BayWa flagged "optimism" over its prospects, "particularly in
the agriculture sector", thanks to a boost from improved crop prices - and
despite the prospect of a 20% plunge in Europe's apple harvest after "freak
The German-based grain trader-to-energy group, reporting an
86% jump to E27.4m in earnings for January-to-June half, said that this has
defied slide in performance at its agriculture division, the company's biggest,
where operating profits dropped 9.8% to E48.3m.
The decline reflected a costs of a restructuring at grain
trading sites in southern and eastern Europe, which dragged the Bast trading
division into an operating loss, besides a dent to its fruit profits from a
late apple harvest in New Zealand.
However, BayWa forecast better results ahead, saying that "growth
momentum is likely to rise in the second half of the year, particularly in the
agricultural sector", where higher agricultural commodity prices were boosting volumes.
'Almost completely sold
Indeed, the "continued rise in producer prices" - which saw German
wheat exports priced at E175 a tonne in Hamburg at the end of June, up 11% year
on year, according to the AHDB bureau – "is likely to lead to an increase in
willingness among farmers to sell their produce", BayWa said.
"This would see marketing potential increase in the second
half of the year, with greater price stability and higher prices overall
compared to the previous year."
Indeed, grain stocks in Germany, the European Union's second-largest
producer, have been running low, with supplies from last year's harvest "almost
completely sold off".
The higher price environment has led to an "improved financial
situation" among German farmers, boding well for sales of fertilizer and
agrichemicals, prices of which are little changed year on year.
The impact has already been seen in the agricultural machinery
market, which saw "brisk demand both in Germany and abroad", BayWa said.
"The positive trend in agricultural equipment and higher
producer prices confirm the recovery of the agricultural industry, providing
grounds for optimism for the second half of the year," the group said.
Higher crop and milk prices, "coupled with the increasing
level of digitisation in agriculture, mean that this business area can be
expected to develop with greater stability than in the previous year."
In the January-to-June period, the equipment operations achieved
an operating profit of E9.28m, compared with a E1.45m loss a year before, on revenues
up 12.2% at E666.1m, lifted in part by acquisitions.
The group also saw a silver lining to poor prospects for
Europe's fruit crop, which was in "large swathes" of the continent "hit wither
severe night frosts" during the April blossoming period, followed up in some
areas, particularly the Alps, by deleterious heavy rains and hail.
"With only Spain and the UK emerging largely unscathed from
the freak weather, EU harvest volumes for most fruit varieties will likely be
down in 2017," BayWa said.
The EU apple harvest could slump 20% to less than 10m
tonnes, with losses as high as 70% in Germany's Lake Constance region, near the
Swiss border, although in northern Germany losses were expected at 10%.
While acknowledging that the "poor" EU fruit harvest will "have
a negative impact", particularly in 2018, BayWa also highlighted the potential
for the weak crop to support prices.
"The relatively weak fruit harvest across Europe could lead
to rising prices, and boost the marketing potential of the southern hemisphere
fruit harvest," with southern hemisphere apple output seen up by just under 9%
to 5.4m tonnes.