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Home / The Country

Hard times hit Uruguay dairy operation

Owen Hembry
By Owen Hembry
Online Business Editor·NZ Herald·
16 Oct, 2008 03:00 PM2 mins to read

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Keith Smith. Photo / Greg Bowker
Keith Smith. Photo / Greg Bowker

Keith Smith. Photo / Greg Bowker

KEY POINTS:

NZ Farming Systems Uruguay says it could miss analysts' forecasts for the present year as the global economic situation drives volatility in dairy commodity prices.

Speaking at yesterday's annual meeting in Auckland, chairman Keith Smith said he anticipated some potential for downside from a consensus of US$8 million-$10 million ($13 million-$16.5 million) of earnings before interest, tax and any performance fee. Milk-powder prices had fallen significantly during recent weeks, Smith said.

"Part of the fall in prices is due to increased US production in response to high prices earlier in the year," he said. "We expect that effect to be absent in the coming year. With the high cost of feed relative to milk prices, we expect significant culling of US dairy herds."

NZ Farming Systems Uruguay was set up by PGG Wrightson to develop dairy-farm operations in Uruguay and floated on the NZX in December.

Director Craig Norgate, who is also chairman of PGG Wrightson, which has a stake of just over 11 per cent, said the drop in global dairy prices had been overdone.

"Basically I think they'll have another option of going down and then they'll start bouncing back up again."

Smith said he was very happy with progress at the company, which had started milk production and generated a strong initial revenue flow.

"Most importantly, the development plan is being executed well, with much of the initial development risk now behind us, the views and assumptions about the potential for value creation that inspired the formation of the company are being validated by day-to-day experience and results."

The company owned just over 36,300ha of land and planned to have a milking herd of more than 20,000 cows and 30 sheds operating by the end of June.

Shares closed down 5c yesterday at $1.15.

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