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UK famers to lose out from Brexit - so stockmarket says

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UK agriculture will lose out from Brexit.

At least, that is what stockmarket investors appear to think.

While the average London-traded share on Wednesday trimmed to less than 2% its losses since the UK's shock vote last week to leave the European Union, stocks in the three listed farm supply groups – Carrs Group, NWF and Wynnstay Group – were showing notably greater losses.

Stock in Carrs and Wynnstay is down some 6%, with stock in the latter sitting at a four-year low.

That looks a poor harbinger for the profits there are to be made from UK farming.

Ag price rises

And this despite the increased pricing prospects for farm produce, as the depreciated pound boosts the competitiveness of the UK's ag exports, and makes rival imported goods that much more expensive.

November wheat futures, for instance, while falling on Wednesday, are up more than 4% since the Brexit vote.

That performance which looks even more marked given that dollar-denominated Chicago wheat futures, the world benchmark, have dropped by more than 3% over the same period.

Support to shrink?

OK, Wynnstay's cautious statement on Wednesday on general market conditions may not have helped its cause, but that is not the whole story. (Shares in Carrs and NWF gained.)

For the groups' shares to fall, despite their UK farmer customers seeing the value of their produce increase, implies that investors see the impact of the ag price windfall being more than offset by a setback elsewhere.

The most obvious target for concern is the level of subsidies, a big support for UK farmers, who received some $3.5bn last year from the European Commission in direct support – but which many observers see being trimmed after Brexit.

Agriculture, which employs only about 1.5% of the UK workforce, tends to rank low among politicians' priorities.

More than three-quarters of UK voters live in towns or cities, while a jump in land prices to some £10,000 ($13,000) an acre, or more, for good arable fields has curtailed farming's appeal as a deserving target for state aid.

Although pro-Brexit politicians pledged to continue until 2020 EU-level funding for areas such as farming, that promise could be tested should some of the worse-case economic scenarios for the UK economy during the divorce process with the EU prove true.

Ewe factor

What is most worrying about the performance of the ag group shares is that their customer maps include a particularly large swathe of areas with poor land, where subsidies are a lifeline rather than the luxury they are for large-scale grain-growing operations in the east of England.

Wynnstay relies for much of its stakes on Welsh hill farmers, while both Carrs and NWF are based in north west England, again home to many small-scale livestock producers.

When UK politicians undertake their round of trade negotiations to prepare for post-EU times, they may want to keep in mind the interests of upland sheep farmers for whom the likes of New Zealand and Australia are competitors rather than aspirational holiday locations.

By Mike Verdin

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