growth of 351pc was also achieved by the rice foods business after 9pc revenue growth and manufacturing efficiencies, particularly in rice cake production.

A shortage of locally-grown rice to supply SunRice’s regular buyers overseas has compounded export revenue problems caused by poor global markets.

The autumn harvest in the NSW Riverina delivered just 244,000 tonnes because of last summer’s irrigation water shortages.

That compared to the region’s more typical harvests of around 800,000 to 1 million tonnes.

Sunrice’s balance sheet has, however, been helped by “one-off” items related to provision and impairment reversals which were deducted from the after tax net profit result.

Chief executive officer, Rob Gordon, said global medium grain rice prices fell almost 50pc in the past year.

“We disclosed to the market at the AGM in August that this financial year was going to be challenging for SunRice,” he said.

“It’s primarily a case of global rice oversupply continuing to negatively impact on prices.

“Additionally, deteriorating economic conditions in some of SunRice’s key export markets across the Middle East and the Pacific have been a challenge.

“A steep volume decline in the Riverina harvest from 690,000t in the prior year resulted in a 28pc reduction in rice pool business revenue during the first half of 2016-17.”

Headwinds were also faced by some complementary businesses, notably CopRice, which was hurt by faltering stockfeed demand due to depressed dairy industry earnings and good pasture conditions.

However, Mr Gordon said despite some exceptional trading circumstances, there were “persistent signals our strategy to build a resilient and diversified business is succeeding”.

He forecast a full-year after-tax net profit of about $40m, but warned the next six months would depend on global rice market trends, with “many of our markets remaining volatile”.

PNG was one of those uncertain and volatile factors.

A weak economy and devalued PNG currency (down almost 10pc against the Australian dollar since October 2015) has undermined SunRice’s traditional pricing power and attracted competition from Asian long grain rice exports.

“We continue to maintain a close watch on PNG issues, including the risk of sudden further kina devaluations which would considerably reduce trading margins,” Mr Gordon said.

SunRice is also worried about the possible implementation of an import quota by the PNG government and political pressure for local rice production self-sufficiency.