Business

Fonterra affirms 2015 milk price payout of $5.30/kgMS

Fonterra Cooperative Group chairman John Wilson has affirmed the world’s biggest dairy exporter plans to pay its farmers $5.30 per kilogram of milk solids for the 2015 season. Wilson affirmed the payout in presentation slides for Fonterra’s annual meeting in Palmerston North today. It also expects to pay a dividend of 25-35 cents a share, making a total payment of $5.55 to $5.65. The 2014 payout was $8.50 including a 10 cent dividend. The Reserve Bank cited the reduced milk payout in its financial stability report, released today. While New Zealand’s overall financial system remained sound, risks in the dairy sector increased as plunging global milk prices prompted a reduced forecast payout to farmers by Fonterra, it said. “The forecast dairy payout for the coming season has been reduced significantly, and could result in rising loan defaults should the lower payout level persist,” deputy governor Grant Spencer said in a statement. Wheeler said the bank hadn’t given any thought to imposing lending restrictions or ratios on dairy lending, and that about 10 percent of farmers still have about half of the sector’s $33 billon in debt. The Reserve Bank expects dairy prices to recover early next year, supported by growing Chinese demand, though it said there is a risk of protracted weakness if global supply keeps expanding or if China takes longer to resume its forward purchasing. Farmers had used last year’s high price to repay debt, and the early signalling gave them time to manage down their costs, which helps mitigate the threat posed by the dairy sector. Spencer said farmers’ deleveraging and higher farm prices meant average LVRs on dairy debt had reduced, meaning safety buffers in place on dairy farm debt have improved. The Reserve Bank said farms using intensive methods on more marginal land and less […]

Seeka sees annual profit growth of up to 11%, planning for beefed-up capacity

Seeka Kiwifruit Industries, the country’s biggest kiwifruit grower, sees annual profit growth of up to 11 percent and is planning to expand its capacity in coming years as kiwifruit crops recover from the outbreak of the Psa-V vine disease. The Te Puke-based company forecasts net profit of between $2.6 million and $3 million in the 12 months ending Dec. 31, compared to $2.7 million in 2013, it said in stakeholder presentation slides published on the NZX. Earnings before interest, tax, depreciation and amortisation and before the cost of the share scheme are expected to be between $10 million and $10.5 million, up from $9.9 million last year. The slides show the kiwifruit grower and coolstore and packhouse operator is predicting bigger kiwifruit volumes, primarily from the Psa-V resistant variety G3, and is evaluating options to expand capacity from 2016. “Early financial planning indicates that Seeka can expand its capacity to meet kiwifruit demand within its current resources,” the slides say. Earlier this month, Seeka came out in support of a class action to sue the Ministry for Primary Industries over the outbreak of Psa-V seeking compensation for the devastation of crops across the Bay of Plenty. Seeka estimates the Psa bacteria has cost it more than $45 million, and prompted it to slash its workforce by 40 percent to mitigate the impact of the outbreak, which is still impacting on the kiwifruit grower and coolstore owner. The company said it is open to expanding its existing business and other complementary investment opportunities. The shares fell 1 percent to $2.94 yesterday, and have gained 40 percent this year.

