GrainCorp Ltd. (ASX: GNC, OTC: GRCLF), Australia’s largest publicly traded agriculture firm, was a steady grower in the year after it debuted as a founding member of the AE Aggressive Portfolio in 2011.

From September 26 of that year until late 2012, the stock posted slow but steady gains, capped by a spike at the end of 2012 on a takeover bid from Archer Daniels Midland (NYSE: ADM).

By April 2013, our total return was well over 100% in U.S. dollars, and GrainCorp was one of the top performers in both the Portfolio and on the Australian Securities Exchange.

A Dry Summer

As any farmer will tell you, the farming business is anything but predictable, something GrainCorp experienced firsthand in November 2013, when the Australian government blocked the deal, sending the stock tumbling below AUD9.

Since then it’s been trading on grain-market fundamentals—and those fundamentals have been challenging. That’s been reflected in GrainCorp’s results, which are heavily influenced by things like harvest size and the weather. That’s why it’s an Aggressive Holding.

During its 2014 fiscal year, a lack of rain and smaller grain harvests on Australia’s east coast cut revenue by 8.2%, to AUD4.1 billion.

Earnings before interest, taxation, depreciation and amortization (EBITDA) dropped 25.8%, to AUD293 million, while underlying net profit after tax (NPAT) slid 45.7%, to AUD95 million. Statutory NPAT, which includes AUD44 million of one-off items, was down 64.3%, to AUD50 million.

The bright spot was GrainCorp’s malt division, where EBITDA grew 23.8%, to AUD125 million. Its other segments saw lower earnings, including storage and logistics (down 59.8%, to AUD72 million), oils (down 2.7%, to AUD73 million) and marketing (down 33.3%, to AUD36 million).

Smaller Harvest Looms

According to CEO Mark Palmquist, who took the reins in October 2014, the tough conditions will extend into 2015. He’s basing that view on early results of the harvest under way in Queensland, New South Wales and Victoria.

Severe drought has devastated winter crops in northern New South Wales and Queensland for the second year in a row. Dry conditions have also made their way into southern New South Wales and the Victorian Mallee.

Management recently said GrainCorp would receive 6.545 million metric tons of grain at its 250 silos and depots in eastern Australia in fiscal 2015. That’s a conservative estimate that will likely grow as the harvest continues, but it follows 8 million metric tons in fiscal 2014, down 23% from 2013.

But there’s some good news here for GrainCorp. For starters, although the crop is smaller, it is of good quality, and heavy January rain has eased the drought in parts of Queensland and Victoria, setting the stage for a better summer planting season.

Management Rolls Up Its Sleeves

Still, the company isn’t simply waiting around for the next bumper crop. Management is getting its hands dirty, zeroing in on costs and acting on its plans to make the company more resilient.

Palmquist revealed some of these moves at GrainCorp’s December 2014 annual general meeting, including speeding up improvements to the company’s grain-handling network. GrainCorp also has more than AUD500 million of major capital projects on the go, and has already restructured its east coast storage and handling facilities.

At the same time, the company is expanding its reach and now sources grain from Western Australia, South Australia and places such as Hungary, Canada and the U.K.

Government Investment Likely

The company will need about AUD50 million to AUD75 million from the Australian government for some of its upgrades, and there are signs this cash could be on the way, especially since ADM promised to fund these projects before the government scuttled the deal.

GrainCorp declared a final dividend of AUD0.05 per share for fiscal 2014, down 75% from AUD0.20 for the prior corresponding period. The full-year payout of AUD0.20 was down from AUD0.45 for fiscal 2013, which included a special cash dividend of AUD0.05.

Fiscal 2014’s payout ratio was 48% of underlying NPAT, well within management’s 40%-to-60% target.

The company’s balance sheet is strong, and its cash generation is solid. It’s also well positioned to profit from Asian consumers’ changing appetites.

Still a Bargain Despite Rise

Recent rainfall has lifted GrainCorp’s boat, helping the stock hit a 52-week high of AUD9.58 on the ASX on Feb. 12, 2015. That’s equivalent to USD7.42, based on the current Australian–U.S. dollar exchange rate. It also means the stock is up about 24% in local terms from its 52-week low, which it hit on Feb. 25, 2014.

Even with the gain, GrainCorp trades at just 1.23 times book value, well below the 1.50 “bright line” defined by the godfather of value investing, Benjamin Graham. And it’s yielding 3.6% at these levels.

The company will struggle to generate free cash flow (or cash flow minus capital expenses) over the next couple of fiscal years. But when its AUD500 million capital spending program runs its course by fiscal 2017, Australia’s largest grain handler will unleash a bountiful harvest for investors with a long view.

GrainCorp remains a buy up to USD10.