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Drought, low milk price prompt FirstFarms to cut profit hopes

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Shares in FirstFarms fell to a two-year low after the Eastern European farm operator unveiled a return deep into the red, blaming drought-hit corn yields and the dairy downturn, which it cautioned would marr 2016 too.

The Copenhagen-listed group, which farms in Romania and Slovakia, cut its hopes for its full-year operating result for a second time - this time to a loss of DKK10m-15m, from guidance in August of at worst breakeven and potentially a DKK5m profit.

The group, which was profitable in 2013 and 2014, said that the downgrade was in part due to Eastern European drought which had "affected the maize harvest particularly severely".

In the March-to-August period, "which is our growth season, we only got 220mm of rain compared to a normal 430mm," said Søren Nielsen, the chief operating officer for FirstFarms' Slovakian operations, terming the summer "one of the driest and warmest summers in over 100 years".

"The worst was, however, that there was only a little rainfall at a time," with the group's Slovakian farms only on six occasions receiving rain of more than 10mm.

"When the temperature is around 35 degrees Celsius, it is not at all enough to cover the crops' water needs," Mr Nielsen said.

FirstFarms' corn yields in Slovakia came in about half the expected level, with the pending sugar beet harvest now forecast to come in at a yield one-third less that what had originally been hoped for, and with the group's western Romanian farms suffering "more or less the same" conditions.

'Low milk price'

Meanwhile, the dairy operations suffered from a milk price which "has been significantly lower than expected" and is "still low".

FirstFarms, which delivers its milk to a number of European dairies, received DKK16m less from sales in the first nine months of 2015 than a year before "despite an unchanged amount of sold milk".

European Union milk prices, as measured by skim milk powder, averaged E1,803 a tonne in October, down 13.8% year on year, according to the Dutch Dairy Board, undermined by increasing production - boosted by the removal in April of output quotas - at a time of sluggish demand.

EU output in August, the latest figure available, at 12.602bn litres was up 3.8% year on year.

'Challenging year'

FirstFarms - which said that it in response to the setback reduced its herd by thinning out the least productive cows – cautioned that weakness in the European dairy market looked set to last.

"As in 2015, 2016 is expected to be a challenging year on the earning side for milk production in the European Union," FirstFarms said.

However, on the arable side, it said that its autumn sowings had been carried out "by and large" on schedule, and that crops had established well.

"Thus we believe that the winter crops can cope with the winter, and we can hope that the growth season 2016 will be more normal and better than this year."

Shares ease

The comments came as the group unveiled an after-tax loss of DKK9.03m for the July-to-September period, down from earnings of DKK5.64m a year before, and its weakest quarterly performance in nearly three years.

Revenues tumbled by 42% to DKK38.8m.

FirstFarms shares closed down 1.2% at DKK40.90, their weakest finish since October 2013.

By Agrimoney.com

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