Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 

Landcorp keen user of Fonterra's guaranteed milk price

Landcorp, keen user of Fonterra's guaranteed milk price, looks to reduce dairy exposure

By Jonathan Underhill

Aug. 26 (BusinessDesk) - Landcorp, New Zealand's biggest corporate farmer, has been an enthusiastic participant in Fonterra Cooperative Group's guaranteed milk price scheme as it reduces exposure to volatile dairy prices, while looking at ways to reduce the dominance of dairy in its portfolio.

The state-owned farmer's milk revenue soared 70 percent to $129 million in the year ended June 30, contributing to a more-than doubling of operating profit to $30 million. It won't see a similar benefit from dairy prices in the current year, given dairy prices have tumbled this year from their highs in February.

"We're making sure we don't get too reliant on dairy income so the more volatile dairy sector doesn't become too dominant in the portfolio," chief executive Steven Carden told BusinessDesk. Landcorp's strategy includes exploring fixed-price contracts, hedging and greater cooperation with customers across both dairy and meat, he said.

Fonterra trialed a pilot guaranteed milk price in the 2014 season, offering to sell 15 million kilograms of milk solids at $7/kgMS. The trial was more than twice over-subscribed, meaning participants were scaled back to just 40 percent of what they sought. Demand isn't quite as red hot in the current season. Up to 40 million kgMS was offered at $7/kgMS in June, attracting applications for 26 million kgMS. A further 20 million kgMS will be offered in December.

"We've pretty aggressively pursued the guaranteed milk price," Carden said. "I'm surprised more in the industry don't take it up."

Last week, Landcorp said operating profit would fall to a range of between $8 million to $12 million in 2015, missing the $20.5 million forecast in its statement of corporate intent and reflecting the slide in global dairy prices this year from their February peak. That slide prompted Fonterra Cooperative Group to slash its forecast farmgate milk price to $6 per kilogram of milk solids from $7/kgMS.

Over the medium to long term, the company will take steps to reduce exposure to commodity price cycles, including widening the range of livestock farmed and increasing its focus on red meat production of lamb, beef and venison, which have less volatile prices. The company is also looking at niche markets for products where it can have a direct relationship with customers.

One example is supplying livestock to Silver Fern Farms for sales under the house brand of UK supermarket chain Tescos, which includes "selling the Landcorp story," Carden said. The company is also targeting the high-end of the North American beef market, where there is demand for grass-fed, antibiotic-free meat for the table, competing against marbled, feedlot-produced meat.

Much of New Zealand's beef export trade to North America is for the ground meat, or hamburger market, but Carden said American consumers aren't wedded to the taste of marbled beef the way some Asian consumers are.

Costs rose 15 percent to $207 million in the latest year, reflecting the start of Landcorp's share-milking agreement with Shanghai Pengxin Group, which acquired the Crafar farms, and the expansion of its dairy conversion programme in the Waikato.

Carden said the partnership with Pengxin "has been a very positive one" and he would be keen to discuss a management role for the Lochinver Station in the central North Island, if the Chinese company can navigate a pre-election political backlash and gain Overseas Investment Office approval to buy the 13,800 hectare property.

Such a deal isn't certain as existing management are currently operating the farm. In Pengxin's acquisition of Synlait Farms in the South Island it left existing managers in place, Carden said.

The 2014 year had generated exceptional returns but Carden said farming is still "clearly on an upward trend."

"Despite the bottom-line impact of the projected fall in milk prices for 2014/15, Landcorp was well placed to continue to record sustainable profit growth over the medium term," he said. "We're very focused on initiatives to raise productivity and efficiency across our operations."

(BusinessDesk)

© Scoop Media

 
 
 
Business Headlines | Sci-Tech Headlines

 

Snail's Pace: Aucklanders Face Frustrating Commute Over Harbour Bridge

Journeys into Auckland's CBD took longer than usual as traffic banked up around the damaged Harbour Bridge. More>>

ALSO:

Statistics New Zealand: COVID-19 Sees Record 12.2 Percent Fall In New Zealand’s Economy

Gross domestic product (GDP) fell by 12.2 percent in the June 2020 quarter, the largest quarterly fall recorded since the current series began in 1987, as the COVID-19 restrictions in place through the quarter impacted economic activity, Stats NZ said ... More>>

ALSO:

Climate: Scientists Release ‘Blueprint’ To Save Critical Ecosystems And Stabilize The Earth’s Climate

A group of scientists and experts produced the first comprehensive global-scale analysis of terrestrial areas essential for biodiversity and climate resilience, totaling 50.4% of the Earth's land. The report was published in Science Advances ... More>>

ALSO:

MPI: Independent Review Launched Into Assurances For Safe Transport Of Livestock By Sea

The Ministry for Primary Industries (MPI) has launched an independent review of the assurances it receives for the safe transport of livestock by sea. MPI Director-General Ray Smith says Mike Heron QC has been appointed to lead the review, which is expected ... More>>

ALSO:


Computers: New Zealand PC Market Grows Nearly 40% Due To Work From Home Demand

COVID-19 had large impacts on demand for PCs as businesses prepared for lockdowns by purchasing notebooks to mobilise their workforce. In the second quarter of 2020, New Zealand's Traditional PC market experienced a 39.7% year-on-year (YoY) growth ... More>>

ALSO:


Ministry of Health: Public Transport Distancing Requirements Relaxed

Physical distancing requirements on public transport have been reviewed by the Ministry of Health to determine whether they are still required at Alert Level 2 (or below). The Ministry’s assessment is that mandatory face covering and individuals tracking ... More>>

ALSO:

NZHIA: New Zealand Hemp Industry Set To Generate $2 Billion Per Annum And Create 20,000 Jobs

A new report says a fully enabled hemp industry could generate $2 billion in income for New Zealand by 2030, while also creating thousands of new jobs. Written by industry strategist Dr Nick Marsh, the report has prompted calls from the New Zealand Hemp ... More>>

ALSO:

Stats NZ: One In 14 Employed People Report High Risk Of Losing Jobs

About one in 14 workers say they expect to lose their job or business by mid-2021, Stats NZ said today. A survey of employed people in the June 2020 quarter showed 7 percent felt there was a high or almost certain chance of losing their job or business ... More>>

ASB Quarterly Economic Forecast: NZ Economy Doing Better Than Expected, But Challenges Remain

August lockdown estimated to have shaved 8% off NZ’s weekly GDP, and 0.5% off annual GDP Economy now expected to shrink 5% (year-on-year) by end of 2020 Unemployment rate now expected to peak at 7.2% The latest ASB Quarterly Economic Forecast is less ... More>>

ALSO:

SAFE: Live Export Ship Carrying 5,800 New Zealand Cows Goes Missing In East China Sea

Livestock carrier Gulf Livestock 1 sent a distress signal at 4:45am NZT yesterday in the East China Sea. The area is affected by Typhoon Maysak. At 4pm a patrol plane spotted a lifeboat - with no people in it - and a man in lifejacket nearby. The ship ... More>>

ALSO:

FMA: Kiwisaver Fees Don't Match Performance

The Financial Markets Authority (FMA) today published an independent report into the passive and active investment management styles [i] used by KiwiSaver providers. The FMA commissioned MyFiduciary to test the extent that KiwiSaver providers were ... More>>