There may be some ASX dividend shares that could provide reliability, even during times of difficult economic times.

Food is one of those industries that may see pretty consistent demand, no matter what circumstances are happening in the world.

Here are two ASX dividend shares to consider:

Rural Funds Group (ASX: RFF)

Rural Funds is a real estate investment trust (REIT) that owns a variety of different farm types including cattle, vineyards, almonds, macadamias and cropping (sugar and cotton).

It has contracts with a number of high-quality, reliable tenants such as Treasury Wine Estates Ltd (ASX: TWE), Select Harvests Limited (ASX: SHV), Olam, JBS and Australian Agricultural Company Ltd (ASX: AAC).

Rental growth is built into the contracts with the tenants. Most of the growth is either a fixed increase, or linked to CPI inflation, with some contracts having market reviews.

It's this contracted rental income which is a large enabler of the distribution growth from the business. Management have a goal of increasing the distribution by 4% per annum. It has successfully done this over the last several years.

In FY22 it's expecting to increase the distribution by another 4% to 11.73 cents per annum. That translates to a distribution yield of 4.4% for FY22.

The ASX dividend share is also investing in its farms to improve the productivity of them, which aims to increase the rental potential as well as the value.

Inghams Group Ltd (ASX: ING)

Inghams was founded in 1918. It's the largest Australian poultry business and it has entered into the production of turkey and stockfeed. The business has also enhanced its processing capabilities to cater to changing consumer preferences towards value-enhanced poultry products.

In FY21 the business produced 446.9kt of core poultry volume, an increase of 4.2% on FY20.

Inghams is focused on optimising its core business, which is a program of continuous improvement, which is delivering strong outcomes, driving lower costs, enhancing yield and reducing waste. With this program, Inghams achieved better asset efficiency and return with "modest" capital expenditure. In FY21 it carried out around 200 improvement projects. It's planning to work on 320 improvement projects in FY22.

In pre-AASB 16 terms, underlying earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 16.6% to $209.6 million, whilst underlying net profit after tax (NPAT) grew 28.4% to $101.2 million.

The ASX dividend share increased its dividend by 17.9% to 16.5 cents per share. That translates to a grossed-up dividend yield of almost 6%.

In FY22, it's expecting a consumer recovery as vaccination rates increases and lockdowns are lifted. Volumes are expected to show continued growth with new business across various channels. It's expecting continuing meaningful benefits when it comes to operational efficiencies across the business.

It's currently rated as a buy by Citi.

The post 2 ASX dividend shares that could be very reliable appeared first on The Motley Fool Australia.

A free trade agreement between Australia and the United Kingdom has been agreed this week. It could affect some ASX shares. 

According to reporting by various media, including The Australian Financial Review, it is the Australian agricultural sector which could be one of the main Australian beneficiaries, with tariff reductions on wine, meat, dairy goods and rice to the UK.

Cars

Meanwhile, British products like Whiskey and cars will be cheaper in Australia. British made cars, including brands such as Mini and Jaguar, will have tariffs instantly removed.

ASX shares that sell cars include Autosports Group Ltd (ASX: ASG) and Eagers Automotive Ltd (ASX: APE).

Farmworkers

British farmworkers will be able to work in Australia under a specialist visa. Australia's international border has been largely shut to potential overseas farmworkers because of COVID-19.

One of the largest horticultural businesses in Australia is Costa Group Holdings Ltd (ASX: CGC).

Beef and sheep

According to the reporting, tariffs will be removed over the next decade, with duty-free quotas increasing over that time. After a decade, a safeguard will be in place for five years, with a 20 per cent tariff levied on exports above the quota.

There are some large Australian farming businesses that work in those two categories. One of the biggest is ASX-listed Australian Agricultural Company Ltd (ASX: AAC).

Winemakers

The AFR reported that Australian wine can be sold tariff-free in the UK once the trade deal comes into effect. This may provide support for the industry after the recent tariffs that have been put on wine by China, which used to be a huge consumer of Aussie wine.

One of the large Australian winemakers is ASX share Treasury Wine Estates Ltd (ASX: TWE).

Dairy

The dairy industry is another sector where the tariffs will be changed. According to reporting, dairy tariffs will be eliminated after five years, with duty-free quotas steadily increasing during that time.

One of the biggest dairy businesses in Australia is Bega Cheese Ltd (ASX: BGA).

Commentary on this deal

At the end of a BBC article covering the free trade agreement, the article concluded with:

The deal marks the end of what has essentially been a 50-year lock-out for Australian farmers, who have struggled to navigate Brussels' restrictions, tariffs and quotas.

The president of the Australian National Farmers' Federation said it had been very difficult to break into the UK because it was "way too expensive and way too far".

Australian farmers have also been looking to diversify due to the increased tensions between Australia and China. In the past year, China has imposed tariffs and restrictions on everything from Australian beef, barley and wine, to rock lobster and coal.

The post What ASX shares might be affected by the UK-Australia trade deal? appeared first on The Motley Fool Australia.

The Australian Agricultural Company Ltd (ASX: AAC) share price is edging lower during mid-afternoon trade. This follows the company's release of its full-year results for the 2021 financial year.

At the time of writing, the Australian cattle producer's shares are fetching for $1.20, down 1.6%.

How did Australian Agricultural Company perform for FY21?

Investors are hitting the sell button in light of the company's challenging COVID-19 economic environment.

For the period ending 31 March 2021, the Australian Agricultural Company reported a fall in meat and cattle sales. The business experienced lower calving in 2018-2020 due to a prolonged drought and the Gulf flood event, which impacted 2021's result.

