Cheap grain from the Black Sea region is costing Viterra its competitive advantage in exporting Australian wheat to Asia and the Middle East, an analyst said, as the Canadian grain handler’s shares fell to a 17-month low May 7.
As wheat production rises in Russia, Kazakhstan and Ukraine to levels similar to those before the Soviet Union’s breakup, Black Sea shipments are elbowing out rivals like the United States, Australia and Canada, said Bruce Burnett, director of weather and market analysis at the Canadian Wheat Board.
“As long as they produce these larger-type crops in the Black Sea region, you’re obviously going to see this type of market structure,” Burnett said.
The United States was the world’s biggest wheat exporter in 2008-09, with Canada ranking third and Australia fifth. However, the combined wheat exports of 37.1 million tonnes from the Russian Federation, Ukraine and Kazakhstan far exceeded U. S. shipments of 27.3 million tonnes.
At least two analysts have sharply lowered their price targets for Viterra in the past 10 days, with one citing stiff competition for the Canadian-based company’s Australian operations, which it acquired in 2009.
Macquarie Equities Research and National Bank Financial recently cut Viterra’s 12-month stock price target by 23 per cent and 12.5 per cent respectively, to $10 and $10.50.
“Competition from cheap grain coming out of the Black Sea region has all but eliminated Australia’s competitive advantage, which is its proximity to Asia,” Macquarie analyst David Pupo wrote in a note to clients.
Viterra shares have plunged 21 per cent in 2010. The shares on the Australian Securities Exchange are down nearly 18 per cent this year.
Analysts have other concerns about Viterra’s performance, including interest costs and weak global wheat prices. They generally see upside to the stock in the longer term, however.