Australia is a relatively small–it accounts for about 10 percent of global trade–but important contributor in terms of quality and value to world wheat markets. It enjoys a geographic advantage relative to other wheat-growing countries because of its proximity to growing Asian, Middle Eastern and African markets. And Eastern Australian wheat is imbued with characteristics that bring better yields and performance for quality-focused flour millers.

Australian Edge Portfolio Aggressive Holding GrainCorp Ltd (ASX: GNC, OTC: GRCLF) handles much of the wheat that moves around and out of Australia.

GrainCorp was founded in 1916 as of the New South Wales Dept of Agriculture. It was present at and instrumental in the creation of Australia’s bulk grain handling system, building its first grain elevator at Peak Hill, New South Wales, in 1918 and Australia’s first bulk grain export terminal in Sydney in 1922.

What’s now GrainCorp was one of the first Australian companies to be privatized, in 1992. The company listed on the Australian Securities Exchange (ASX) in 1998. Its acquisition of Vicgrain in 2000, Allied Mills in a joint venture with Cargill Australia in 2002 and Queensland-based GrainCo in 2003 vaulted it to its present spot atop the Australian grain-handling market.

The company now operates at all points along the grain supply chain, from country storage sites to export terminals, supplying the domestic market along the way. It has more than 250 country elevators with a total storage capacity of up to 20 million metric tons, spread across a 2,700 kilometer footprint from Mackay in Queensland to Portland in Victoria.

GrainCorp operates grain export terminals and also manages more than 1 million metric tons of road transport each year, and its ports elevate an average of 5 million metric of grain and up to 1.5 million metric tons of non-grain commodities per year.

GrainCorp Trading buys through the cash market and pools and then sells wheat, barley, sorghum, canola and protein meals per year, servicing both domestic and overseas customers.

GrainCorp is now one of the largest commercial malt producers in the world, with operations in Canada (Canada Malting Company), the US (Great Western Malting), the UK (Bairds Malt) in addition to Australia (Barrett Burston Malting). Its malt houses produce over 1 million metric tons of high-quality and specialty malts per year for some of the world’s leading brewers and distillers.

The company’s most recent financial results–for the first six months of fiscal 2011 (end Mar. 30, 2011) included net profit after tax (NPAT) of AUD88 million, up AUD35 million, or 66 percent from the prior year. Earnings from grain handling and marketing were all higher due to a record eastern Australian winter crop harvest, high grain “receivals,” an increase in the tonnage of grain marketed, and improved productivity. Malt business earnings were marginally lower amid difficult conditions, including unfavorable foreign exchange rates (high Australian and Canadian dollars) and continued soft beer demand in mature markets.

Management expects to report full-year EBITDA of between AUD310 million and AUD340 million, guidance that was revised upward from AUD275 million to AUD310 million. Full-year NPAT (for the 12 months ending Sept. 30) is forecast between AUD145 million and AUD165 million. Previous NPAT guidance was AUD115 million to AUD135 million.

However with 7 million metric tons of grain exported in the 12 months to the end of September, management’s 7 million to 8 million metric ton export guidance is highly likely to be achieved, which means it’s highly likely the forecast will exceeded.

Recent rainfall has improved the yield outlook for Victoria, while yield expectations have stopped falling in Northern New South Wales. The impact of recent rainfall has been to bring yield trends in line with to slightly above September forecasts by the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES).

The looming threat to management and ABARES forecasts is lurking in the tropical Pacific Ocean, where conditions are consistent with the early stages of a late-forming La Nina. Rain from November to January generally is not helpful to yields, but the increase in precipitation that would accompany La Nina could be a negative for GrainCorp, as the quality of the crop would likely be downgraded from “milling grade” to “feed,” which attracts a lower price and is more competitive globally). This happened with the 2010-11 crop.

The current long-term outlook for strong demand and elevated grain prices should result in strong receivals and export volumes for GrainCorp, as farmers are less inclined to store grain on their farms during periods of elevated soft commodity prices.