Meat sales dropped to $200 million, reflecting a 29.6% decline from the $229.6 million achieved in the prior corresponding period.

Cattle sales on the other hand, also sunk to $65.5 million, tumbling 39% from $104.5 million recorded in FY20.

Overall, total sales came to $265.5 million, signifying a 68.6% downturn on the $334.1 million made this time last year.

Operating profit lifted to $24.4 million, with $17.7 million included pre-JobKeeper. This reflected a jump from the $15.2 million received over the prior comparable period. The improved metric was attributed to higher meat sales per kilo, up 8% which offset the 19% fall in meat volume sales. In addition, management carefully reduced costs across the business which supported the strong performance.

As a result, statutory earnings before interest, tax, depreciation and amortisation (EBITDA) came to $99.3 million, an increase of $19.2 million over FY20.

Net tangible sales per share jumped to $1.75, compared against $1.53 from the end of March last year. This was driven by improvements in the livestock market values and in the property portfolio.

Australian Agricultural Company noted it retains a robust balance sheet, with comfortable headroom under existing bank covenants. The closing cash balance stood at $8.9 million, however, the business has over $1 billion in net assets.

Management commentary

Australian Agricultural Company managing director and CEO, Hugh Killen said:

The fundamentals of the business remain strong and we've made progress with our brands, which is encouraging considering the ongoing challenges that we will navigate over the coming few years.

The last 12 months have been dominated by uncertainty across many industries and ongoing disruption across our key markets around the world.

Importantly though, our herd rebuild has commenced, with a 47% increase in calves in FY21 compared to FY20.

Australian Agricultural Company share price summary

Over the past 12 months, Australian Agricultural Company shares have risen just under 10%. The company's share price reached a high of $1.24 in early April before profit-taking swooped in. However, its shares have rebound and are within a whisker of breaking new territory.

Australian Agricultural Company has a market capitalisation of roughly $729 million, with around 602 million shares outstanding.

The post Australian Agricultural Company (ASX:AAC) share price slips on full-year results appeared first on The Motley Fool Australia.

According to Rabobank's monthly agribusiness report, Australian commodity prices are looking to gain this year despite a record-breaking 2020.  

Australian agricultural commodities saw their highest prices on record last year, as prices soared approximately 18% between September 2019 and March 2020.  

The report found that, thanks to La Niña and demand from China, the majority of commodities produced in Australia are in for another good year.

The report follows ABARES' prediction that  2020–21 will be the second most profitable season ever for Australian farmers.

Which commodity prices are expected to gain?

Canola

The price of canola is currently close to record-breaking ­– Western Australian genetically modified (GM) Kwinana Canola is trading 6% higher than last year, while non-GM canola is up 15%. These gains are due to strong Chinese demand and poor European and Canadian production.

Barley

A structural deficit in corn amidst a surge in Chinese demand is expected to indirectly raise prices for Australian barley.

Sugar

Australian sugar might be having a golden moment. With a late harvest season in Brazil likely and a lack of shipping containers muting Indian sugar exports – a nod to the intricacies of our globalised world – 2021's sugar prices may be volatile.

Lamb

Lamb prices are at an all-time high for the second year in a row, but is not all good news, slaughter is at yet another low point. January lamb exports were also down, they have dropped 42% over the last 12 months.  

Which commodity prices are expected to fall?

Cattle

Cattle prices are caught in a stalemate. While producer demands are declining, a limited supply of cattle may have a stabilising effect on prices. Australian beef export volumes have fallen year to date, they're currently down 37% overall, with the US and Chinese market down 55% and 56% respectively.

Wheat

If not comparing to 2020, Australia is in for a bumper year of wheat production. This comes as fears of frost damage to crops in the US loom. Rabobank predicts the market will be sensitive to downgrades of wheat crops globally.

Which ASX shares could be impacted by rising or falling commodity prices?

Here's a quick look at 3 ASX shares dealing in the commodities discussed above:

• GrainCorp Ltd (ASX: GNC) stores and markets Australian barley, canola and wheat. It is also the largest producer of solvent and expeller canola oil in Australia. GrainCrop has a history of stable performance on the ASX, but it's been slowly rising over the last 12 months, with a 24% return on investment. The GrainCrop share price is currently $4.34.
• Wingara AG Ltd (ASX: WNR) primarily markets fodder and hay for livestock consumption. It identifies exporting canola, barley, wheat and legumes as growth opportunities within the company. The Wingara share price is currently 14 cents, down 44% over the last 12 months and 31% year to date. Hopefully, the rise in demand and price of its commodities will help boost the company into the green. 
• Australian Agricultural Company (ASX: AAC) manages a herd of around 400,000 head of cattle in Queensland and the Northern Territory. The company owns 6.4 million hectares of land – roughly 1% of Australia's land mass. The company's share price is currently $1.16 with steady returns of 4% over the last 12 months and 5% year to date.

La Niña is providing a boost for Australian farmers

The rainfall outlook for the next few months is very promising. Most of Australia's east coast is expecting 60% to 70% more than the median rainfall between March and May. The rest of the country is expecting around 50% more than the median.

More good news for farmers; soil moisture across most of Australia is above average. WA's wheat belt and the interior of NSW are leaving the rest of the country in its dust. South-East Queensland and parts of Central WA are still suffering from severe rainfall deficits.

While La Niña has brought much-needed rainfall to Australia, it has been detrimental to food production in the Northern Hemisphere. The weather cycle has caused seasons to be unusually dry for most of the world, keeping prices firm over the coming months.

The post Will Aussie agricultural commodity prices see another record-breaking year? appeared first on The Motley Fool Australia.

