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Wynnstay warns of 'limited sign' of upturn. Shares hit 4-year low

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Shares in Wynnstay touched a four-year low after the fertilizer-to-grain trading group unveiled a drop in ag sector profits and downplayed hopes for a UK farming recovery, seeing "only limited" signs of market improvement.

Wynnstay shares eased 1.3% to 382p in morning deals in London, their lowest since June 2012, even as other stocks rose, with the FTSE All Share index standing 2.5% higher.

The decline followed a cautious statement by the group over its outlook, after results for the November-to-April period, the first half of its financial year, which showed a 15.4% drop to £4.08m in pre-tax profits, on revenues down 33.7% at £193.2m.

"The agricultural environment remains difficult for our farmer customers," Wynnstay said, adding that "there are only limited signs of improvement in near-term trading conditions".

Ken Greetham, the Wynnstay chief executive, highlighted that the "macroeconomics of the market", which has, for instance, been marked by disappointing South American harvests and some US weather concerns, "suggest a return to more acceptable pricing".

However, the timing of a recovery in prices reaching farmers was "difficult to predict".

Dairy woes

Wynnstay said that, in its own performance, the "pressure on farm income" from the agriculture downturn – which had left prices "below the realistic cost of production" - had been "particularly evident" in the dairy sector.

In dairy, signals from world commodity markets can take a particularly long time to reach producers, via processor supply contracts – with a further lag before pricing changes can stimulate a response in terms of changes in milk output.

"The challenges faced by customers supplying the dairy market resulted in a reduction in demand for compound and blended feeds" in the November-to-April half, Wynnstay said, while noting that this reflected a national trend.

UK production of compound feed for cattle fell by 3.0% in the 2015 calendar year to 5.22m tonnes, according to data from European Union industry group Fefac, released on Tuesday.

Data from Defra, the UK farm ministry, showed that UK production of ruminant feed in the November-to-April period dropped by 3.6% year on year.

'Buoyant spring'

Wynnstay flagged a "relatively slow start" to the period in its arable supplies operations too, undermined by a late spring besides depressed prices.

However, demand "gained momentum" in the February-to-April period, reaching "buoyant" levels, and "the resultant spot market was very active.

"Strong cereal and herbage seed sales helped drive total arable product volumes above last year's levels."

Meanwhile, in grain trading, volumes had been boosted by the strong harvest last year, when the UK for the first time achieved a second successive 16m-tonne wheat crop, with an estimate of a "reasonable volume" of grain remaining on farm successive further trading opportunities ahead.

Broker reaction

In the City, broker VSA Capital said that the results were "in-line with expectations", although adding that it was "important to note that consensus currently points to a fall of almost 20%" in full-year pre-tax profits.

Shore Capital analyst Phil Carroll, terming the results "solid", added that they "show the business remains able to deliver robust profitability and cash generation despite there being no let-up in the challenging market conditions the company has faced for the past two years".

"Wynnstay's broad range of agricultural activities have again provide to be resilient."


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