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UK farm incomes plateauing in 2013

11/26/2012 @ 7:53am

U.K. farm incomes are expected to plateau in 2013 as supply of agricultural commodities generally increases in response to current high prices, HSBC Holdings PLC (HBC) said Monday, which means farmers must place extra emphasis on controlling their costs of production and margins.

"After recent high levels of farm incomes, this has to be the year to concentrate on the basics in order to preserve margins," said Allan Wilkinson, head of agriculture at HSBC.

"Recent weather events have highlighted the need for planning," he added, as many businesses find themselves short of tonnage, cash and profit from 2012, when they might have expected to be in a strong position.

Nevertheless, the global cereal crop in 2013 will be larger and farmer's confidence in planting is bound to increase due to high current prices, the bank said, while it also expects fewer unseasonable weather patterns.

As a result, the probability of decreased cereals prices in 2013 must be significant, HSBC said, and it will be important to secure benefit from the present market conditions. The bank forecasts U.K. feed wheat at GBP165 ($264.4) a ton next year.

It adds that the competitiveness of U.K. wheat will depend on harvest quality and currency, with sterling in the middle of a wider shift in sentiment towards the euro and away from the dollar.

"Unless a vibrant (U.K. economic) recovery gets underway in the coming months, the most likely scenario is that sterling will continue to drift lower against the euro," said Mark Berrisford-Smith, HSBC's head of economics, U.K. commercial banking.

This offers farmers the prospect of a more favorable exchange rate for their Single Farm Payments in 2013, HSBC said, similar to the rates used to calculate payments in 2010 and 2011.


Write to Michael Haddon at michael.haddon@dowjones.com or on Twitter @MichaelHaddonDJ
(END) Dow Jones Newswires
November 26, 2012 07:00 ET (12:00 GMT)
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