The Australian Agricultural Company Ltd (ASX: AAC) share price is up almost 6% in late afternoon trading.

This comes after the company reported some positive figures for its first half results for the 2021 financial year.

Toady's gains see the stock trading for $1.22 per share, up 9.5% year-to-date.

By comparison the All Ordinaries Index (ASX: XAO) is down 1.2% so far in 2020.

What does Australian Agricultural Company do?

Australian Agricultural Company is the largest integrated cattle producer in Australia. The company owns approximately 6.4 million hectares of farms, feedlots and processing plants across Queensland and the Northern Territory. That's almost 1% of Australia's total land mass.

Australian Agricultural Company sells its grass fed and Wagyu beef to both the domestic and export markets. Established in 1824, it claims the honour of being Australia's oldest continuously operating company. Shares began trading on the ASX in 2001.

What did Australian Agricultural Company report to send its share price higher?

In its first half FY21 report, released this morning, Australian Agricultural Company reported it had delivered positive operating profit of $23.5 million as well as positive operating cash flow of $22.3 million. The company noted this came despite the "uncertainty and impact of COVID-19".

Its average meat sales price increased by 14.5%, and statutory earnings before interest, tax depreciation and amortisation (EBITDA) profit improved by $18.4 million from the previous corresponding period (pcp) to reach $15 million.

Overall revenue was still down 21% from the pcp due to lower cattle sales and company brandings, which the company said is in line with impacts to Australia's national cattle herd.

Highlighting the difficult operating conditions amid the global coronavirus pandemic, Australian Agricultural Company's CEO said:

The full force of COVID-19 hit the restaurant sector right as we began our financial year, with our 16 food service markets severely impacted in a matter of weeks. To overcome the initial challenges and post a positive half is a notable achievement.

However, while this interim result is commendable, we are mindful there are many challenges still to come and a number of complexities to work through over the next 6 months…

Many restaurants remain closed or are having to adapt to reduced volumes and it will likely be some time before we see the food service sector return to normal.

The post Here's why the Australian Agricultural Company (ASX:ACC) share price is up 6% today appeared first on The Motley Fool Australia.

Some ASX mining stocks could come under pressure on reports that China may be banning the use of Australian coal.

Several sources have confirmed to the Australian Financial Review that Chinese authorities have been telling their local traders to stop buying coal from us.

The ban includes thermal coal, which is used in power plants, and coking coal that is used in producing steel.

ASX miners hit by China coal ban

The AFR quoted one Chinese analyst saying he believed the move is "a political sanction against Australia".

It is also alleged that Beijing only issued a verbal ban. This is because it didn't want to leave evidence of trade protectionism that could be used against it in the World Trade Organisation (WTO).

However, the financial impact of the ban on Australian coal producers is unclear. Power plants that use Aussie thermal coal have used up their coal import quota two months ago.

Why share prices of ASX miners are reacting differently

This could explain why the share prices of ASX coal producers responded differently when reports of the ban started leaking yesterday.

The Whitehaven Coal Ltd (ASX: WHC) share price crashed by over 5% to 98 cents. But the New Hope Corporation Limited (ASX: NHC) share price dipped 0.8% to $1.30 and South32 Ltd (ASX: S32) share price was flat at $2.19.

Roughly half of Whitehaven's coal is coking (used for steel), which may be more impacted by the unofficial Chinese ban.

New Hope produces thermal coal from two open cut coal mines in South East Queensland, while South32 produces a diverse range of minerals other than coal.

ASX stocks used as pawns on Sino-Australia chess board

"We are aware of these reports and have had discussions with Australia's resources industry, who have previously faced occasional disruptions to trade flows with China," Trade Minister Simon Birmingham said in a statement reported in the AFR.

"Australia will continue to highlight our standing as a reliable supplier of high grade resources that provide mutual benefits."

Several ASX stocks have been used as pawns in the escalating tensions between Canberra and Beijing. The Treasury Wine Estates Ltd (ASX: TWE) share price and Australian Agricultural Company Ltd (ASX: AAC) share price have also felt the heat.

China is using Australian wine, beef and barley to punish Australia after Prime Minister Scott Morrison called for an independent investigation into the origins of COVID-19.

Given our economic over-reliance on the Asian giant, investors should be prepared for more volatility ahead!

The post New Chinese government threat leaves these ASX mining stocks on tenterhooks appeared first on The Motley Fool Australia.

The New South Wales government is now encouraging people to visit regional NSW in another sign of areas of the country opening up.

Strongest ASX 200 performance

The biggest rise within the ASX 200 belonged to EML Payments Ltd (ASX: EML). The EML share price went up 12% today.

It gave a trading update which included solid growth in certain sections of the business. While the gift & incentive section is suffering, other areas are still growing nicely.

Despite everything that's going on the company managed to generate $2.7 million of earnings before interest, tax, depreciation and amortisation (EBITDA) including the PFS acquisition. It ended April 2020 with $125 million of cash.

Australian Agricultural Company Ltd (ASX: AAC) moo-ves upwards

The cattle company announced its FY20 report today.

AAC announced that Wagyu beef sales were up 20% after price and volume growth. The company generated an operating profit of $15.2 million compared to a loss of $22.9 million last year.

It managed to generate its strongest operating cashflow in three years of $20.1 million.

AAC said that COVID-19 had a negligible impact on FY20 results, the impact on FY21 is uncertain and couldn't be reasonably estimated.

The business saw its share price rise 12.8% today.

Fletcher Building Limited (ASX: FBU) lets go of some workers

Fletcher building provided a COVID-19 update today.