Agrichemical operators reminded about certification

Rural Contractors New Zealand (RCNZ) has endorsed the warnings made recently by Waikato Regional Council (WRC) that agrichemical contractors operating without certification are breaching regulations. Chief executive Roger Parton says RCNZ shares the concerns WRC – and other regional councils – have about unqualified and/or unregistered chemical applicators not been properly trained or qualified to spray agrichemicals. “RCNZ has a Chemical Applicator accreditation programme to meet the needs of both our members and the industry.” Mr Parton says the application of agrichemicals has to be carried out in a competent and professional manner to ensure the enhancement of the crop and the safety of the operator, the environment and the public. He says there are two levels of agrichemical applicator accreditation available through Rural Contractors New Zealand: – Basic Chemical Applicator – Registered Chemical Applicator – These are personal accreditation held by the individual. “Rural Contractors New Zealand has a strict policy in regards to any person applying agrichemicals in a public place or on private property for hire and reward,” Mr Parton explains. “He or she has either got to be the holder of a Registered Chemical Applicator accreditation or have a Basic Chemical Applicator (or equivalent) accreditation and be operating under the immediate and direct supervision of the holder of a Registered Chemical Applicator accreditation.” Mr Parton adds that all agrichemical contractors accredited through RCNZ carry wallet cards to prove their accreditation. RCNZ also supports the council’s reminder about rules requiring neighbours to be notified before any spraying takes place. “However, spraying can only take place when weather conditions are suitable and sometimes this does not permit the notification timeframes required in the rules,” he explains. Meanwhile, Mr Parton says contractors wanting information about correct agrichemical application procedures, training, certification and safety will find all the necessary information […]

Accreditation milestone for Synlait Milk

Synlait Milk has become a registered manufacturer of retail-ready infant milk formula for export to China. The Canterbury company announced on September 30 it had received approval from the Certification and Accreditation Administration of the People’s Republic of China. Managing director John Penno said the latest registration was a major milestone for the business. It added to its registration as a manufacturer of general dairy products and infant formula base powders for export to China, granted in May. ”Being able to manufacture and export high-quality finished infant formula products to China will help Synlait Milk deliver on its value-added strategy, and provides an important confidence boost for our China business where we see significant opportunity for future earnings,” Dr Penno said. Synlait had applied for registration after the Ministry for Primary Industries approved the risk management programme for its dry blending and consumer packaging plant. The plant could process 30,000 metric tonnes a year at the rate of 110 cans a minute. That made it ”a cost-competitive solution for large-volume customers”, the company said. ”It was our intention to build the best plant of its type in the southern hemisphere, particularly in terms of operating efficiency and product quality standards, and feedback from our multinational customers who refer to the plant as `next generation’ affirms our goal,” Dr Penno said. ”We now have an integrated facility on one site in Canterbury, New Zealand that gives us full manufacturing and packaging control, and delivers on the needs of our infant formula customers for a complete, integrated supply chain solution, from raw milk sourcing and collection through to manufacturing and retail packaging.” Automation reduced physical handling of product, and a purpose-built, in-process laboratory inspected every can processed.

Dairy product prices rebound from five-year low

Dairy product prices rose in the latest GlobalDairyTrade auction, recovering from the lowest level in five years, as gains in anhydrous milk fat and sweet whey powder outweighed declines in rennet casein and butter milk powder. The GDT average winning price rose 1.4 percent to US$2,640, up from US$2,599 two weeks ago. Some 50,816 tonnes of product was sold, down from 55,057 tonnes of product two weeks ago. Some traders had been expecting prices to rise after falling to their lowest since 2009 in the last auction two weeks ago, given prices of other commodities including wheat, corn and sugar have gained this month and the latest auction didn’t fall on a Chinese public holiday. Fonterra has said prices will find a base as global supplies come back into balance and China resumes buying. Even so, the AgriHQ Seasonal Farmgate Milk Price for the 2014-15 season has decreased by 30 cents to $4.75 per kilogram of milksolids following the October 15 GlobalDairyTrade auction. This compares to Fonterra’s current forecast for the season of $5.30/kgMS. The AgriHQ Snapshot Farmgate Milk Price indicates that if the latest GlobalDairyTrade prices were achieved across the entire season the milk price would be just $3.90/kgMS. “The improvement in prices at last night’s auction result is a good start but we need to see a continuation of this upward trend in order to for farmgate milk prices to improve,” AgriHQ dairy analyst Susan Kilsby said in a note. “Despite a higher whole milk powder price the AgriHQ Seasonal Farmgate Milk Price has fallen further as the recovery in dairy commodity prices is now expected to be slower.” In the latest GDT auction, anhydrous milk fat climbed 7.4 percent to US$3,346 a tonne, sweet whey powder advanced 4.3 percent to US$1,225 a tonne, while butter rose 3.9 […]

