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Early spring, weaker harvest undermines Wynnstay recovery

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An early spring, and a hangover from last year's reduced UK grains harvest, hampered a recovery at feed-to-grain trading group Wynnstay, despite a boost to farmer sentiment from improved agricultural commodity prices.

The pet food-to-grain trading group - reporting a 7.8% rise to £145.8m in revenues for its agriculture segment in the November-to-April half – noted a boost from "higher commodity prices after a three-year period of sustained deflation".

"The recovery in farmgate prices," helped in the UK by weakness in sterling besides some recovery in global markets, "drove an improvement in demand for many agricultural inputs over the winter period," said Ken Greetham, the Wynnstay chief executive.

The division's farm retail arm, Wynnstay Stores, "traded well, with a small increase in like-for like-sales as famers begin to reinvest in their enterprises".

Early spring

However, a recovery in feed demand, helped by the rebound in milk prices, was undermined by a warm start to spring, which allowed farmers to put livestock early onto pasture.

"The early spring tempered feed demand and, in April, total volumes reduced mainly reflecting the decrease in sheep feed," said Jim McCarthy, the Wynnstay chairman.

"This contrasted with April volumes last year, which benefited from the inclement weather conditions."

Meanwhile, the contribution from the grain trading businesses, GrainLink and Woodhead, "was below last year's level" as the "smaller grain harvest from the 2016 season limited the volume of cereals marketed".

UK grains production fell markedly last year, largely thanks to a retreat by yields from 2015's bumper levels, with wheat output, for instance, down 12.5% at 14.4m tonnes.

'Margin pressure'

In fertilizer, the group said that while sales volume "increased significantly" in the half year - as farmers stocked up ahead of price increases expected thanks to the impact of a weaker pound in boosting costs of imported goods - "margins remained under pressure".

And the group said that for the agricultural supply industry as a whole "margin pressure is likely to remain a feature".

"We are encouraged by the improvement in farmgate prices for our farmer customers but believe that the rate of recovery for the agricultural supply sector will remain tempered," the group said.

Mr McCarthy flagged too the potential for "challenges" to farmers stemming from the UK's departure from the European Union.

"Nonetheless the strategic and environmental importance of UK agriculture should provide a foundation for an increasingly efficient industry in which a focus on productivity will remain a major consideration for many customers."

Market reaction

Wynnstay reported a group loss of £659,000 for the half year, compared with earnings of £3.34m a year before, with the decline reflecting a trading loss, and writedown, at its Just for Pets division, over which the group is "reviewing options".

Nonetheless, Wynnstay shares edged 0.8% higher to 574.5p in morning deals in London.

House broker Shore Capital said that agriculture sector prospects "should leave Wynnstay well-positioned going forward to grow both organically and acquisitively, supported by its strong balance sheet, which has considerable asset backing".

By Mike Verdin

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