KEY POINTS:
Dairy farming forecasts in PGG Wrightson's new Uruguay investment prospectus may be too optimistic, according to a former Fonterra manager in South America.
PGG Wrightson is standing by the document and says demand for the shares has been high.
But Brazil-based Craig Bell has queried whether New Zealand
Farming Systems Uruguay (NZFSU) could achieve a targeted price of US18c (27.2c) a litre for milk.
Bell said from Sao Paulo yesterday that NZFSU was unlikely to sell much, if any, "quota milk" in Uruguay.
Suppliers of quota milk - a system aimed at small and long-established Uruguayan farmers - received a higher price than that paid for "industrial milk", he said.
The US18c a litre NZFSU hoped for was 39 per cent higher than the average price for cheaper industrial milk had been in the past eight years, said the agriculture and services investor.
Bell also questioned whether targeted farm cash costs of $1.50/kg of milk solids - about 45 per cent lower than the average New Zealand dairy farm in 2004-05 - could be achieved.
He suspected such low costs compared with New Zealand were unattainable in Uruguay for a range of factors, including the fact many farming inputs were paid for at international prices.
Also, achieving targeted milk production of 364kg of milk solids per animal would involve feeding cows significant supplements.
"When you add all that up there has to be a higher cost than $1.50/kg."
But PGG Wrightson chief executive Barry Brook said prices paid for milk reflected quality and PGG Wrightson had been averaging above US18c a litre in the current season.
"New Zealand Farming Systems Uruguay aims to target any opportunity to maximise milk price through focus on lifting the level of milk solids and milk quality."
He said Bell had selectively quoted average prices for industrial milk for the past eight years which included an economic crisis.
"Expressed in constant 2006 dollar terms, the prices used in the prospectus of US18c per litre is the average of the past 10 years."
The prospectus model had in fact suggested prices received would start at US15.2c a litre and rise to US18c in five years. "We are very comfortable that these projections are realistic."
Brook said cost projections were based on extensive information from Uruguay.
Meanwhile, NZFSU announced yesterday that demand for allocations of shares was "significantly in excess" of the offer size of 75 million shares.
Chairman Keith Smith said it was fortunate the company had provided for oversubscriptions of up to another 75 million. "As a result, everyone who put their hand up for an allocation of shares will get what they have asked for without scaling.
"We are already close to a position where we could allocate all the oversubscription shares."
The offer closes formally next month.