Landcorp says 2015 earnings ‘on track’ despite weaker dairy prices

Landcorp Farming, New Zealand’s largest corporate farmer, said it doesn’t need to downgrade earnings guidance in the wake of falling dairy prices, after sheltering from volatility by locking in a guaranteed price at the start of the season.

Dairy product prices slipped in this week’s GlobalDairyTrade auction to the weakest level in almost six years. State-owned Landcorp in October cut its forecast for this year’s operating profit to a range of $1 million to $6 million, from a previous forecast range of $8 million to $12 million, citing weaker milk prices. However the company said it is protected from some of the recent weakness by taking up Fonterra Cooperative Group’s guaranteed milk price.

Auckland-based Fonterra, the world’s largest dairy exporter, offered suppliers $7 per kilogram of milk solids under its guaranteed milk price scheme at the start of the season, and $4.70/kgMS in December. Farmers who didn’t take up the offer are expected to get $4.40/kgMS, according to Fonterra’s latest payout forecast for the season.

“We were fortunate in the sense that we locked in under the guaranteed milk price a fairly significant percentage of our overall milk for this year so the declines in the GDT have not had as significant an impact because we are buffeted with the GMP for this year,” Landcorp chief executive Steven Carden told BusinessDesk.

The latest earnings guidance for the 12 months ending June 30 “was a relatively broad range and we are still within that for this year,” he said. “We have had a reasonable year with our livestock business which has also offset some of the milk price decreases as well, so we are still on track to hit that.”

The Reserve Bank estimates a quarter of dairy farmers are operating in negative cash flow.

Fonterra has forecast a $5.25/kgMS payout for the upcoming 2015/16 season while AgriHQ expects $5.50/kgMS.

“We would be very happy if the current outlook of that sort of $5.50 price was in fact achieved but it feels like there’s more downward pressure on that at the present point in time than upward,” Carden said.

He said forecasts for a continuing decline in the New Zealand dollar appeared to be the only factor likely to move the current milk price higher.

Landcorp is continuing to develop land into dairy farms, principally in the central plateau of the North Island, where it was deemed the best use for the land. However it is also exploring alternative land use options such as sheep milking, he said.

Landcorp has 22,634 hectares of dairy land of the total 385,086 hectares it owns or manages.

(BusinessDesk)