PGG jittery over fall in sheep prices

PGG Wrightson will closely watch Australian demand for its seed products in coming months as the east coast of that country recovers from extreme weather.

The diversified rural services company is also eyeing sheep prices in terms of its full year earnings as it prepares to release of its half- year result later this month.

In a presentation to the company's annual meeting in October 2012, managing director George Gould indicated an improved bottom line in the full year to June 30, 2013. It reported a bottom line net profit of $24.5 million in fiscal 2012.

Last week, Gould said the main risks for PGG Wrightson were livestock values, particularly a fall in sheep stock prices since February 2012, reducing commissions to the services company, and the Australian weather.

"Cattle's been pretty steady but sheep values are down, they're around half of what they were a year ago (caused by) supply and demand. The schedule prices published by meat companies are down, market prices in the UK are down.

"They actually notched back a bit even more last week, so we're getting in some cases less than half."

The company looked forward for the coming autumn sales of seed products in Australia. The recent extreme weather, including both floods and drought in parts of the eastern states of New South Wales, Victoria and Queensland, continued to create uncertainty.

PGG Wrightson served those states, although with only a small presence in Queensland, as well as South Australia plus its New Zealand operations.

"About 80 per cent of our grain seed revenue and sales occur in the second half, January to June," Gould said.

"In New Zealand we're pretty confident about our position, we've got a pretty good robust business here. In Australia it's newer and the climate changes are more extreme. The worry we have, which we have every year, is just how will Australia pan out. It does look quite promising to the extent that there have been some early recent rains in some very dry areas."

On the positive side, PGG Wrightson had reduced debt levels to "well under $100 million".

It had a greatly improved retail business, better organised than when he took over the managing director role in January 2011 on a two-year contract. Gould recently renewed his contract, but has not detailed for how long except to say he will stay as long as the board sees him adding value.

The company's irrigation division, helped by strong sales of the pivot systems in Canterbury and Otago, was also trading well, Gould said.

"We've sold nearly double the amount of irrigators this year (to date) as against last year (to date)."

Irrigation was part of a changing landscape, including new rules for changing land use. This came with the switch from sheep to dairy farming.

Regional councils, including Environment Canterbury, were introducing different land use guidelines for different regions of the South Island. In some regions an effective halt to land use change had been called, while in other areas a timeframe had been set for changes.