LtoR Stuart Gordon CEO of Waikato Innovation Park Minister Steven Joyce and Hamilton Mayor Julie Hardaker Oct2014

Waikato Innovation Park receives $3M to ramp up value-added food production

The Waikato Innovation Park has received a $3 million equity injection from Callaghan Innovation. It will use the funds to kick off a $5.0 million expansion of its FoodWaikato spray drying facility this month. At full capacity, the new manufacturing capability is expected to inject an additional $38.5 million per year in export revenues back into the New Zealand economy from the sale of new, value-added consumer products. “With this expansion, FoodWaikato will provide a greater level of development and innovation capability to dairy companies – that’s cow, goat and sheep – as well as fruit and vegetables producers. “We’re moving from helping our customers manufacture ingredients that sell for around US$4,700 per tonne to US$20,000 per tonne. At full capacity, we will produce around 2500 tonnes of new, value-added products,” explained Waikato Innovation Park CEO, Stuart Gordon. Science and Innovation Minister Steven Joyce said the investment aligns with Callaghan Innovation’s goal of accelerating commercialisation of innovation by firms in New Zealand. “The expansion of FoodWaikato provides more open access facilities that support smart ideas coming out of the food and beverage sector. “With an estimated $38.25 million per year of additional export revenues expected to flow back into the New Zealand economy due to this one initiative, the FoodWaikato plant expansion will help more companies take their innovations to new export markets and help the Government reach its goal of doubling the value of exports by 2025,” Joyce outlined. Stuart Gordon said expanding the facility is all about helping more companies take their innovations to new export markets. “There’s no other open access spray drying facility in Australasia where companies can manufacture smaller runs of their first commercial batch of a new product. The only option for them is to build their own plant, which is cost-prohibitive for most companies […]

Rural Contractors question machinery and parts costs

Rural Contractors New Zealand is questioning the high cost of machinery and parts that contractors and farmers are currently paying. RCNZ President, Steve Levet says with the falling forecast milk price for the coming season dairy farmers are going to be careful when making decisions this year – and cost cutting will be top of mind. “With the reality of a lower dairy payout this year, sheep and beef farmers already under the pump and arable producers also feeling the squeeze – further pressure is going to come on contractors to at least hold or reduce our costs,” he explains. “Rural contractors do not have the luxury or the ability to absorb continued cost increases and just pass them on in our pricing to clients. So while farmers are not able to wear any price increases; contractors certainly cannot afford to carry on losing money either.” Mr Levet says rural contracting is a tough business and in today’s highly competitive environment it is not easy to make a profit.“Contractors are already running pretty tight operations and there is not a lot – or in most cases any – fat to cut.” He says like their farmer clients rural contractors will have to look at reducing their costs. “For most rural contracting business; one key area of cost is that of machinery and parts. Ask anyone about the costs of parts and they will all tell you the same thing: eye-watering!” Mr Levet says this has seen many contractors – and farmers – look at sourcing parts from either non-aligned dealers and/or the internet. “Just like consumers in the other parts of the economy; many rural contractors are finding the attraction and availability of cheaper goods via the internet a genuine way for them to cut costs.” He admits there are […]

