Cyclone Gabrielle puts a big dent in state-owned Pāmu’s earnings forecast

Cyclone Gabrielle will hit Lancorp's earnings in the current financial year. Photo / Supplied

State-owned Pāmu, also known as Landcorp Farming, said it would take a big hit from the impact of Cyclone Gabrielle on 24 of its farms.

Softer milk prices would also dampen earnings, it said.

The company now expects a full-year net operating profit of between $34m and $44m compared to its original budget forecast of $55m.

Chief executive Mark Leslie said the company’s early assessment of the damage caused by Cyclone Gabrielle was $6.5m over two years, with $2.5m falling into the current financial year.

The cost will be a mixture of operating and capital expenditure.

The change to expected net operating profit also reflects a reduction in forecast revenue from both dairy and livestock.

Fonterra’s forecast milk price fell from $9.00 per kilogram of milk solids in February to $8.50 per kg of milk solids, combined with lower-than-expected milk production has reduced forecast milk revenue by $14.6m.

“Lower milk production mainly occurred in the first half of the season due to wet spring conditions impacting pasture growth although a wet summer has seen a small recovery in milk production,” Leslie said.

Offsetting the lower forecast milk price is a forecast $13m gain on the organisation’s milk futures hedge position.

Pāmu expects livestock revenue to be $14.3m lower due to a combination of Cyclone Gabrielle, softer sheep prices, and lighter animals from Southland and Te Anau farms which have experienced dry conditions the past two summers.

Cyclones have exacerbated the situation with wet conditions in the North Island requiring lower margin store stock sales versus planned animal sales to processors. Farm working expenses have continued to remain high due to interrupted supply chains and the Russia-Ukraine war.

The annual increase to December 2022 in the farm expenses price index of 15 per cent is more than double the consumer price index for the same period.

Despite these challenges, forecast net operating profit remains significantly higher than $22m the year prior, the company said.

This forecast assumes there will be no adverse weather conditions over the remainder of the season, material changes in foreign exchange rates, or market prices, Leslie said.

Landcorp is a state-owned enterprise with a nationwide portfolio of farms that produce milk, beef, lamb, wool, venison and wood.

It is also one of Fonterra’s biggest shareholders and suppliers.