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Wynnstay sanguine on prospects for dairy, wheat producers

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Wynnstay sounded a sanguine note on prospects for dairy and wheat producers as the UK feed-to-grain trading group unveiled a rebound in agriculture profits, helped by a “greater sense of optimism” in the sector.


Ken Greetham, the Wynnstay chief executive, acknowledged that, with UK milk production rising, there was “some concern over milk prices”, which have begun to ease from recent highs.


Processor First Milk, for instance, has revealed a cut of 1p per litre in its farmgate milk prices for next month, to 28.09-29.57p per litre, in fact citing “downward pressure in global commodity dairy markets in recent months”.


However, Mr Greetham said while there was “some possibility of a slight reduction” in UK milk prices, any retreat was “likely to be short-term”.


“With a generally stable UK and world market… we do not expect to see a repeat of the reduction in prices experienced in 2015.”


UK farmgate milk prices slumped by more than 40% from a February 2014 peak to a June 2016 nadir, before staging a near-complete recovery, according to the AHDB bureau.


‘Above production costs’


On wheat, Wynnstay flagged a “reticence” by UK growers to sell crop from their latest harvest “as prices declined during the autumn period”, with domestic values undermined by a gentle recovery in sterling besides the weakness in the world market fuelled by record Russian output and exports.


Indeed, margins at the group’s GrainLink grain merchant operation had suffered “some pressure as traders competed in a subdued market”.


However, Mr Greetham flagged the potential for profits for UK grain growers nonetheless.


“Longer-term [wheat] futures price indicate a general level of stability at above the average cost of production,” he said, an outcome which would contrast with growers’ experience in some other countries.


French wheat industry association AGPB last week said that the country’s growers currently produce wheat at about E175 a tonne, but have been selling it at some E130-135 a tonne.


‘Strong upturn’


Indeed, broadly Wynnstay flagged a recovery in UK agricultural commodity prices to “more realistic levels for farmers”, a factor which had raised demand for farm inputs and instilled a “greater degree of stability within the industry”.


Feed demand had seen a “strong upturn” thanks to improved dairy prices until the recent decline, with the company saying it was “encouraged about the level of demand for livestock feed for the current year”, which started in November.


The comments echo those of smaller rival NWF which said on Tuesday that feed demand “increased” in the year to the end of November, “particularly from farmers who had cut feed rates due to a lower milk price in the prior year”.


Wynnstay reported a 9.2% rise to £7.97m in its pre-tax profits from continuing operations for the year to the end of October, on revenues up 10.5% at £390.7m on the same basis, although reported pre-tax profit dropped to £1.15m hurt by the collapse of its pets business, Just for Pets.


Market reaction


Mr Greetham added that while the prospect of the UK’s departure from the European Union was creating “some uncertainty, the improvement in output prices has brought about a sense of renewed optimism, and the trading backdrop is firmer than this time last year.


“The recovery in output prices has brought a welcome improvement in demand for all agricultural inputs.”


The statement was viewed by broker VSA Capital as showing a “much-improved set of annual results compared to the 2016 financial year, reflecting the significantly improved sentiment in the UK agriculture sector.


With Just for Pets placed in administration in October, “we view the ability of management to now focus on its core agriculture-related businesses as a positive going forward”, VSA said.


‘Resilient operating model’


At Shore Capital, Phil Carroll said that the results showed a “strong return to profit growth as the business has benefited from the significantly improved trading backdrop.


“We see a business that is well-placed with a strong balance sheet that has a resilient operating model in place.


“We expect the business to continue to grow going forward by both organic and acquisitive means to deliver shareholder value creation over the short, medium and long term.”


Wynnstay shares stood unchanged at 477.5p in morning deals in London.

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