NZ beef exports to Indonesia double after quota restrictions removed

New Zealand beef exports to Indonesia more than doubled over the past year as the trade recovers from beef import quota restrictions imposed in 2011. The volume of New Zealand beef exports to Indonesia rose to 15,384 tonnes in the year ended June 30, from 6,516 tonnes a year earlier, the Meat Industry Association of New Zealand said in its 2014 annual report. The value of beef exports to Indonesia jumped to $76 million from $34 million. Indonesia ended volume-based import quota restrictions in September 2013, removing an impediment that had crimped New Zealand’s beef exports to the country since early 2011. Meantime, new price-based restrictions haven’t yet been triggered, helping Indonesia overtake the Philippines and regain its place as the largest market for New Zealand beef in South East Asia. Still, the association remains concerned that the new price-based rules could hurt New Zealand exports. Under the Indonesian system, meat and live cattle imports are allowed only when domestic beef prices increased by more than 15 percent from a specified parity price, initially set at 76,000 Indonesian rupiah, about US$6.60/kg. “Given the weakening of the Indonesia rupiah against all major currencies, and the increasing competition to purchase protein worldwide, the specified price has not yet been threatened in Indonesia,” the association said. “There are, however, still questions about how this policy will operate in the long term, including how often the parity price will be set and how it will be determined, what incentives will be offered to industry to bring the price down, what would happen in the event of imports increasing but prices not changing and how long new permits would be valid for,” it said. Indonesia still has regulations in place that prevent the import of certain cuts, despite the same cuts from domestic animals being […]

Upskilling one strategy to cope with lower payout

With the announcement of a drop in Fonterra’s forecast milk solid payout, there’s an urgent need for farmers to review and revise budgets and to monitor cashflow going forward, to ensure debt levels don’t rise unnecessarily. Agribusiness management training is one way that farmers can address these issues and apply better management practices to their businesses. As farm budgets come under scrutiny, farmers may need to cut back on spending or look at increasing their milk production and improve on-farm performance, to offset the lower payout. Primary ITO’s Diploma in Agribusiness Management supports farmers to hone their business management skills so they can manage risks like a volatile payout and take control of their business. Key learning areas such as Business and Finance, where students learn how to develop and monitor financial plans, monitor on-farm performance against objectives, and develop a budget to share with their bank manager or accountant, are all directly applicable to the farmer’s own business. Cath Blake, Manager of Dairy Training Limited, says “Good cashflow budget development and implementation are core parts of successful and profitable business performance. The skills farmers gain by completing the Diploma in Agribusiness really assist in managing financial risk such as the drop in payout this season. This financial capability helps farmers to look to the future goals of the business and gives long term confidence that the dairy industry is a great business to be in.” The cost of human resources can also be a point of contention when budgets are tightened. Staff are often let go of or professional development and training costs are slashed at times of reining in expenses. Mark Paine, DairyNZ strategy and investment leader (people and business) says “Recruiting the right staff and keeping staff motivated can mean staff turnover is reduced. The cost of […]

Kiwifruit grower Seeka joins Psa class action against MPI

Seeka Kiwifruit Industries, the country’s biggest kiwifruit grower, will join the $885 million class action against the Ministry for Primary Industries over the 2010 outbreak of Psa-V vine disease, seeking compensation for the devastation of golden kiwifruit crops in the Bay of Plenty. The Te Puke-based company estimates the Psa bacteria has cost it more than $45 million, and prompted it to slash its workforce by 40 percent to mitigate the impact of the outbreak, which is still impacting on the kiwifruit grower and coolstore owner. “Having fully considered the financial and human impacts on Seeka and its people of the alleged biosecurity breach and the loss of wealth by our shareholders, Seeka has taken the decision to join the class action,” chief executive Michael Franks said in a statement. “Seeka has seen the legal opinions both for and against and offers no opinion on their merits, other than to say in our opinion, there is merit having them tested.” Last week, Zespri International, the country’s kiwifruit market body, urged growers not to join the action, saying it would compromise the industry’s relationship with the government and complaining it had not been consulted before the action was launched. Seeka said it rejected any argument the claim would put Zespri’s statutory monopoly export position for all foreign markets bar Australia at risk, saying “the government has on a number of occasions outlined its responsible policy that so long as growers support the single desk then the government will leave the desk settled.” The kiwifruit grower reiterated its support for Zespri, and said the single desk isn’t involved in the action. “We understand the group of growers seeking support for this action considers it to be a matter of accountability and compensation,” the company said. Shares of Seeka last traded at $3.10 […]

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