Dairy company 'holding steady' with record result

Tatua Co-operative Dairy Company's drive for specialised dairy products has paid off after it announced a record result for the 2013-14 season in its 100th year of operation.

Tatua released its financial result for the 2013-14 season yesterday, where the Waikato company achieved a group operating revenue of $266 million and earnings before tax of $136.4 million in 2013-14. That equated to earnings of $10.32/kg milk solids prior to retentions and taxation.

Its final payout for the 2013-14 season to its 109 suppliers would be NZ $9/kg MS and declared a pre-tax retention of $1.32/kg MS.

Chief executive Paul McGilvary said while last seasons result was very strong, the 2014-15 year would be challenging.

Prices have fallen significantly and the market tone is weak. He expected their focus on added value products to hold Tatua in good stead versus milk powder and other commodities.

McGilvary said the current forecast was "holding steady" at around $6.50/kg MS and this would be reviewed in November.

The co-operative faced different pressures to Fonterra that saw the dairy giant drop its forecast to $5.30 last week.

"We don't make commodities so our prices will hold up for longer, because of the way we price," he said.

They also have a high proportion of added value products in their business. The returns for that business improved when there was a lower milk price, he said. "But in the end you can't defy gravity. It will affect us but probably not quite as quickly or at the same magnitude as Fonterra."

Waikato's other major dairy company, Open Country Dairy, indicated it too had lowered its payout forecast to suppliers.

The country's second largest dairy company lowered its forecast milk price for the new season from $6-$5.30/kg milk solids prior to Fonterra's announcing their reduction last week.

Chairman Laurie Margrain said the company had indicated to its suppliers of a likely reduction to its forecast.

"The Fonterra number is in the range that we have already indicated to our own farmers," he said.

OCD is 70 per cent owned by South Island food group Talley's, which owns Affco meat group. Affco has processing plants at Horotiu and Moerewa.

The company exports ingredients for dairy products including milk powders, cheese, milk proteins, and milk fats.

Margrain said OCD were facing similar challenges to Fonterra this season. Both were faced with strong global milk production, the impact of Russia's ban on importing dairy products, and the levels of inventory in China.

"The same factors are affecting every dairy farmer and every processor across the world. They are all driven by the same market demand, the increases or decreases as the occur in production, all those factors as well as New Zealand currency. None of us are immune from that."

Margrain hinted there was a strong possibility OCD could drop its payout further. While currency was a factor, there needed to be a lift in the selling prices of milk products to cause a lift in the forecast. "We are hopeful that there will be a lift but there are no guarantees. It's a very fluid situation."

Two months earlier the company announced a downwards revision on their payout. "We tend to revise our forecast as and when we think it's appropriate. We re-visit it every month."

Waikato Times