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NZ Farming Systems forecasts loss on tumbling milk prices

By Paul McBeth

Thursday 18th December 2008

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NZ Farming Systems Uruguay, which is developing dairy farms in South America, said it may post a full-year loss of as much as US$11 million because of a sharp decline in international prices for milk.

The company expects its full-year loss before interest and tax to be US$7 million to US$11 million. The Board told shareholders at the annual meeting in October that their analysts' consensus had been a range of US$8 million to US$10 million. Last year, the company had a pretax loss of US$7 million. The company had expected milk prices to fall below 30 US cents a litre, though revised the estimate down after Fonterra's online auction for whole milk powder ended at approximately 20 US cents per litre.

Chairman Keith Smith said he is confident the company's "targets are achievable once we have fully developed the farms including irrigation." The company predicts prices will rise significantly once the "market has bottomed," it said in a statement.

Yesterday, PGG Wrightson said it would write down its 11% stake in Farming Systems, which in October postponed expansion plans due to "current market conditions, including turmoil in world financial markets and the NZFSU share price."

The company's earnings are also likely to be hurt by a dry November that was expected to cause a fall in production to 50-60 million litres from the forecast 60-70 million litres.

Like last year, shareholders will not be paid a dividend in the 2009 financial year.

NZS stock fell 4% to 72 N.Z. cents when the NZX opened. It's fallen over 60% in the last six months.

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