Costa (ASX:CGC) Share Price Rises Despite More Drought Problems


The drought has caused more issues for Costa (ASX: CGC), but its share price is up 2% this morning.

Costa is Australia’s largest horticultural business. It produces glasshouse tomatoes, berries, avocados, mushrooms and citrus fruit. It has over 4,500 planted hectares of farmland, 30 hectares of glasshouse facilities and seven mushroom growing facilities across Australia. Costa also has international interests, with majority-owned joint ventures covering six blueberry farms in Morocco and three berry farms in China.

Costa’s Drought Issues

Berries

Costa announced this morning that the continuing severe and dry hot conditions in northern New South Wales have required careful crop management at Costa’s Corindi berry farm for a number of months.

There has been no significant rainfall during Spring and early Summer. Prudent use of available water from Costa’s network of dams, including its largest dam which was recently expanded to 900ML, had allowed Costa to maintain near normal production and harvest patterns.

However, a forecast for rainfall to continue to be lower than average for the remainder of the 2019 year, it has been 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.

Costa said the timing coincides with the transition period for raspberry production large Tasmanian plantings where volume is building strongly with a favourable summer and autumn crop.

The company will be focused on protecting its perennial blueberry crops which will be pruned and therefore need a lower watering regime.

Costa said this will have no impact on its 2019 calendar year forecast, but the Corindi farm will experience loss of earnings in 2020, but when offset against the anticipated benefits of Costa’s multi-region berry strategy, the loss of earnings won’t be material.

Management said that the berry farms in Tasmania and Far North Queensland are not affected by drought. BOM has also noted that conditions could improve by mid-summer, which are usually the wettest months for rainfall at Corindi.

Tomatoes

Looking at some of the other produce segments, the tomato segment has secured uninterrupted options at least over the summer because of alternative water sourcing and management, combined with recent rainfall. Full production is expected for the rest of 2020. A glasshouse expansion is paused until water security is improved.

Citrus

In the citrus category water allocations are 100% from the most recent South Australian River Murray Water Allocation Statement and the most recent Northern Victoria Water Resource Manager update saw an increase of water allocations from 52% to 56%.