It recorded an earnings before interest and tax (EBIT) loss of around $55 million in April, which excludes significant items. The loss was made in New Zealand whereas Australia was a breakeven result.

As a result of the difficult conditions, Fletcher Building is reducing its workforce by around 10% which equates to around 1,000 jobs in New Zealand and another 500 in Australia.

The share price of the construction company dropped 2.8% today.

The post ASX 200 ends the day higher, EML share price rises another 12% appeared first on The Motley Fool Australia.

Last week, Trade Minister Simon Birmingham announced the Comprehensive Economic Partnership Deal between Australia exporters and Indonesia markets takes effect from 5 July 2020. This could not have come at a better time given the economic impacts from COVID-19.

Australia's balance of payments surged to a record $10.6 billion in March. The largest in recorded history. This is due to strong export demand for iron ore and surging demand for gold. The lowest Australian dollar for almost 2 decades has also helped increase revenues.

Lastly, we have had the largest sudden fall in imports in our nation's history. The deal will help Australian manufacturers to increase market share in our closest neighbour, extending our national trade surplus.

I believe the following ASX shares are the most likely to benefit immediately.

Targeted Indonesian market

GrainCorp Ltd (ASX: GNC) will see tariff-free exports of up to 500,000 tonnes of wheat, barley and sorghum to Indonesia each year. This will grow by 5% annually. This defensive share has become more important to our national economy during the pandemic than at any time in its history.

GrainCorp has rebuilt itself over the past 3 years after exports to Indonesia collapsed by over 70% amid drought and intense competition. This provides an opportunity to further rebuild markets into what used to be Australia's largest wheat customer.

Other agricultural companies to benefit in this space include those in the red meat sector of beef and sheep. In this sector, tariffs will be immediately halved to 2.5% and eliminated totally over 5 years. This is likely to provide tangible benefits for Australian Agricultural Company Ltd (ASX: AAC) as well as Elders Ltd (ASX: ELD).

Dairy producers will also see tariffs eventually removed from their products. This creates an opportunity for market leaders like A2 Milk Company Ltd (ASX: A2M), as well as rising challengers such as Synlait Milk Ltd (ASX: SM1).

Steel producers will have annual tariff-free access for 250,000 tonnes of rolled steel coil, exposing additional market share for companies such as BlueScope Steel Limited (ASX: BSL).

Foolish takeaway

Our nation's ability to maintain an overall trade surplus is going to be crucial in the coming months and years. Many countries are set to see dramatic declines in economic activity as a result of the COVID-19 pandemic.

For Australia, free trade deals such as these providing increased access to Indonesian markets are likely to be the difference between a crushing depression and a swift path back to prosperity. 

The post Indonesian market boom for 6 ASX shares appeared first on The Motley Fool Australia.

Investors are bracing themselves for what could be a volatile February reporting season. The market has already seen multiple earnings downgrades from notable companies like Kogan.com Ltd (ASX: KGN), Insurance Australia Group Ltd (ASX: IAG) and Treasury Wine Estates Ltd (ASX:TWE).

According to analysts at Morgans, earnings growth for companies in the S&P/ASX 200 (INDEXASX: XJO) (excluding resources) has been revised from 6.1% to -2.2%. The contributing factors to this downgrade are largely the bushfires and drought conditions, which have weakened stock in the agriculture, retail and travel sectors.

Here are some ASX sectors and stocks you should watch this February reporting season.

Outperformers

The nickel price has gone under the radar of many investors, surging nearly 13% in the past 6 months and trading at multi-year highs. Low supply from Indonesia and the pending future of the Chinese-owned Ramu nickel plant in Papua New Guinea after a waste spill has resulted in a shortage of the metal. Western Areas Ltd (ASX: WSA) and Independence Group NL (ASX: IGO) are 2 nickel stocks on the ASX that could surprise this reporting season as both companies are likely to have received higher premiums for their nickel concentrate.

The gold price also had a strong 2019, finishing the year 18% higher and surging more than 7% in the last 6 months. Despite performing in a strong equity market, the coronavirus hysteria and struggling global markets could see further upside in the gold price. If quarterly reports offer any indication, companies like Newcrest Mining Limited (ASX: NCM) and Saracen Mineral Holdings Limited (ASX: SAR) are 2 gold companies you should watch in February.

Lastly, stocks in the buy-now, pay-later (BNPL) sector are also poised to outperform this reporting season. Despite the introduction of new regulatory codes this week Afterpay Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P) are forecast to report record growth. Both companies have reported rapid growth domestically and overseas.

Underperformers

Stocks in the agriculture sector are earmarked to underperform this reporting season, given the devastating bushfires and drought conditions. Companies to keep an eye on include Elders Ltd (ASX: ELD) and Rural Funds Group (ASX: RFF). Australian Agricultural Company Ltd (ASX: AAC) is also set to suffer from a dislocation between domestic cattle prices and the export meat market.

As seen in the case of Treasury Wines, bushfires and coronavirus could also have tremendous repercussions on stocks related to travel, tourism and the Chinese consumer. ASX stocks in the transport and travels sector have already been sold-off recently given the coronavirus panic. In addition, the recent bushfires have hampered the tourism and travel sector with companies like Flight Centre Travel Group (ASX: FLT) expected to underperform in February. A slowing Chinese GDP could also be reflected in stocks that rely on the Chinese consumer. Stocks that could follow in the footsteps of Treasury Wines include A2 Milk Company Ltd (ASX: A2M) and Synlait Milk Ltd (ASX: SM1).

