The UK agriculture sector is, despite the “uncertainty” stemming from Brexit, starting to recover from a downturn fostered by weak commodity prices – at least, if the machinery sector is anything to go by.
Carr’s Group, the feed-to-engineering group, acknowledged the hit to sentiment in farming from the UK’s vote to leave the European Union, a departure which is seen as likely to herald reformed and reduced farm subsidies, besides the potential for tariffs on exports to the bloc.
“The climate of uncertainty relating to the UK’s exit from the European Union will continue in the short term,” said Chris Holmes, the group’s chief executive.
“There is medium-term risk associated with UK agriculture which is dependent on future government policy and the terms of exit from the EU.”
‘Signs of optimism’
However, the group said that there was evidence nonetheless of some improvement in farmer sentiment – not least in demand for agricultural equipment, which many see as a leading indicator of the prosperity of the broader sector.
Indeed, farm machinery is the “first area to be hit by a downturn”, said Tim Davies, the Carr’s chief executive, saying that the group’s own sales had fallen at a rate of 8.1% last year, albeit slower than the industry rate of decline of 14.8%.
However, “we are seeing some signs of optimism”, Mr Davies told Agrimoney.com, an observation which was being backed by broader market talk too.
“People are feeling confident enough to start investing where they can.”
While Carr’s is, in machinery, mainly exposed to the livestock sector, this improvement had been evident in its northern UK arable machinery operations too.
‘Working in their favour’
Mr Davies flagged other signs of resilience to what was, on the face of it, a “really, really difficult situation”.
For beef and sheep farmers, key customers of Carr’s feed and nutrient products, “factors have been working in their favour” with the fall in sterling since June’s Brexit vote boosting export prospects, while undermining imports.
“Prices are pretty good” for them, he said.
Meanwhile, in dairy “market recovery is starting to happen, we are looking at more confidence in the future”, although the signals were being muted somewhat by the hit to balance sheets “over the past 18 months” from milk price downturn.
The comments came as the group unveiled earnings up 2.2% at £13.99m for the year to September 3, despite a 4.9% drop in revenues to £314.9m.
In the core agriculture division, operating profit rose by 8.6% to £10.36m, despite revenues falling 4.4% to £284.8m, with the group reporting rises in the likes of compound feed and oil distribution volumes, offsetting declines in areas such as machinery.
Carr’s also reported “unprecedented levels” of sales at its US feedblocks business, which the group is expanding with the $4.6m expansion of a plant in Shelbyville, Tennessee, which will allow the company to add the eastern US market to the central and western ones it already serves.
Mr Davies said that it was difficult to determine yet any impact that the election of Donald Trump might have on agriculture or the company, but underlined the group’s broadening geographic exposure which is, for instance, seeing the group maintain plans for expansion in New Zealand.
The results were termed by Investec as “marginally ahead of expectations, with solid growth recorded in a difficult year”.
The broker raised to 164p, from 157p, its target price for Carr’s Group shares, on which it kept a “buy” rating.
The shares stood 4.0% higher at 144p in midday deals in London.
(Source – http://www.agrimoney.com/news/machinery-market-uptick-raises-hopes-for-uk-ag-recovery–10153.html)