Hokonui syndicate offers flexibility as milk prices fall

Wednesday 8 October 2014

MyFarm’s Hokonui syndicate offers flexibility as milk prices fall

Farming systems at New Zealand's largest dairy farm manager geared to volatility

MyFarm’s newest farming syndicate - Hokonui Pastoral Limited Partnership** - expects to remain well in the black at Fonterra’s forecast for a 2014/2015 farm gate milk price of $5.30/kg of milk solids.

The syndicate - launched in late September - forecasts it will generate positive returns even if the milk price falls as low as $4.20/kg milk solids***, says Andrew Watters, Executive Director at MyFarm, New Zealand’s largest dairy farm manager.

Mr Watters says: “Milk prices have risen 4.3% p.a. since Fonterra’s inception, but in the current season that trend appears to have reversed. MyFarm recognises this volatility is a fact of life.

“We expect milk prices to return to the long-term average of around $7/kg of milk solids, possibly as soon as the 2015/16 season. However, we understand we need to operate farming systems that give our syndicates the flexibility to respond to these short-term milk price changes as well as fluctuations in on-farm costs.

“Hokonui’s ability to graze its entire stock on farm sets it apart from many of its neigbours in Southland and further afield. Notably, it protects the syndicate from volatility in grazing costs, which have been rising at an annual rate of 6% to 7% p.a. in many areas.

“Farms in good locations, and where all stock can remain on farm, are becoming increasingly rare; this represents a significant shift in MyFarm's experience of buying farms over the last twenty years,” says Mr Watters.

“Hokonui is also reducing peak milking cow numbers and changing its feed crops from brassica to higher yielding fodder beet and forecasts a minimal reduction in production. The cropping changes will allow it to increase land under pasture by 30% to 35%, while the small reduction in stock will reduce costs and improve environmental performance.

MyFarm’s 47 dairy farming syndicates across the country are taking similar steps to ensure they make the most of their pasture and reduce their reliance on grazing and supplements.

“Our syndicates are also cutting all non-essential expenditure and are putting a brake on development. Debt levels, averaging less than 30% of total assets across MyFarm’s syndicates, also provide a significant buffer to the lower returns.

“We remain positive on the medium and long-term outlook for dairy farming. However, in the meantime, as we work through this period of low prices, we need to do as much as we can to manage costs,” Mr Watters says.

About MyFarm:

MyFarm is New Zealand’s most experienced farm investment company. Since 1990, we have provided investors with opportunities to access returns from New Zealand farming through investment in handpicked, premium farms. Today we have more than $550 million of farm assets under management. Our experience as farmers, farm managers and farm investors has enabled us to consistently outperform more traditional types of investment and deliver well above average returns. Refer to http://www.myfarm.co.nz/trackrecord

**Investments in MyFarm syndicates are only open to investors able and willing to invest no less than $250,000 and who fall within the applicable exclusions for offers made to ‘Wholesale Investors’, as set out in Schedule 1, clauses 3(2)(a)-(c) and clause 3(3)(a)-(b)(ii)) of the Financial Markets Conduct Act 2013 which applies to the offer to invest in Hokonui Pastoral Limited Partnership. View more information at www.myfarm.co.nz/hokonui

*** View more information at www.myfarm.co.nz/hokonui

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