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BayWa upbeat - despite 'freak weather' damage to EU fruit crops

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BayWa flagged "optimism" over its prospects, "particularly in the agriculture sector", thanks to a boost from improved crop prices - and despite the prospect of a 20% plunge in Europe's apple harvest after "freak weather".

The German-based grain trader-to-energy group, reporting an 86% jump to E27.4m in earnings for January-to-June half, said that this has defied slide in performance at its agriculture division, the company's biggest, where operating profits dropped 9.8% to E48.3m.

The decline reflected a costs of a restructuring at grain trading sites in southern and eastern Europe, which dragged the Bast trading division into an operating loss, besides a dent to its fruit profits from a late apple harvest in New Zealand.

However, BayWa forecast better results ahead, saying that "growth momentum is likely to rise in the second half of the year, particularly in the agricultural sector", where higher agricultural commodity prices were boosting volumes.

'Almost completely sold off'

Indeed, the "continued rise in producer prices" - which saw German wheat exports priced at E175 a tonne in Hamburg at the end of June, up 11% year on year, according to the AHDB bureau – "is likely to lead to an increase in willingness among farmers to sell their produce", BayWa said.

"This would see marketing potential increase in the second half of the year, with greater price stability and higher prices overall compared to the previous year."

Indeed, grain stocks in Germany, the European Union's second-largest producer, have been running low, with supplies from last year's harvest "almost completely sold off".

The higher price environment has led to an "improved financial situation" among German farmers, boding well for sales of fertilizer and agrichemicals, prices of which are little changed year on year.

'Agricultural recovery'

The impact has already been seen in the agricultural machinery market, which saw "brisk demand both in Germany and abroad", BayWa said.

"The positive trend in agricultural equipment and higher producer prices confirm the recovery of the agricultural industry, providing grounds for optimism for the second half of the year," the group said.

Higher crop and milk prices, "coupled with the increasing level of digitisation in agriculture, mean that this business area can be expected to develop with greater stability than in the previous year."

In the January-to-June period, the equipment operations achieved an operating profit of E9.28m, compared with a E1.45m loss a year before, on revenues up 12.2% at E666.1m, lifted in part by acquisitions.

'Freak weather'

The group also saw a silver lining to poor prospects for Europe's fruit crop, which was in "large swathes" of the continent "hit wither severe night frosts" during the April blossoming period, followed up in some areas, particularly the Alps, by deleterious heavy rains and hail.

"With only Spain and the UK emerging largely unscathed from the freak weather, EU harvest volumes for most fruit varieties will likely be down in 2017," BayWa said.

The EU apple harvest could slump 20% to less than 10m tonnes, with losses as high as 70% in Germany's Lake Constance region, near the Swiss border, although in northern Germany losses were expected at 10%.

While acknowledging that the "poor" EU fruit harvest will "have a negative impact", particularly in 2018, BayWa also highlighted the potential for the weak crop to support prices.

"The relatively weak fruit harvest across Europe could lead to rising prices, and boost the marketing potential of the southern hemisphere fruit harvest," with southern hemisphere apple output seen up by just under 9% to 5.4m tonnes.

By Mike Verdin

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