Foolish takeaway

In my opinion, investors that hold stocks going into reporting season should expect extreme volatility. In addition, investors that buy stocks in anticipation of getting a boost in reporting season would be better suited to punting on the pokies. A prudent strategy would be to watch how reporting season plays out and then let price action determine an investment decision.  

The post Your guide to the February ASX reporting season appeared first on The Motley Fool Australia.

All eyes will be on the Costa Group Holdings Ltd (ASX: CGC) share price when it returns to the board today or tomorrow following its profit warning and deeply-discounted capital raise.

The Costa share price will likely tumble but the key thing for investors to be watching for is whether it can hold at or above the $2.20 level, which where Australia's largest fruit and vegetable grower is pricing its new share sale.

The stock last traded at $3.46 before it went into voluntary suspension last week. This takes CGC share price loss to around 44% over the past year when S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is up 15%.

While many agriculture-exposed stocks are doing it tough due to adverse weather, Costa is suffering more than most. The Australian Agricultural Company Ltd (ASX: AAC) share price tumbled 21%, the Graincorp Ltd (ASX: GNC) share price crashed 8% while the Nufarm Limited (ASX: NUF) share price gained around 13%.

Capital raising details

Coming back to Costa, at least the company can be assured that it will get circa $176 million through an accelerated renounceable 1-for-4 entitlement offer, which is fully underwritten by UBS.

Proceeds from the raise will be used to "strengthen" its balance sheet – meaning it will probably be used to pay down debt to appease nervous lenders as the group deals with the ongoing impact of the drought.

Management also downgraded its 2019 calendar year earnings forecast yet again. It now expects adjusted net profit of $28 million and earnings before interest, tax, depreciation and amortisation (EBITDA) of $98 million.

Extremely dry and hot conditions have impacted on the size of fruit and yield in avocados, blueberries and the late season citrus crop.

Is the worst over?

But is a slim silver lining. First off, if the market saying that profit downgrades come in trees (oops, I mean 'threes') is right, this could be the last of the bad earnings news in this cycle.

Management is at least trying to give that impression as it's tipping 2020 earnings to double from its dismal 2019 forecast. Costa said that "a moderate improvement of dry weather and drought conditions in Australia and more normal season and crop cycles in Australia and Morocco" could see its adjusted EBITDA jump to $150 million and net profit to $50 million plus.

No one is saying the drought is breaking but there's anecdotal evidence that some parts of the country are getting improved rainfall and that things aren't getting worse (although that isn't surprising as we are already at the bottom).

The post Why the Costa Group share price is set to crash appeared first on The Motley Fool Australia.

The Costa Group Holdings Ltd (ASX: CGC) share price could get smashed this week after the fruit and vegetable grower went into a trading halt ahead of an update on its trading outlook.

It's probably fair to speculate Costa is set to deliver a third profit guidance downgrade on the back of weak fruit and vegetable prices. Previously it has warned raspberries, blueberries and mushrooms in particular were seeing weak demand and pricing in Australia. 

Blueberries it suggested were seeing increased supply in NSW, with "downside risk" to its May 2019 guidance for net profit between $57 million to $66 million on EBITDA-SL between $140 million to $153 million.

The market is not going to take kindly to a third guidance downgrade for a management team that is losing credibility given its short track record as a public business. Evidently risks such as price and production levels that are partly out of management control mean forecasting is a challenging business with earnings less certain than the market first believed. 

Another point to note is that is a relatively recent IPO with debt blowing out to $354.8 million as at June 30 2019 versus $290.4 million at June 30, 2018. The debt has grown due to an aggressive overseas acquisition policy that may prove a mistake.

The company is now leveraged up on around 2.59x EBITDA-SL with any more pressure on profits potentially meaning the dividend will come under threat given the debt load. 

As such I wouldn't suggest buying Costa shares even if the stock is heavily marked down by investors.

In fairness there is also a chance Costa has a profit upgrade up its sleeve, although this seems unlikely given its interim profit report featured plenty of unequivocal warnings about downside risk to guidance. 

Others in the agricultural space include Elders Ltd (ASX: ELD) and Australian Agricultural Company Ltd (ASX: AAC).

The post Has Costa Group been leading investors up the garden path? appeared first on The Motley Fool Australia.

According to an article from Bloomberg, demand out of China for Aussie beef is set to surge in the coming years, with predictions that current export levels to our major trading partner could more than triple.

So, what's driving this projected demand and how could you cash in on the ASX in 2019?

What are the tailwinds for Aussie agriculture?

According to the article, research from Rabobank Group suggests Australia could triple its exports of grain-fed beef to China by 2030 to "satisfy the nation's growing appetite for the highly marbled meat".

The Dutch-based agribusiness bank said that rising consumption in Asia could be the catalyst for increasing Australian grain-fed beef by 65% in the next decade or so.

Australia presently exports around 50,000 tons of the meat to China, but this could be set to quadruple to nearly 200,000 tons if demand unfolds as the bank has projected.

According to senior analysts, China's demand for beef will keep expanding and with little projected increase in its own beef-growing capacity, imports will play an even larger role in the near future.

The article suggested that consumers in Asian markets have a strong affinity with highly marbled, grain-fed beef as it suits their palate and cuisine, based on Rabobank's report.

Projections suggest that grain-fed beef could make up 20% of China's beef imports by 2030, versus just 6% now, which represents a strong market opportunity for some of Australia's largest beef producers.

How could you invest ahead of a potential boom?

While the findings are certainly of interest to keen-eyed Fools, the assumptions used in Rabobank's analysis around demand, per capita income and even trade concerns all require careful consideration before investing.

For those speculators out there, I think one of the best agricultural options on the ASX at the moment may be Australian Agricultural Company Ltd (ASX: AAC).

