Canada:Lower global wheat production to benefit Viterra

Viterra Inc, Canada’s largest grainhandling company, should benefit from lower global wheat production and resulting higher prices, according to a National Bank Financial (NBF) market report issued Monday, reported NA “Kazakh-Zerno” with reference to the “Leader Post“.

“Despite short-term challenges, we have retained our outperform rating on VT (Viterra’s ticker symbol on the TSX),’’ said the report by NBF food products analyst Hari Sambasivam.

“We remain positive on VT’s longer term outlook owing to a) visibility of grain handling volumes in both South Australia, and especially in Western Canada; and b) steady long-term growth in Western Canadian agricultural retail and the Australian malt business,’’ the report said.

In recent weeks, estimates of global wheat production have declined, due to drought-like conditions in Eastern Europe and flooding in Western Canada, NBF said.

Global wheat production is estimated to drop by 7.5 million tonnes from the June estimate by U.S. Department of Agriculture (USDA). The 7.5-mlllion tonne shortfall is mainly due to a drop of 11.5 million tonnes outside the U.S., offset by an increase of four million tonnes in the U.S.

Consequently, new USDA estimates for global ending stocks for wheat have declined by 6.9 million tonnes to 187 million tonnes.

Given the declines in estimates for wheat production and ending stocks, wheat prices have appreciated sharply in the past few weeks, NBF said. Similar trends apply for canola and barley.

NBF had previously estimated that reduced planted acres in Western Canada were likely to cut Viterra’s third quarter earnings by six to 11 cents per share, given lower retail sales. In addition, NBF called for a seven cents earnings per share cut in fiscal 2011, owing to lower grain volumes of 42 million to 44 million tonnes.

However, higher global wheat prices could result in an improvement in Viterra’s grainhandling volumes and marketing margins in South Australia, NBF said.

Estimates for Australian production remain unchanged at 22 million tonnes, although exports have been revised upwards by one million tonnes, resulting in lower ending stocks.

NBF said Viterra’s current share price was a “reasonable entry point for investors with a longer term investment horizon.’’ NBF’s one-year target price for Viterra remains unchanged at $10.50.

Viterra shares closed at $7.57, down eight cents, on the TSX Monday.

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