The month of May was tough for shareholders of agriculture business Costa Group Holdings Ltd (ASX: CGC), with shares down 26% across the period.
CGC share price
The large drop in Costa’s share price was the result of an AGM announcement and a trading update, which revealed the business has been operating in some tough trading conditions recently. As a result, the business anticipates performance to be “marginally ahead” of the previous corresponding period.
Costa is a diversified business that’s responsible for producing, packing and supplying fresh fruit and vegetables. Some of which include tomatoes, mushrooms, berries, citrus and avocados.
Challenging conditions
Management told the market that its Monarto mushroom farm was the worst affected by labour shortages.
Costa has previously relied upon backpackers that perform work to extend their visas, which has dropped due to international travel restrictions.
The Federal government has introduced the Seasonal Workers and Pacific Labour Schemes to promote local employment, but a shortage still remains in some parts of the business.
Management also noted there’d been hail damage in its table grape crop and a fruit fly outbreak that affected operations in its Riverland region.
Mixed results
Despite these challenges, strong retail demand for things like avocados and mushrooms likely offset some of the previously mentioned complications.
Berries have also been a strong performer – the company has doubled its volume and sustained high prices.
Tomato prices took a hit due to an oversupply from the onset of COVID-19, which saw demand fall from schools, cafes and restaurants.
Time to buy Costa shares?
Costa is a business with many moving parts that need to all be aligned in order for the business to operate optimally.
Unfortunately, conditions have been tough recently, and while COVID-19 still plays out, there might be more ongoing labour shortages and other complications.
Agriculture businesses are in a tough space due to things like seasonality, natural disasters, pests and evolving consumer preferences. Investors often buy into agriculture stocks and trade in and out depending on the stage of the cycle, but this style of investing isn’t for everyone.
As part of the Rask investment philosophy, we try to look for companies that are unaffected by things like seasonality, as they generally perform better across different conditions.
For some other share ideas, click here to read: My top 3 ASX software companies for June.