The Aussie company owns and operates feedlots and farms covering 7 million hectares in northern Australia and has significant cattle and beef operations. The AAC share price has edged marginally lower in 2019 and is currently trading at $1.04 per share, with a market cap of $627 million putting it firmly in the small-cap category.

While I'm not personally into the speculating game, preferring to look at the likes of Telstra Corporation Ltd (ASX: TLS) or similar blue chips, it's clear there is the potential for a rebound in Aussie beef if the Chinese demand plays out as Rabobank anticipates.

The post Could Aussie beef be the next big ASX growth sector? appeared first on The Motley Fool Australia.

The Graincorp Ltd (ASX: GNC) share price is likely to fall this morning after the grains, malt and oils producer warned investors it now expects underlying EBITDA between $65 million to $85 million and a net loss between $70 million to $90 million for the financial year ending September 30, 2019.

Graincorp also reported that crop forecasters are now predicting a below average year in 2019/20 due to the east coast drought-like conditions. The malt and oils production businesses are reportedly tracking to forecasts though.

The company also had net debt of $1,744 million as at March 31, 2019. 

Shares in Australian Agricultural Company Ltd (ASX: AAC) have also fallen over the past year due to tough weather conditions. 

The post Why Graincorp shares are sinking on a profit warning appeared first on The Motley Fool Australia.

• Statutory loss $148.4m, down 45%
• Operating loss of $22.9m, compared to an adjusted operating loss of $13.5m in prior year
• Adjusted operating profit of $23.7m, up 34% (excluding Gulf flood and drought costs)
• Meat sales of $246.3m, down 26%
• Cattle sales of $117.8m, up 151%
• Total revenue $364.1m, down 4%
• Net finance costs $15.8m, 9% lower
• Gearing ratio of 30%

At $1.12, the AACo share price is actually below its August 2004 levels, which doesn't come as a great surprise looking at today's results. The company is losing money and has $361 million in net debt, although it reports it made an operating profit of $23.7 million on an adjusted basis (backing out flood costs). However, for a Queensland-focused agricultural company it's hard to argue that flood costs should be treated as a one-off. The company also flagged that the 2018–19 drought cost it approximately another $60 million.

On the positive side, it reports that demand for Wagyu beef is soaring and that this herd is its "growth engine" with plenty of potential. Global demand for beef is generally on the rise from the growth markets of Asia in particular, which represents a tailwind of sorts for the business over the long term as it should feed through into steadily rising prices.

However, you can probably guess I'm not a buyer of AACo shares for any number of reasons.

I'd prefer to focus on shares with better economics that are not so exposed to the unpredictable Queensland weather….the two below I honestly believe tick the right boxes…

The post Australian Agricultural Company Ltd reports: What you need to know appeared first on The Motley Fool Australia.

The S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index has bounced more than 9% since the start of 2019 and sectors that I have been overweight on no longer represents good value. This is particularly so in mining although I believe the BHP Group Ltd (ASX:BHP) share price and Rio Tinto Ltd (ASX: RIO) are not overvalued.

But I wouldn't recommend buying them at this juncture and investors will need to look elsewhere to find value. One sector that seems to be attracting brokers attention is agri-business.

This generally hasn't been a rewarding place to park capital with many trading at or near 52-week lows – no thanks to the drought, or in Australian Agricultural Company Ltd's (ASX: AAC) case, floods!

Don't let the beaten down share prices put you off though as the weather risk appears to be largely factored into the market.

Embattled Elders gets an upgrade

One opportunity that represents value is the Elders Ltd (ASX: ELD) share price, according to Bell Potter as the broker upgraded the stock to "buy" from "hold" even as it cut its earnings forecasts for the company in the wake of its profit downgrade.

Management expects its first half earnings before interest and tax (EBIT) for the six months to end March 2019 to be "materially lower" than the same time last year when it posted an EBIT of $45.7 million.

Elders blames lower wool volumes, poor summer cropping and increased costs for the downgrade and said that FY19 underlying net profit is likely to range between $61 million and $64 million compared to last year's figure of $63.7 million.

The guidance is well below the $71 million net profit that Bell Potter was expecting for the current year and the broker was forced to lower its price target on the company to $6.70 from $7.35 a share as a result.

If Elders were to achieve its guidance, weather during the winter season will need to be more conducive or the company could see $10 million to $15 million lopped off its earnings before interest, tax, depreciation and amortisation (EBITDA), noted Bell Potter.

"However, based on normalised earnings (i.e. assuming a summer crop) and utilising a conventional EV measure (ex-tax losses) we see ELD trading at ~10x EBITDA, a discount to its post recapitalisation average of ~11.2x," said the broker.

"While seasonal risk remains, we believe we are now at that point of the cycle where we are buying seasonal downgrades in agricultural stocks and upgrade our rating from Hold to Buy."

Nufarm is value-enriched

Elders isn't the only one facing a tough first half result season. Crop protection and seed company Nufarm Limited (ASX: NUF) is also likely to post a drop in earnings when it posts its results in two days.

But Credit Suisse is urging investors not to get distracted as the stock represents a good buying opportunity for the patient investor due to its soon to be released omega-3 enriched canola seed product.

"Whilst investors have been reluctant to factor in upside from NUF's omega-3-rich canola oil due to the long-dated nature of the opportunity, first commercial revenues during 2019 should see focus increase," said Credit Suisse.

"We believe that there is a compelling story built on supply constraints on conventional fish oil and NUF's oil at the lower end of the cost curve compared with alternatives. We estimate A$125mn in incremental EBITDA from this initiative at maturity."

