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El Nino may aid UK feed groups - but not livestock farmers

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El Nino could hand a fillip to UK agricultural suppliers - but not livestock producers – by bringing the country an unusually severe winter, increasing the need for bought-in feed.

London broker VSA Capital termed as a "potential bullish factor" for feed groups the El Nino, which "some climate commentators are speculating could lead to one of the coldest and longest UK winters on record".

Met Office meteorologist Thomas Shafernaker said that, in El Nino periods, "in Europe sometimes winters end up much colder and drier and last much into spring.

"In 2010 the El Nino played a part in bringing huge amounts of snow to the UK."

'Additional feed volumes'

A repeat of such conditions this winter "would result in farmers needing additional feed volumes… similar to the situation we saw in winter 2012-13," said Edward Hugo, head of research at VSA Capital.

"That winter provided a bit of a lift to feed providers like Carr's, NWF and Wynnstay."

The comments follow a difficult period for feed makers, in the face of a dent to demand from dairy producers, whose own fortunes have been sapped by weak milk prices - and would stand to be further hurt by a bitter winter.

UK feed production in the May-to-July period, the latest data available, rose by just 0.9% year on year, with reduced volumes for cattle and broiler chickens offset by increases for pig and sheep sectors, official statistics show.

Feedmaker NWF Group said on Thursday that while its own volumes had been "robust" during the June-to-August period, "margins remain under pressure as a result of the lower milk prices being achieved in the UK and a drift in commodities' prices over the summer period".

'Unquestionably extremely tough'

VSA's Edward Hugo added that "dairy market conditions are unquestionably extremely tough at the moment" for UK milk producers.

However, a revival in values achieved at world benchmark GlobalDairyTrade auctions since the start of last month "may be evidence that we have seen a bottom for pricing", although the recovery may take time to work its way through to the UK.

"It is also worth remembering that although the global [GlobalDairyTrade price] benchmark is now just 7.4% lower year on year, it remains almost 50% lower than two years ago."

Arla increase

In fact, separately, Danish-based processing giant Arla Foods, which operates in a number of western European countries, revealed it was raising its milk price for farmers by 0.5 euro cents per litre.

While the increase was on paper equivalent to 0.38p per litre for UK producers, a strong pound limited the increase to 0.03p per litre.

Nonetheless, the revision was termed "encouraging" and a "constructive move" by the NFU farmers' group.

NWF shares closed 2.7% lower at 160.5p in London.

By Agrimoney.com

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