Very dry conditions in the North Island have knocked back milk production in the final months of the season, especially in the central North Island, which provides about 40% of the group’s total.
“We seem overweighted to the areas that seem to have been the driest,” chief financial officer Steve McJorrow said.
The pumice land on the Central Plateau can get very dry without rain but there are no plans to reduce reliance on the area.
Landcorp has the right systems in place for the area and it is being farmed less intensively than a few years ago, he said.
The result of the trading issues is that operating earnings before interest, tax, depreciation and revaluations for the year ended June 30 are now likely to be lower than expected earlier, at between $27 million and $32m.
That compares to previous guidance of $37m to $42m and is well below the $48.5m in operating earnings in the 2018 year.
Other negative factors for the state-owned farmer, which trades under the Pamu brand, are:
# A lower forecast milk price from Westland Milk products;
# Uncertainty over the level of Fonterra dividend;
# Lower than expected dairy beef prices;
# A greater percentage of lower-priced bulk sales of milk powder inventory, lowering overall margins and;
# Lower profitability for Focus Genetics Australia as a result of drought.
McJorrow said Landcorp supplies three million kilos of milksolids to Westland and the drop in the price forecast to $5.90/kg MS from an earlier forecast of $6.15 had an impact.
On the other trading issues, the company was probably over-optimistic on dairy beef prices though they are at a good level. The team is happy with red meat prices.
The milk powder inventory reflects the change in the marketing mix where the focus is on organic and grass-fed milk powders in cans. The market into China has been slower than expected to build up, leaving some aging inventory to sell in bulk. That is expected to be a one-off situation.
Landcorp has taken a conservative approach to expectations on the Fonterra dividend.
The trading impacts will be partially offset by reducing discretionary expenditure while ensuring the business is well positioned for next season, he said.
The trading forecast assumes there will be no further material adverse weather nor significant strengthening of the New Zealand dollar.
Ebitdar is the company’s favoured measure of trading performance because it covers the day-to-day business cashflows and excludes one-off land and livestock revaluations.
