Landcorp posts first-half operating loss on lower milk prices

Wednesday 2nd March 2016

Landcorp Farming, the state-owned farmer, posted a net operating loss in the first half of its financial year, and said that's expected to widen for the full year, reflecting a decline in milk prices.

The state-owned enterprise posted a net operating loss of $8.9 million in the six months ended Dec. 31, compared with a profit of $1 million in the year earlier period, it said in a statement. Revenue fell 5 percent to $108.8 million as milk revenue slid 22 percent, it said.

Landcorp forecast a full-year net operating loss of between $8 million and $12 million, a wider range than the $8 million to $9 million loss the SOE signalled to parliament's primary production select committee last month, and its December forecast for a loss of $1 million to $6 million. It had a net operating profit of $4.9 million last year.

"The increased loss from Landcorp’s last disclosure largely reflects recent downward revisions to forecast milk payments for the rest of the season," the Wellington-based company said.

Global milk prices have slumped and remained low for longer than expected as supply outweighs demand, with prices now below what most dairy farmers need to break even. To help counter the downturn, Landcorp is reducing the size of its dairy herd and milk volumes, mulling other uses for the Wairakei Estate land it leases north of Taupo and which it has been converting to dairy from forestry, using technology to cut costs, and exiting its sharemilking contract with Chinese partner Shanghai Pengxin to focus on developing higher value products.

Landcorp said Fonterra Cooperative Group's guaranteed milk price scheme had reduced the impact of lower milk prices.

The company told the select committee its milk price this year is around $4.57 per kilogram of milk solids, from about $5.40/kgMS last year. That compares with Fonterra's forecast payout for this season of $4.15/kgMS and $4.40/kgMS last year.

Fonterra has now ended the guaranteed milk price scheme, making its last offer in December for milk production through to the end of the 2015/16 season.

Landcorp said lower milk revenue in its first half had been partially offset by continuing strong performance in its red meat business.

The company didn't pay a first-half dividend and has said it won't pay a full-year dividend because of its operating losses.

BusinessDesk.co.nz

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