The poor quality and quantity of the UK wheat harvest is handing an advantage to mills situated near ports by facilitating their access to imported supplies, Carr's Milling Industries said, revealing a 30% hike in use of foreign grain.
The group, which has a 7-8% share of the overall UK market but is dominant in the north of England and Scotland, said that its pre-tax profits in milling slumped 65% to £400,000 in the year to September 1, hurt by the "continuing overcapacity" in the domestic industry.
However, Chris Holmes, the Carr's chief executive, remained upbeat over prospects for the division, thanks in part to the opening next year of a "start-of-the-art" mill in Kirkcaldy, Scotland and also down to the business's ability to find replacement supplies for the poor UK wheat crop.
The UK wheat crop, besides recording its lowest yield in 20 years, came in with the lowest bushel weight – one of the key quality measures - on records going back to 1977, hurt by dismal growing conditions, including drought for the first half of the growing season, and downpours in the second half.
"A big thing this year is the UK wheat harvest and the opportunity that brings," Mr Holmes told Agrimoney.com.
The group's position near ports means that it is in a "very much better position" than some rivals to source sufficient foreign supplies, which are expected to see UK buy-ins hit some 3m tonnes, and turn the country, unusually, into a net importer.
Carr's, which usually consumes equal quantities of foreign and UK grain, with imports mainly from Canada, expect that ratio to shift to roughly 70:30, with supplies being sourced from France, Germany and Sweden too.
Scandinavia is considered a source of alternatives for the UK's group 3, biscuit wheat supplies which are proving particularly hard to source, raising ideas potentially of imports of US soft red winter wheat as an alternative.
Agrimoney.com has heard of one mill in England's South East, operated by another company, raising its ratio of imported wheat to about 85%, using a mile-long conveyor which typically sees little use.
"It is like a farmer looking in the nettles for the scarifier he hasn't used for years and dusting that off," a source told Agrimoney.com.
Mr Holmes said that Carr's access to foreign supplies would help make sure "we are making the best quality flour" besides keeping a lid on imports costs.
The poor quality of the UK crop meant it was "taking about 3-4% more wheat to produce the same amount of flour", he added.
The comments came as Carr's unveiled pre-tax profits up 31% to £13.1m for the year to the start of September, on revenues up 8.2% at £404.1m.
The downturn in milling was more than offset by a near-tripling in profits from the group's nuclear engineering operations, and by a 15.6% rise to £9.5m in takings from the core agriculture business, which makes nutrient blocks for livestock farms.
The US drought which sapped US pasture and sent forage prices had created "perfect" market conditions for Carr's feed blocks, which allow animals to convert forage into weight more efficiently, Mr Holmes said.
The agriculture division was likely to lead growth in 2013, Richard Inglewood, the Carr's chairman, said.
"The current period has started well, benefiting from strong sales of animal feed in the UK and particularly in the US where forage quality is poor, caused by the drought conditions in many states," he said.
The data were welcomed by Investec analyst Nicola Mallard, who said that Carr's had "completed a successful year", despite a "poor result" in milling.
The broker raised to 1000p, from 970p, its target on Carr's shares, on which it retained a "buy" rating.
The shares closed 1.2% higher at 925p in London.