Surging wheat prices halve Carr's profits

- Last updated on GMT

Related tags: Wheat prices, Wheat

Huge increases in wheat prices have more than halved annual milling
profits at top UK firm Carr's Milling Industries - yet the company
is confident of getting back on track in 2005 despite warnings that
prices will remain volatile, reports Chris Mercer .

The food arm of Carr's has announced 2004 operating profits of £268,000, down from £599,000 in 2003, caused by what the company termed "a disastrous increase in wheat prices"​ during the first six months of the year.

A lack of quality wheat suitable for milling from the 2003 harvest meant that prices rose by around 60 per cent in eight months, leaving many UK millers struggling just to break even, according to Chris Holmes, Carr's chief executive.

So much so that Carr's flour business briefly dipped into the red during this period, though the company managed to recover in its second half mainly by passing on wheat price increases more effectively to its customers. Holmes said margins had now "returned to normal"​.

Indeed, he called the problems a one-off situation, and believes 2005 profits can get back up to 2003 levels and beyond, especially after recent news that Carr's is expecting to double the annual production capacity of its flour business to 135,000 tons by acquiring Meneba UK Holdings. The move should give Carr's a 10 per cent share of the UK flour market.

But the UK's Home Grown Cereals Authority (HGCA) says that although wheat prices are not as high as at the beginning of 2004, they are likely to remain volatile. The HGCA also warned that in some regions wheat quality is at its lowest for a decade after this year's rain-soaked harvest.

"We saw price moves of more than £50 last season and it will happen again,"​ said HCGA senior economist Julian Bell. The authority says that while prices often change between planting and harvesting, current predictions for 2005 put wheat prices another 10 per cent ahead of 2004 values.

Holmes said he was concerned at the drop in this year's wheat quality but emphasised that there were adequate supplies of wheat in the UK which should help reduce price volatility.

In any case he said that "we have the ability, through using different varieties of wheat, to get the quality we need"​. He added that the company could also "manage the wheat situation through high quality wheats that we import"​.

Carr's flour milling base at Silloth in Carlisle, together with the two newly acquired Meneba mills at Kirkcaldy in Scotland and Maldon in Essex, all have port facilities, making it fairly simple for Carr's to import foreign wheat, although the higher transport costs of imports mean the company will continue to source the majority of its wheat domestically.

Holmes was positive about the prospects of Carr's Breadmaker high quality flour brand, which was launched two years ago. "Sales of it are growing very well. It just shows that people will pay for quality when they can get it,"​ he said, though refusing to discuss sales figures for the brand.

Carr's flour business is also eyeing up more acquisitions as part of a plan to expand its food division with a focus on innovation and premium products, according to Holmes. The company will spend £4.7 million on Meneba, plus an extra £5.4 million to help clear Meneba's debts, if sharholders agree to the move.

As a whole, Carr's performed well in 2004, with operating profit rising by 22 per cent from £4.7 million to £5.7 million and earnings per share up five pence from 34.7p to 39.9p. The company's agriculture division led the positive results, notching up an operating profit of £5.7 million compared to £5 million in 2003.

Related topics: Markets, Ingredients

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