GrainCorp is up 21.2 percent in US dollar terms since AE’s Sept. 26, 2011, launch, and that’s all price appreciation and the strengthening of the Australian dollar versus the US dollar through to press time. It will likely declare its next dividend Nov. 24, when it releases full-year fiscal 2011 results. GrainCorp is a buy under USD8.50.

Potash is one of three major ingredients in fertilizer. Proper fertilization leads to better crop yields. Maximizing yields from minimal arable land is one way to combat shortages of wheat, grains, and other agriculture products. In other words, potash is vital to food security, a complex issue at the intersection of many academic disciplines.

But, simply stated, man’s got to eat. And emerging market appetites are increasing by the day, adding pressure to a system already strained by developed-world demand and stressed by concurrent scarcity of energy, water and arable land. There’s opportunity for miners such as AE Portfolio Aggressive Holding BHP Billiton Ltd (ASX: BHP, NYSE: BHP), which is among a very few resource companies with the muscle to get a “greenfield” potash project past the dream stage.

And now it has the approval of the Saskatchewan Ministry of Environment to develop the Jansen potash project, located about 140 kilometers east of Saskatoon.

High-quality, economically mineable potash deposits are geographically concentrated and, as a result, it’s produced in only 12 countries. Canada, Russia and Belarus together account for just over two-thirds of global capacity and, according to the US Geological Survey, almost 90 percent of estimated reserves. Saskatchewan has almost half of world reserves and 35 percent of global capacity.

Producers of the form of potassium also are seeking to avoid another spike in prices like the one three years ago, which spurred some farmers to shun the nutrient as crop prices fell.

Russia-based Uralkali OAO (London: URKA) plans to spend USD5.8 billion to raise annual production capacity by about 80 percent to 19 million metric tons by 2021. The Mosaic Company (NYSE: MOS), based in Minnesota, is bringing on about 200,000 tons of extra capacity at its Colonsay and Esterhazy mines in Saskatchewan, part of a plan to add 5 million tons of capacity by 2020. And Potash Corp of Saskatchewan (TSX: POT, NYSE: POT) will phase in production from its expanded Cory mine in Saskatchewan in 2012. The company plans to raise capacity at existing mines to 17.1 million tons by 2015 from an estimated 11.3 million this year.

Prices tripled in 2008 as crop prices soared. The crop nutrient reached USD872.50 in February of that year, according to World Bank data, before tumbling 48 percent in 2009, the largest annual decline since at least 1961. Prices have risen 33 percent to USD470 a ton in 2011 but dropped 2.6 percent in September, the first monthly decline since October 2010.

Prices aren’t likely headed for a collapse similar to the one in 2009, and potash miners are expanding as the global population surpasses 7 billion and rising prosperity in developing nations puts pressure on food supplies.

Prices for soft commodities are high and apparently stable, as nobody seems to be considering postponement of deliveries of potash. Uralkali in August agreed to increase potash prices in India by 32 percent to USD490 a ton and is looking to sign a contract with China for 2012 for USD530 a ton. Potash Corp forecast Oct. 27 that global potash industry shipments will rise to a record 58 million to 60 million tons in 2012 from 57 million tons this year.

Major markets in Asia and Latin America have little or no domestic potash production capability and rely primarily on imports to meet their needs–a critical difference between the potash business and the other major crop nutrients. The large producing regions of Canada and the former Soviet Union have small domestic requirements and therefore are significant exporters.

Potash production is difficult to take up, however, and is incredibly risky because of the significant cost required to establish new sources of supply. One estimate puts the cost to develop a conventional 2 million metric ton greenfield mine and mill in Saskatchewan at more than USD4 billion.

Shortly before it received approval from Saskatchewan to proceed BHP announced it will invest an additional USD488 million to support development of the overall USD10 billion Jansen project during its feasibility study stage. The funding will go toward completion of mine design and engineering, initial surface construction, sinking of the first 350 meters of the production and service shafts and procurement of long-lead-time items.

