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Costa share price rises 3% after produce and water update

Tristan Harrison
Costa Group shares

The drought across Australia has been causing havoc for agriculture businesses. It’s one of the main reasons why the Costa Group Holdings Ltd (ASX: CGC) share price is down 63% this year.

Costa gave investors a weather and water update about its berry farms in Corindi in northern New South Wales, its tomato glasshouses in Guyra in New South Wales and citrus farms in the Riverland of South Australia and Sunraysia region of Victoria.

Berries 

For a number of months Costa has had to carefully manage its crops at the Corindi berry farm because of the severe dry and hot conditions.

There hasn’t been any significant rainfall so far in Spring and Summer, but Costa has managed to maintain almost normal production and harvest patterns with prudent use of available water (including from its expanded 900ML dam).

But rainfall is expected to continue to be low for the rest of 2019, so Costa has decided to remove a “significant part of the current annual raspberry crop and early prune some of the lower value blueberry varieties to conserve the priority crop.”

However, this timing happens to be at the same time as Costa building volume from its large Tasmanian plantings with expectations for a good crop in Summer and Autumn. Blueberry production at Corindi is nearing its seasonal conclusion with its Tumbarumba farms now in harvest, to be followed by Tasmania.

Protecting Corindi’s perennial blueberry crops is a priority and will be pruned and therefore require less watering.

Raspberry plantings that are scheduled for late in the first quarter of 2020 are planned to resume but will depend on receiving forecast summer rain.

Thankfully, there will be no impact on Costa’s forecast. There will be a loss of earnings in 2020, but when offset against benefits from Costa’s multi-region production strategy, the loss of earnings is not expected to be material. Less supply from NSW should mean a benefit for the Tasmanian season with a strong crop from Far North Queensland where the harvest can be extended if required. These farms are not affected by drought.

The Bureau of Meteorology (BOM) notes that the two drier climate influences impacting the Corindi region are expected to dissipate by mid-summer.

Tomatoes 

Costa said that its Guyra tomato glasshouses located in the New England region of northern New South Wales have been uninterrupted thanks to alternative water sourcing and management process coupled with two recent rainfall events, with late summer rainfall forecast by BOM which should mean no reduced production in 2020.

However, as Costa has previously advised, the new 10-hectare glasshouse construction has been paused pending an improvement in the water security situation, which still remains the case.

Citrus

Costa advised that the most recent South Australian River Murray Water Allocation Statement noted that water allocations are 100%. The most recent Northern Water Resource Manager update noted an increase of water allocations to 56%, up from the previous 52%.

Foolish takeaway

The drought and water issues continue to play a factor in Costa’s operations, but the country’s largest horticultural company is coping well. Today’s beaten-down share price could be an attractive cyclical-low price, but I can understand if you don’t want to go for Costa in these conditions.

The post Costa share price rises 3% after produce and water update appeared first on Motley Fool Australia.

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Motley Fool contributor Tristan Harrison owns shares of COSTA GRP FPO. The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019