UK crops have 'excellent potential', says Agrii

Origin Enterprises, raising its forecast for full-year earnings, flagged the "excellent yield potential" of UK crops, as the HGCA bureau heralded the country's return as a net exporter of wheat.

Origin Enterprises, which owns the Agrii agronomy chain, said that "all major" UK crops were "well established with excellent yield potential", thanks favourable weather which many observers believe has increased the chances of an early harvest.

"Near-perfect growing conditions supported the accelerated development of winter and spring [crops]," the Irish-based group said.

It contrasted the conditions with those a year ago, when "unseasonably cold spring weather slowed crop development", after a wet 2012 autumn which diminished sowings of winter grains.

'Return as a net wheat exporter'

The comments came as the HGCA crop bureau said that, bar a weather upset, "the UK should be expected to return as a net wheat exporter" in 2014-15, after two seasons when imports have exceeded outward shipments.

Exports this season have been constrained by a small quantity of wheat production, held back by the poor autumn sowing conditions in 2012, the UK's second wettest year on record. The damage to the quality of the 2012 harvest from these rains curtailed shipments last season.

Assuming "typical" yields, "amplified supply levels would allow 2014-15 to be the first season since 2011-12 when a greater amount of wheat is exported from the UK than imported", the bureau said.

However, the reliance on exports will likely lower price prospects to enable the UK to compete on export markets, the HGCA said, highlighting that the discount of London wheat futures to their Paris peers has already grown to 13-14 a tonne, from £5-8 a tonne in January, indicating that "the market is beginning to factor in expectations for a larger UK crop".

Underlying yield boost?

In fact, seed technology means that the underlying harvest potential may be higher than many observers realise, with "less than ideal weather conditions" sending the five-year average yield figure into a decline, to 7.48 tonnes per hectare, well below the 2008 record of 8.28 tonnes per hectare.

"The reality is that the UK weather events of the last four years have masked what a typical UK average yield looks like," the bureau said, noting that 29 out of the 40 wheat varieties on the recommended list have been added since 2010

"Also, new inputs have become available.

"Both of these factors could have changed what a typical UK wheat yield now looks like."

Toepfer, the German grains trader, on Tuesday estimated the UK wheat crop at 15.06m tonnes, which would be the highest in three years, with the US Department of Agriculture pegging the harvest at 15.15m tonnes.

The record wheat crop in the UK, the European Union's third-ranked wheat producer, was the 17.23m tonnes achieved in 2008.

Polish prospects

Origin Enterprises said that the better crop prospects had spurred "higher demand for full service agronomy applications" at Agrii in the February-to-March quarter, supporting a "strong performance" in sales of inputs such as agrichemicals and fertilizers too.

"Higher fertiliser demand in the period reflected the benefit of increased winter cropping."

The group, which also owns the Dalgety Agra Polska agronomy chain in Poland, said that crops in the central European country were in "excellent condition" too, "with a total area of some 7m hectares of winter and spring combinable plantings".

In Ukraine, where Origin Enterprises in January completed the purchase of control of the Agroscope agronomy business, its purchase had "performed well in the quarter with favourable sales and margins for agronomy services and inputs reflecting the benefit of an early spring season, with a higher level of crop plantings to date".

However, Agroscope was "maintaining a cautious planning approach in the current season in light of the recent challenges facing Ukraine", the group said.

Market reaction

Origin Enterprises unveiled a 19.8% rise to E512.8m in revenues for the quarter, reflecting growth of 13.2% once contributions from currency moves and acquisitions were stripped out.

The group, terming its performance, "very satisfactory", raised by 1.5 euro cents to 55.0 euro cents its forecast for earnings per share for the full year to the end of July.

The results were termed "strong" by Dublin broker Davy, which said it would likely raise its own forecasts for Origin Enterprises' full year earnings, and kept an "outperform" rating on the group's shares.

"Excellent returns on capital and strong cash generation remain central to our investment thesis," Davy analyst Declan Morrissey said.

Origin Enterprises shares stood 1.8% higher at E7.82 in afternoon deals in Dublin.

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