Management expects final approval from the BHP board to come sometime in 2012.

Since initiating a feasibility study in February 2011 BHP has constructed the refrigeration center for the ground-freezing process required prior to the sinking production and service shafts and has drilled more than 55,000 meters of wells to complete the 89 freeze holes and monitoring wells.

Based on the current development schedule Jansen is on track to start production in 2015. At full design capacity it’ll produce about 8 million metric tons per year of agricultural-grade potash from its 3.37 billion metric ton in-situ mineral resource. The estimated life of the mine is 70 years.

BHP’s investment in Jansen has surpassed USD1.2 billion, and it’s spent about USD2 billion exploring it and other potential projects in Saskatchewan in total. There’s no question now that–even after the Canadian federal government joined with Premier Brad Wall to derail BHP’s attempted acquisition of national champion Potash Corp of Saskatchewan (TSX: POT, NYSE: POT) in 2010–the company is committed to developing a world-class potash business in the province.

BHP Billiton is a buy under USD80.

New to AE How They Rate coverage, Ridley Corp Ltd (ASX: RIC, OTC: RIDYF) is the biggest animal feed and salt producer in Australia.

Investors have been happy to back the Asia story as it relates to the mining sector. But they’ve yet to embrace its likely impact on demand for Australian agricultural produce and salt, which will support Ridley’s business in coming years.

Ridley got started in 1987 as a stock feed manufacturer. In 1990 it purchased Barastoc Stockfeeds, and these operations now comprise Ridley AgriProducts (RAP). RAP is Australia’s largest commercial provider of stock feed and animal nutrition supplements. It holds an approximate 25 percent share of the available market, that is the approximately 50 percent of total stock feed demand that isn’t vertically integrated into large farming operations.

RAP sits neatly between grain handlers and livestock producers, adding value in the livestock/protein industries with a focus on poultry, pigs and dairy.

Ridley acquired Cheetham Salt, the largest producer and refiner of salt for sale into the Australian market, in 1992. Cheetham’s salt is sold to several industries, including water treatment, stock feed, food manufacturing, chemicals and the pool sector. In 2011 Ridley acquired primary chicken and fish specialist protein meal supplier Camelleri Stockfeeds for AUD35 million.

Full-year fiscal 2011 (ended Jun. 30, 2011) net profit after tax (NPAT) was AUD29.3 million, up 0.8 percent from 2010, though revenue from continuing operations declined 0.6 percent to AUD723.7 million.

Full-year operational EBITDA (earnings before interest, taxation, depreciation and amortization) was AUD39.9 million, down AUD6.3 million from the prior period. Ridley AgriProducts generated EBIT for the year of AUD24.9 million, including items such as costs to acquire Camilleri Stockfeeds. Camilleri’s contribution to EBIT for the four months since acquisition was AUD2.6 million.

Cheetham generated EBIT before joint ventures of AUD14.2 million, down AUD2.6 million from 2010 on severe weather events, particularly in Queensland. The Cheetham joint ventures in New Zealand and Australia contributed AUD7 million to the fiscal 2011 bottom line.

Operating cash inflow before interest, dividends and taxes was AUD43.4 million, down AUD5.9 million from the AUD49.3 million recorded in fiscal 2010. Net interest and other finance cost cash outflows of AUD9.1 million were similar to 2010’s AUD8.6 million

In December 2010 Ridley finalized a new AUD169 million bank debt facility to replace a AUD150 million cash advance due for repayment in December 2011. The new facility includes term debt available to be drawn down in tranches, with terms of between two and four years. Debt-to-equity was 35.1 percent as of Jun. 30, 2011, up from 25.2 percent a year earlier because of the Camilleri acquisition.

Ridley’s board declared a total cash dividend in respect of fiscal 2011 of AUD0.075 per share; it last cut its dividend in September 2008. Ridley Corp, a new addition to AE How They Rate coverage under Consumer Goods, is a buy under USD1.30.