Dairy revival bolsters Wynnstay's hopes in feed

Shares in Wynnstay Group rediscovered upward movement as the seed-to-pets group highlighted the improvement in the dairy market as limiting the dent to feed demand from a warm UK winter.

Ken Greetham, the chief executive of the UK-based group, acknowledged that "mild winter conditions have tempered demand for feed and raw materials" a sharp contrast with the market a year before, when cold and poor pasture growth forced farmers to keep animals indoors for an extended period.

Official data earlier this month showed UK cattle and poultry feed prices falling for the first time in 18 months, with pig feed prices also dropping.

While grain costs have fallen too, the dent to feed demand has raised concerns over prospects for feed groups.

"A much milder winter which prolonged the grazing period, good silage conditions last summer and the effect of strong year-on-year comparable figures will make it more difficult to deliver improved performance in 2014," VSA Capital analyst Edward Hugo said.

Dairy boost

However, Mr Greetham highlighted the boost to feed demand from the dairy sector from improved milk prices, and producer margins, spurred by strong global markets, which are being underpinned by healthy Chinese and Russian imports.

"Demand for dairy feed continues to be encouraging, reflecting the long awaited increase in milk prices which has brought a degree of confidence to the dairy sector," he said.

UK milk prices have risen by more than 4p a litre since May, or 15%, encouraging a rise in production, which in turn implies strong feed needs.

UK milk output averaged 37.9m litres a day in the first two weeks of 2014, up 10.8% year on year.

'Healthy fertilizer demand'

Mr Greetham also flagged some recovery in the UK fertilizer market, after a period when "early buying by the arable sector was delayed as a result of signs of a weaker world market", which was undermined by the break-up of BPC, the Belarusian-Russian potash cartel which controlled more than 40% of world trade.

"A rebalancing of prices brought an increased confidence to the sector and fertiliser demand rose at the end of the 2013 with the order book looking healthy for the spring of 2014," he said.

Mr Greetham added: "Overall the agricultural sector remains strong and the group's broad spread of activities forms a solid foundation for continuing sustainable returns for all stakeholders in the business."

Farmers have "generally benefited from the strengthening demand" for agricultural products, although he cautioned that they "continue to face the challenges of climatic conditions and commodity pricing", with London wheat futures down nearly 30% over the past year.

Market reaction

The comments came as Wynnstay unveiled a 5.8% rise to £6.17m in earnings for the year to the end of October, on revenues up 10.0% at £413.5m.

Operating profits in agriculture rose 4.0% to £4.90m, on revenues up 9.4% at $323.0m, with profits from the retail division up 13.4% at £4.43m.

VSA's Edward Hugo, saying that Wynnstay had enjoyed an "excellent" year, underlined the boost to its profits from the stronger UK dairy market, flagging "encouraging demand for dairy feed due to higher milk prices".

At Shore Capital, Wynnstay's house broker, analyst Phil Carroll said that "although recent mild weather has tempered feed demand, we are confident that this can be offset by the other aspects of Wynnstay's business, which includes a more positive outlook from an arable weather and harvest perspective and increasing consumer confidence".

Wynnstay shares, which had fallen back after hitting a record high of 665p last week, stood 0.9% higher at 650p in morning trade in London.

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