Wynnstay forecast better times for UK grain traders ahead, even as the feed-to-retail group unveiled a drop in profits at its agricultural division, as “unacceptably low” crop prices for farmers hurt business.
UK-based Wynnstay, owner of the GrainLink crop trading business, said that while low grain prices “have resulted in some pressure on margins” in the sector, volumes faced the prospect of a twin boost.
Grain stocks on farm “remain higher than normal”, with lower prices encouraging growers to sit on crop rather than sell it.
Official data last month showed wheat stocks on English and Welsh farms, at 4.92m tonnes, up 54% year on year, with those of barley 14% higher at 1.05m tonnes.
‘Encouraging trading opportunities’
And as an extra boost to prospects for grain trading volumes, the UK is expected to have a decent harvest this year, although not as strong as that in 2014, when volumes were boosted by both large yields and sowings.
“With a good harvest anticipated for 2015, volumes are expected to be high, giving encouraging trading opportunities for the forthcoming marketing season,” said Jim McCarthy, the Wynnstay chairman.
The comments echo those from a larger European commodities house, which flagged “some trepidation” in the UK grain market at the extent of wheat still to sell – both left over from last year and forward for the 2015 harvest.
“Many commercial and even some co-op stores are expected to have wheat in them as the combines begin to roll,” the commodities house said, noting that UK feed wheat “is still about £6 a tonne above offers from Denmark and France and even those offers are not getting any bids”.
The UK was marked by elevated stocks of “old crop grain still in store on farm, and very little new crop sold”.
‘Below cost of production’
Wynnstay highlighted the headwind for farmers from grain stocks which remain in “surplus” on a global basis, besides in the UK, terming crop prices “unacceptably low” for many growers.
“Prices for agricultural outputs remain below the realistic cost of production for many farmers,” Mr McCarthy said.
“Trading conditions have been difficult for the last two years,” the group said.
However, it added that better times lay ahead, saying that the industry was “cyclical”, and noting that “the macro-economic factors around world remain compelling”.
The tough times would also “bring opportunities”, as producers “strive for efficiency” and seek to boost margins by investing to lower output costs.
‘More competitive environment’
The comments came as Wynnstay unveiled a 5.1% drop to £2.23m in operating profits for the November-to-April period at its core agriculture division, on revenues down 14.1% at £147.3m.
The pressure on producers’ margins from low price of the likes of grains and dairy products “has created a more competitive environment within the agricultural supply industry as well as reducing demand for fertiliser,” Mr McCarthy said.
However, group pre-tax profits rose by 2.6% to £4.82m, lifted by an improved contribution at Wynnstay’s farm stores, helped by organic growth as well as acquisitions.
The results were termed “resilient” by house broker Shore Capital, which said that the performance “highlights the strength of its business model with its broad range of revenue streams across the agricultural market.
“Therefore, we believe the group remains well placed to deliver growth with the support of its robust balance sheet.”
Wynnstay shares stood unchanged at 590p in morning deals in London.
(Source – http://www.agrimoney.com/news/bright-times-ahead-of-uk-grain-traders-says-wynnstay–8492.html