The broker has an "outperform" recommendation and $9.53 price target on the stock.

The post Does this ASX sector represent the most fertile ground for bargain hunters? appeared first on The Motley Fool Australia.

These 5 ASX shares have all had their price targets cut by leading brokers this week.

Challenger Limited (ASX: CGF)

Morgan Stanley has cut their price target for Challenger by 4.5% to $7.00. This follows Challenger's poor half-year announcement that had net profits falling by 96.9%.

The Challenger share price is down 16% for the year, but this price cut still represents a 5% discount to today's share price.

Super Retail Group Ltd (ASX: SUL)

Citi has cut the Super Retail Group price target by 4.3% to $9.00. This also follows the company's provisional 1H19 update which highlighted a rise in total sales by 6% to $1.4bn and EBITDA up 11% to $166.2m.

The company announced its half-year profit results today on February 14. These results were in-line with the company's provisional update.

Super Retail managed to maintain its dividend despite a payroll scandal that cost the company more than $40 million from its half-year profit.

Pact Group Holdings Ltd (ASX: PGH)

Deutsche Bank has cut the Pact Group target price by 11% to $5.00.  On Tuesday, the company announced $310m to $340m in impairment charges due to higher input costs and weaker demand conditions.

The Pact Group share price has fallen steadily since Tuesday and closed 7.72% lower at $2.99 today

Aristocrat Leisure Limited (ASX: ALL)

Macquarie has slashed the Aristocrat Leisure target price by 9.2% to $27.25. This does not follow any significant news that has come out of the company besides a recent announcement out of the U.S Justice Department citing all internet gambling is illegal.

The Aristocrat Leisure Limited share price currently trades at$25.01, up 14% year to date.

Australian Agricultural Company Ltd (ASX: AAC)

Bell Potter has cut the Australian Agricultural Company target price by 5.5% to $1.37. This follows an announcement made on February 11 confirming that heavy rain and severe flooding throughout northwestern Queensland had severely impacted four of AACo's 21 properties.

Management has cited that credible assessment of the impact on livestock and infrastructure will only be possible once the flood waters have started to recede. They expect the impact to be material for FY19 earnings.

The AACo share price closed is down almost 14% so far in 2019.

The post Leading brokers cut their target prices for these 5 ASX shares appeared first on The Motley Fool Australia.

While an accurate assessment of the damage is not yet possible due to persistent flood waters, the impact on the company's FY2019 results is expected to be significant. The once-in-a-century deluge has seen four of AACo's 21 properties severely affected.

The Wondoola station, located 700km west of Cairns, has been hit the worst. Its herd of 30,000 head of cattle is expected to suffer "extreme" losses.

In a statement, the company said: "Our immediate focus is on our people, the welfare of our animals and the tight knit communities in which we operate. The full effects of the flood are being managed and measured in real time."

On the opposite end of the spectrum, below-average rainfall and extreme heat are affecting many of AACo's other properties located in south-western Queensland and the Northern Territory. As previously signaled, these conditions will substantially increase operating expenses, affecting profitability.

More positively, the company said: "The current operating conditions are not expected to affect the company's ability to fulfil supply obligations or the rollout of its branded beef strategy, which continues to be a key focus. While we are still assessing the impact of this tragic situation, our balance sheet and financial position remains strong."

Today's decline saw the AACo share price down more than 15% so far in 2019.

The post Queensland floods take the AACo share price to 15-year low appeared first on The Motley Fool Australia.

But the overwhelmingly bullish sentiment on the market today harbours a dark side that poses a threat to a number of ASX stocks.

This risk is easy to overlook today though as the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) enjoyed its best gain in nearly two years as the index jumped 1.8% with all sectors trading in the black.

Double-edged Sword

The market rally comes as the risk to a full-blown trade war between the world's two largest economies eased after US President Donald Trump and his Chinese counterparty Xi Jinping agreed to refrain from slapping fresh tariffs on each other.

Xi is dangling a big carrot in front of Trump if the US agrees to back-off on the trade war. China agreed to buy a "very substantial" amount of energy, agriculture and industrial goods from the US as part of the ceasefire, according to a report in the Australian Financial Review.

Details are scant so it may be too early to quantify what impact the new deal will have on our listed agriculture and energy sectors.

Potential Losers

Investors in our oil & gas stocks aren't worried though as that is the best performing sector on our market today with the Santos Ltd (ASX: STO) share price surging 8.7% to $6.00, Oil Search Limited (ASX: OSH) share price jumping 5.1% to $7.68 and Woodside Petroleum Limited (ASX: WPL) share price improving 3.5% to $32.16.

There also didn't seem to be many signs of stress among agriculture-related stocks.

The Graincorp Ltd (ASX: GNC) was leading the pack with a near 27% surge to $9.25 on a takeover offer, although the Nufarm Limited (ASX: NUF) share price, A2 Milk Company Ltd (ASX: A2M) share price, Elders Ltd (ASX: ELD) share price and Rural Funds Group (ASX: RFF) share price also enjoyed strong gains today.

But there were some spots of weakness in the sector although it's hard to say if this has anything to do with the new China-US deal.

The fruit and veg distributor Costa Group Holdings Ltd (ASX: CGC) share price dipped slightly into the red as cattle breeder Australian Agricultural Company Ltd (ASX: AAC) tumbled 1.3% to $1.18.

Foolish Takeaway

Investors will need to pay close attention to the developing bilateral US-Sino trade deal as global peace on the trade front can have a nasty sting in the tail.

It also shouldn't be lost on investors that Trump's push to make America first means friends and allies may get pushed off the platform.

With friends like that, who needs enemies?

