Landcorp forecasts a bigger loss this year, no dividend, as dairy downturn bites

Landcorp Farming, the state-owned farmer, won't pay a dividend to the government for a second consecutive year as low milk prices erode earnings from its dairy business.

The company expects to post a net operating loss of between $8-9 million in its current financial year ending June 30, chief financial officer Steve McJorrow told Parliament's primary production select committee in Wellington. That's a bigger loss than the $1-6 million it forecast in December, and compares with a net operating profit of $4.9 million last year. The projected loss means Landcorp won't pay a dividend for the year, Mr McJorrow told BusinessDesk after the select committee meeting.

Global milk prices have slumped and remained low for longer than expected as supply outweighs demand, with prices now below what most dairy farmers need to break even. To help counter the downturn, Landcorp is reducing the size of its dairy herd and milk volumes, mulling other uses for the Wairakei Estate land it leases north of Taupo and which it has been converting to dairy from forestry, using technology to cut costs, and exiting its sharemilking contract with Chinese partner Shanghai Pengxin to focus on developing higher-value products.

Fonterra Cooperative Group, New Zealand's dominant milk processor, is forecasting a farmgate milk payout of $4.15 a kilogram of milk solids for the current season, although five of six dairy analysts surveyed by BusinessDesk expect the payout will be lower. DairyNZ, which collects industry data to work out the milk payment required for farmers to pay their bills each season, says the average farmer currently requires $5.30/kgMS to break even.

Mr McJorrow told the committee there is uncertainty over the outlook for milk prices next season, noting one bank economist forecast $4.60/kgMS while another predicted $6/kgMS.

"We haven't actually kicked off our budget yet but we are thinking about it," he said. "When we do come to do our budget though, we will be taking an extremely conservative view on it."

Responding to a question from the committee, Mr McJorrow agreed he would be more likely to go with $4.60/kgMS for next year, noting it was "not dissimilar" from where Landcorp expects to be this year.

Chief executive Steven Carden noted it was "one of the most difficult payout levels we have experienced as an industry for a long time."

Landcorp would continue to seek domestic and international partnerships to access capital and networks to aid development of its business, Carden said.

(BusinessDesk)