LIC more than doubles 1H net profit as artificial breeding gains traction
By Rebecca Howard
Feb. 8 (BusinessDesk) - Livestock Improvement Corp, the dairy herd genetics cooperative, more than doubled its first half net profit as an emerging "no bull trend" gains traction and more farmers turn to artificial breeding to develop A2 herds and avoid exposing their herds to Mycoplasma bovis.
Net profit for the six months to Nov. 30 was $32.8 million versus $15.1 million in the prior year. Revenue lifted 5 percent to $161 million while its assets, which include its bull teams, were valued at $409 million, up from $371 million a year earlier.
Total artificial breeding sales were up on the previous year as more farmers extended their farms' AB period and opted for short gestation genetics over natural mating bulls, LIC said. Across the country, 36 percent more farms adopted an all AB mating plan than the previous year – the biggest spike the co-op has seen in the emerging no-bull trend, board chair Murray King said.
"This is partly due to the heightened biosecurity focus from Mycoplasma bovis but with the demand we’ve seen for other solutions it’s evident farmers are looking for opportunities to maximise their profitability and productivity," he said.
New Zealand is still aiming to eradicate Mycoplasma bovis after the disease was first detected in a dairy herd in South Canterbury in July 2017. In May last year, the government announced it would attempt a 'phased eradication', at an estimated cost of $886 million over 10 years. The disease, commonly found in cows globally, does not affect people or meat quality but can have serious effects on cattle, including mastitis, pneumonia, arthritis and late-term abortions.
King said the first half result was achieved even with the investment of more than $800,000 on new measures to protect customers from Mycoplasma bovis, including a world-leading daily testing regime of its bulls through the peak mating period. The co-op absorbed these costs to avoid additional price increases.
Sales across LIC’s range of products were strong in New Zealand, particularly those that enable farmers to put more emphasis on cow quality over quantity, said King.
LIC's "A2 bull team," introduced to meet the growing demand of A2 milk, was also in high demand, accounting for 10 percent of total AB sales in its debut season as more farmers look to breed A2 herds.
Farmers are looking to establish herds with cows that produce milk containing only A2 beta-casein protein. Some consumers are willing to pay more for the milk as they believe it prevents the digestive problems they say they experience after drinking A1 milk.
NZX-listed a2 Milk has had significant success with its A2 milk products and early last year a2 Milk and Fonterra announced a strategic partnership to establish an A1 protein-free milk pool in New Zealand and a new A1 protein-free milk pool in Australia.
LIC also saw strong uptake in its premium genetics product, the Forward Pack bull team, which provides access to elite new genetics earlier to increase the rate of genetic gain on-farm, it said.
Looking ahead, King said underlying earnings, which is net profit excluding bull valuation, at year-end is forecast to be in the range of $18 million to $22 million. That assumes no significant climate event or milk price drop takes place between now and then nor any major impacts from Mycoplasma bovis.
LIC expects underlying earnings to increase to a range of $22 million to $28 million in 2019-20.