The post The potential big ASX stock losers from a US-China trade war ceasefire appeared first on The Motley Fool Australia.

Weather conditions can wreak havoc on certain agricultural stocks who rely on rainfall to manage their crops, but while the likes of Australian Agricultural Company Ltd (ASX: AAC), Graincorp Ltd (ASX: GNC) and Webster Limited Fully Paid Ord. Shrs (ASX: WBA) struggle along on that front, these three shares are celebrating every day the mercury rages.

Coca-Cola Amatil Ltd (ASX:CCL)

Hot weather is good news for a $7 billion market cap company like Coca-Cola Amatil, whose core business is hinged upon the manufacture and distribution of carbonated soft drinks, bottled water and sports and energy drinks.

Coca-Cola's share price has been tracking upwards steadily in the last 12 months – sitting about 20% above its share price point of $8.05 at this time last year to $9.65 at the time of writing.

An overly hot Australian summer, coupled with the usual Christmas celebration period, should see strong sales growth for the company in the next few months, although many investors are hard-pressed to get too excited about Coca-Cola with looming health trends labelling sugary drinks a no-no.

However, brand power is often enough to offset the types of anti-sugar campaigns that are the stuff of Coca-Cola's nightmares and recognisable branding can go a long way when Australians are looking for something to quench their thirst during summer party season.

A2 Milk Company Ltd (ASX: A2M)

Another beverage company, A2 Milk, is a leader in the dairy product space, with a serious foothold in the baby formula market also.

The A2 Milk share price has seen better days – well down from its March highs of $13.17 to land at $9.31 at the time of writing – but a long hot summer could be just what the doctor ordered for this company.

A2's rival Bellamy's Australia Ltd (ASX: BAL) saw its share price sink down on a disappointing AGM update this week, with investors wary of slower China cross-border growth across its infant formula category.

But A2M still looks placed as a great buy and hold opportunity for investors, especially with its recent price pullback and a positive trading update last week revealing its share of the Australian fresh milk market has grown over the last quarter.

Goldman Sachs have a buy rating on this one right now.

Afterpay Touch Group Ltd (ASX: APT)

This one isn't a beverage company, but it's a fintech stock focused on making it easier for people to buy things, even if they don't currently have the money to do so.

Afterpay Touch is already having a pretty good year with the uptake of its "buy now pay later" platform services translating into strong growth for the mid-cap and the Christmas period is likely to see more people give their credit cards a work out – music to Afterpay's ears.

The Afterpay share price has seen some slumps of late, but with almost every major retailer in Australia now on its client list, you can bet it will be a good Christmas holiday period for a company which benefits from people buying things.

Afterpay's expansion into the US and UK is also looking pretty solid and with its acquisition of UK's Clearpay now starting to flow through, you can bet this company will be leveraging off any boost to the ecommerce market the silly season can bring.

The post 3 ASX shares to benefit from a long hot Aussie summer appeared first on The Motley Fool Australia.

This is already having a major impact on businesses such as Nufarm Limited (ASX: NUF) which was heavily sold off after its market update recently.

The CEO of Nufarm, Greg Hunt, said "We're facing a perfect storm here in the Australian market, with the dry conditions leading to a poor winter crop, an over supply of products and increased competition across our sector. The whole agricultural supply chain is feeling the impact of this year's extremely dry conditions."

These comments were echoed by David McKeon, the CEO of Grain Growers, who said "What a season like this demonstrates is that the impact of drought isn't just felt at the farm gate, but right through every rural community and right throughout supply chains. It impacts everything from the number of children at local schools to government funding decisions on health services once communities start to lose numbers."

Finally, Tony Mahar, the CEO National Farmers' Federation, said "Farmers have sown winter crops that are not up out of ground or, if they are, are not taking off. Droughts are regular and people know they are coming, but you don't know how bad they are going to be. How bad is it at the moment? It is bad and we don't know how much worse it is going to get."

Sounds bad, right?

We don't yet know which agricultural businesses are going to affected the most. Could it be Australian Agricultural Company Ltd (ASX: AAC)? Select Harvests Limited (ASX: SHV)? Costa Group Holdings Ltd (ASX: CGC)? Or perhaps Graincorp Ltd (ASX: GNC)? We may soon find out in reporting season.

This could turn out to be like insurance companies with a natural disaster. The initial insurance payout is a big hit to the company. But then in future years it can raise prices at a rate much faster than inflation.

How to profit in the near future

There is one company on the ASX called Duxton Water Ltd (ASX: D2O) which owns water entitlements and leases them out to agricultural businesses. It says its objective is to generate annual income through capitalising on the increasing demand for scarce water resources.

Water becomes much more valuable in a drought. Duxton Water's net asset value (NAV) per share has risen from around $1.05 at September 2016 to $1.27 at the end of June 2018, which also doesn't include paying 4.7 cents of dividends.

According to Duxton, the Murray Darling Basin had one of the driest January to June periods on record and the driest since 1986. The drier conditions resulted in increased irrigation requirements in a number of regions.

Many irrigators ran short or overused their available allocations, meaning they had to balance their water accounts by 30 June, which saw prices rise.

The 2019 water season is beginning with lower storage volumes and drier forecast conditions, leading to lower water availability.

I hope for all stakeholders involved that it does rain a bit more, no-one wishes suffering on farmers, communities or animals. I can understand some people not wishing to profit from the situation, I respect that line of thinking.

However, I think Duxton Water could be the best way to invest to get exposure to this current trend that may only get worse in the future as demand for food continues to rise.

The post How to profit from Australia's current severe regional drought appeared first on The Motley Fool Australia.