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British farmers to count cost of rain well into 2014

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(Globalpost/GlobalPost)

By Nigel Hunt

LONDON (Reuters) - The impact of last year's record rains will squeeze Britain's farmers of livestock and arable crops well into 2014 and force makers of bread and biofuels to buy more costly imports.

Production of wheat, Britain's most important arable crop, is set to fall to its lowest level in more than a decade this summer, forcing purchases of bread-quality grain from Europe and North America.

Livestock farmers have also seen their incomes plunge after wet conditions forced them to purchase more feed at inflated prices following last year's U.S. drought. The rains could also lower conception rates with fewer lambs and calves this spring.

"I've never worked in an environment where the weather has been as bad, so we are in uncharted territory. This is going to impact cash flow in 2013/14 in both sectors (livestock and arable)," Allan Wilkinson, head of agriculture at HSBC UK, said.

England had its wettest year on record in 2012, leading to high disease levels in arable crops and driving down wheat yields to a 23-year low.

Many farmers were also unable to plant crops last autumn due to saturated soils. A survey issued by the Home-Grown Cereals Authority earlier this month showed winter wheat area in England and Wales down 25 percent.

"When you drive around the countryside now, clearly the arable part of the UK looks in a patchy and fairly poor state compared with how it would normally look at this time of year," Wilkinson said.

Analysts Strategie Grains last week forecast a UK wheat crop of 12.1 million tonnes this summer, the lowest since 2001 which was the last time that torrential rains and flooding created havoc during the key autumn planting season.

Rain has also made it harder for livestock to feed on grass, increasing the reliance on purchased feed at a time when its cost has soared following last year's U.S. drought.

"Weather-impacted output coupled with increased input costs have hit farming over the last year. Livestock producers are among the hardest hit," National Farmers Union economist Anand Dossa said.

INCOME DROPS

Government figures for the 2012/13 season, which concluded at the end of last month, showed steep falls in average incomes for livestock farmers in England. The pigs and dairy sectors were down by 50 and 42 percent respectively.

For beef and sheep producers there was a fall of 44 percent for lowland producers while their uplands counterparts fared even worse with income plunging by 52 percent.

"Over the long-term, most farms have a strong balance sheet but just at the moment the cash position is really quite a squeeze," said Graham Redman, research economist at farm consultants The Andersons Centre.

"There will be casualties (among farm businesses) and this is about the time they are going to start coming out of the woodwork," he added, noting a big tax bill related to the 2011 harvest had been payable by the end of January while tenant farmers had a six-month rent bill to pay in late March.

The rains have also caused headaches for those who rely on British crops. Producers of both bread and biofuels are being forced to look overseas to offset domestic quality concerns.

Britain will be a net importer of wheat in the 2012/13 season for the first time in more than a decade with the trend expected to continue in 2013/14.

"Some of the most challenging products this year have been flours that would normally be entirely made from English wheat such as biscuit flour and pastry flour," said Alex Waugh, director general of the National Association of British and Irish Millers.

Wheat imports have been running at more than triple last season's pace, reaching 1.61 million tonnes in the first seven months of the 2012/13 season, which started on July 1 last year. Germany, France and Canada have been the most important suppliers.

UK biofuels producer Ensus, which uses about one million tonnes of grain a year to make renewable fuel, has had to add imported maize to its mix.

"We've had to compensate for the lower quality wheat because it is low in starch, which is really what we are trying to buy. We are importing corn (maize)," said Stewart Easdon, wheat and animal feed manager at Ensus.

The combination of higher international prices because of the U.S. drought and reduced domestic supplies caused by too much rain has also raised food price inflation.

The latest BRC-Nielsen Shop Price Index for February showed a 3.5 percent rise in food prices over the last 12 months in contrast to a 0.4 percent decline in non-food.

"Inflation in the breads and cereals category remained at an elevated level," the British Retail Consortium said in a note attached to the figures.

The upward pressure on retail prices has, however, been slowing with the BRC noting that wheat commodity prices had fallen 16 percent during the last three months and now stood only 13 percent higher, year on year.

Analysts remained optimistic, however, about the longer-term outlook given a growing global population and the Westernisation of diets in Asia with demand for food commodities set to climb sharply in the next few years.

"The long-term fundamentals are as sound as they have ever been," HSBC's Wilkinson said.

(Editing by Veronica Brown and Jason Neely)

http://www.globalpost.com/dispatch/news/thomson-reuters/130319/british-farmers-count-cost-rain-well-2014