Shares in Wynnstay touched a four-year low after the
fertilizer-to-grain trading group unveiled a drop in ag sector profits and downplayed
hopes for a UK farming recovery, seeing "only limited" signs of market
Wynnstay shares eased 1.3% to 382p in morning deals in London,
their lowest since June 2012, even as other stocks rose, with the FTSE All
Share index standing 2.5% higher.
The decline followed a cautious statement by the group over
its outlook, after results for the November-to-April period, the first half of
its financial year, which showed a 15.4% drop to £4.08m in pre-tax profits, on
revenues down 33.7% at £193.2m.
"The agricultural environment remains difficult for our
farmer customers," Wynnstay said, adding that "there are only limited signs of
improvement in near-term trading conditions".
Ken Greetham, the Wynnstay chief executive, highlighted that
the "macroeconomics of the market", which has, for instance, been marked by
disappointing South American harvests and some US weather concerns, "suggest a
return to more acceptable pricing".
However, the timing of a recovery in prices reaching farmers
was "difficult to predict".
Wynnstay said that, in its own performance, the "pressure on
farm income" from the agriculture downturn – which had left prices "below the
realistic cost of production" - had been "particularly evident" in the dairy
In dairy, signals from world commodity markets can take a
particularly long time to reach producers, via processor supply contracts –
with a further lag before pricing changes can stimulate a response in terms of changes
in milk output.
"The challenges faced
by customers supplying the dairy market resulted in a reduction in demand for
compound and blended feeds" in the November-to-April half, Wynnstay said, while
noting that this reflected a national trend.
UK production of compound feed for cattle fell by 3.0% in the
2015 calendar year to 5.22m tonnes, according to data from European Union industry
group Fefac, released on Tuesday.
Data from Defra, the UK farm ministry, showed that UK
production of ruminant feed in the November-to-April period dropped by 3.6%
year on year.
Wynnstay flagged a "relatively slow start" to the period in
its arable supplies operations too, undermined by a late spring besides depressed
However, demand "gained momentum" in the February-to-April
period, reaching "buoyant" levels, and "the resultant spot market was very
"Strong cereal and herbage seed sales helped drive total
arable product volumes above last year's levels."
Meanwhile, in grain trading, volumes had been boosted by the
strong harvest last year, when the UK for the first time achieved a second
successive 16m-tonne wheat crop, with an estimate of a "reasonable volume" of
grain remaining on farm successive further trading opportunities ahead.
In the City, broker VSA Capital said that the results were "in-line
with expectations", although adding that it was "important to note that consensus
currently points to a fall of almost 20%" in full-year pre-tax profits.
Shore Capital analyst Phil Carroll, terming the results "solid",
added that they "show the business remains able to deliver robust profitability
and cash generation despite there being no let-up in the challenging market
conditions the company has faced for the past two years".
"Wynnstay's broad range of agricultural activities have
again provide to be resilient."