Dairy weighs on Landcorp result

Fonterra last week raised its farmgate milk price forecast for 2016/17 to $4.75 per kg of milksolids, up from a previous forecast of $4.25/kg. Photo / Getty Images

Low milk prices helped drive New Zealand's biggest farmer Landcorp to a net operating loss of $9.4 million in the year to June.

The result compared with a $4.9m profit a year earlier.

At the bottom line, property sales pushed the state-owned company to a net profit after tax of $11.5m compared with a loss of $20m a year earlier, on revenue of $209m ($224.3m).

Landcorp chief executive Steven Carden said the result largely reflected higher livestock valuations, a $7.4m profit on land sales, and lower milk revenue, which fell by $12.9m or 8.5 per cent after the payout dropped to its lowest level for 10 years.

"It's been tough for the entire dairy sector, so our result is solid in that context," Carden said in a statement.

"The result would have been lower without the progress already made to strengthen our farming systems and our position in the marketplace for Pmu products," he said. A focus on cost control and improving productivity saw a 9.2 per cent reduction in farm working expenses through the year.

Landcorp's total assets increased to $1.79 billion in 2015/16, up $11.6m on the previous year.

The company's bank debt increased over the year from $210.7m to $219.6m.

Most dairy farmers have been running at a loss over the last two seasons, thanks to sub-par farmgate milk prices.

Fonterra last week raised its farmgate milk price forecast for 2016/17 to $4.75 per kg of milksolids, up from a previous forecast of $4.25/kg.

The total payout to Fonterra farmers for the current season is now expected to be about $5.15 a kg - marginally ahead of DairyNZ's estimated break-even point of $5.05/kg.

Low payouts have also affected the profitability of farm-related companies. Earlier this year, the farmer-owned co-operative, Livestock Improvement Corp (LIC), reported a $4 million loss for the year to May compared with a profit of $13.7m a year earlier.

In March, Landcorp said volatile dairy prices had played a part in its decision to scale back its plans to convert former forestry land near Wairakei, in the central North Island, to dairy. The move was aimed at saving $25 million to $35 million in development costs.

The original plan was to put 40,000 cows on that 14,500ha block but Landcorp has pared that back to 21,000, partly due to the ongoing volatility in dairy prices. Carden said in an interview with the Herald earlier this month that Landcorp was changing its business model.

"Landcorp has decided that the model that we have always used - to stress our assets more, to get more out of our animals, our people and the environment, is just not sustainable any longer," he says.

"We can't continue to cost-cut our way to victory through productivity gains."

Landcorp, which owns or manages farms up and down the country and has 850,000 animals, has said it will stop using the controversial feed supplement palm kernel expeller from the end of this financial year to return to a more traditional, pasture-based model.