Fonterra slashes forecast milk price, again
Fonterra has slashed another 50c off its milk price forecast as global milk flows shows no sign of easing.
And the news is unlikely to get much better, given the effect the drought will have on the company’s profit in the next six months.
Chief executive Steven Carden told Rural News the net operating profit for the year to June 30 will be in the range $1m-$4m.
He says Landcorp has done its best to manage the fall in the milk price by taking advantage of guaranteed milk price contracts and by reining in costs going into the lower payout year.
“But you can’t easily offset a 45% fall in the milk price from a large part of your business and replace that through cost savings or revenue from other parts of the business. The better prices for sheep and especially beef helped offset some of the fall in revenue from dairy. But we needed almost a doubling of beef prices to have any sort of impact on the fall in dairy prices. Lamb prices have softened and it hasn’t been quite the strong year in lamb that we’d anticipated.”
Carden says Landcorp’s “diversified portfolio of species” gives it more incomes streams as it further diversifies. But its wide exposure to the dairy industry makes this hard.
The company seeks more fixed term contracts for red meat and the same for dairy to counter the volatility of the market.
It is looking at new target markets for existing products, e.g. milking sheep and deer leather. And it is selling coarse wool in partnership with Merino New Zealand.
“Since I came on board our strategy has been to move away from our concentration on dairy. Our big dairy development near Taupo is increasing our exposure so we’re working hard to find non-dairy opportunities. It’s slow progress… but in some new niche product areas we’re starting to get traction.
“We’re starting to reach the point with bovine dairy where there is a ‘glass ceiling’ in terms of the country’s ability to take much more of it.”
Landcorp has cut costs, Carden says, but is taking care not to make short term cuts that will need reversing further down the track. Restructuring Landcorp has been to make it more sustainable.
“We’ve moved to a totally different level of costs… looking again at how we apply fertiliser… being a lot more precise in our application.
“We’re now starting to use the information out of the farm management system to make smarter decisions about the quality of our herds and flocks and making sure we don’t waste feed. We’re constantly looking at costs in the head office and making sure everything we do in Wellington is adding value to our farms.”
Carden expects the next six months to be hard with the low milk price and the impact of the drought, but looking 12 months out he is more optimistic.
He believes the milk price will rise and prices for red meat will be relatively strong.
