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Carr's gives fillip to UK wheat sector, after 'awful' trade data

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Carr's Group handed a fillip to browbeaten UK wheat growers by revealing it is poised to lift use of domestic supplies, thanks to "consistent" quality - although the group offered less solace to dairy farmers.

Tim Davies, chief executive of the UK-based engineering-to-feed block group, said that the country's wheat trade performance was still reflecting a knock-on effect from the wet-damaged 2012 harvest, which prompted millers to look abroad for substantial supplies "for the first time for a long time"

"When that happens, you build a relationship up with a company or merchant," Mr Davies told Agrimoney.com.

"That relationship continues," now that the "supply chain line has been established".

'Awful data'

The comments follow data on Friday showing UK wheat imports in September, at 190,000 tonnes, exceeding exports by some 56,000 tonnes – data termed "awful" by a major UK grain merchant.

The "shock" import figure left imports for the July-to-September period, the first three months of 2015-16, 118,301 tonnes ahead of exports.

"So for the third month in a row, the UK imported more than it exported," the merchant said, flagging the setback to efforts to erode a large surplus built up by two successive strong harvests.

"Therefore, in our quest to export 3.5m tonnes of wheat," the estimated wheat export surplus for 2015-16, "we have, to the end of September, gone backwards by 118,301 tonnes".

The merchant highlighted imports from the EU of 129,000 tonnes in September including "shipments from Bulgaria, Denmark, Latvia and Lithuania which are probably all feed wheat imports into Northern Ireland and possibly Scotland.

"How can feed wheat imports be arriving when the UK in September was awash with its own feed wheat?" viewing a reluctance by UK farmers to sell at depressed prices as the answer, in keeping values high enough nonetheless to make imports competitive.

'Will use a lot more UK wheat'

However, Mr Davies also flagged that much of the strong UK import performance in September will also have been down to contracts signed before a domestic harvest which the company termed "large and consistent in quality".

The large 2014 crop, by contrast, contained "inconsistencies in quality".

"We do see going forward the price of UK wheat as competitive.

"We can see we will use a lot more UK wheat than previously," he told Agrimoney.com, defining "previously" as meaning for the "last two or three years".

US cattle boost

The comments came as Carr's unveiled results for the year to August 29 showing pre-tax profits up 5.5% at £17.5m, despite a drop in revenues of 4.1% to £411.4m, largely reflecting the knock-on effects of lower commodity prices.

The milling division itself saw pre-tax profits rise by 6.3% to £2.4m, a gain attributed to operational improvements, while in the important agriculture division pre-tax profits rose by 8.8% to £10.4m.

Agriculture improvement was helped by an "exceptional" performance in feed blocks in the US, where the cattle herd rebuilding prompted by wetter weather in southern Plains, which has improved pasture condition and undermined fodder costs, saw sales soar 20% by volume.

In UK farm retail, Carr's lifted like-for-like sales by 5.3% but the group recorded "flat" global sales in its specialist dairy feed additives, "predominantly as a result of the fall in farm incomes due to the declining farmgate mill price".

Dairy outlook

Mr Davies forecast that the depressed conditions for milk producers would "continue throughout next year", despite some revivals in values on dairy commodity markets, such as GlobalDairyTrade.

"There are signs of recovery, but it is going to take time to feed through into farmgate milk prices," he said.

The group also flagged that in the broader UK agriculture market "many of our farming customers are starting to modify their spending in reaction to the ongoing uncertainty".

Farmers are "postponing sizable capital investments until they have further market visibility".

Market reaction

Many brokers restated supportive comment on Carr's after the results, with VSA Capital, while noting the "challenging trading backdrop" for farm suppliers, said that "Carr's diversification offers a considerable advantage over its peers".

However, while Investec said that Carr's reporting of 5% growth in pre-tax profits was "no mean feat", demonstrating the group's "resilience", it trimmed by 14p, to 182p, its price target for Carr's shares.

The broker, which kept a "buy" rating on the stock, said that the reduction reflected reduced margins on new business in flour milling.

Edison reduced by 4p to 199p its estimate of fair value for Carr's shares, but said that the company's strategy of "innovation, investment and internationalisation [will] mitigate the impact of continued weakness in the markets served, enabling the group to maintain profit at these record levels".

The shares stood 3.8% lower at 146p in afternoon deals in London.

By Agrimoney.com

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