Friday, July 8, 2022

Landcorp goal 80% fixed price sales

Landcorp sold more than 70% of its export lambs under fixed price contracts in its latest year, as part of a longer term goal to have 80% of all red meat sales handled this way.

This makes more than 230,000 lambs on fixed contracts out of a total 330,000 sent to processing companies in the year ended June 30 by the state-owned farmer.

Prices were on average higher than those achieved on traditional schedules, Landcorp livestock marketing manager Andrew Hall said in the written annual report.

About half the fixed price lamb contracts were for supply to the United Kingdom’s biggest grocery chain Tesco, he later told The New Zealand Farmers Weekly. Tesco’s Finest brand range is supplied from New Zealand in the period outside the domestic supply season. Silver Fern Farms brought the two groups together in 2009 and the contract numbers have increased every year since.

The deal requires Landcorp to supply lambs at certain age, grade, and weight during specific weeks.

The 70% ratio of fixed price lambs to total processing volumes was well up on the previous year. A similar ratio is being targeted this year, though there are logistical challenges, Hall said.

Over the combined red meat contract target, lamb has achieved the best growth, with opportunities for venison, but beef more challenging. The 80% target was an aspirational figure.

Landcorp expects prices in the 2013 financial year to be more volatile and generally lower than in recent years, and has budgeted for a net operating profit of $12.7 million the annual report, down from the $27m in the latest year, as reported earlier, and $42.2m in 2011.

If it can make land sales as planned – including a number of lifestyle block and residential subdivisions by subsidiary Landcorp Estates – the company plans to pay a dividend of about $42m to the Government this year, double the 2012 dividend level, the directors said.

Landcorp’s involvement in the future operations of the “Crafar’’ dairy farms has been well publicised but it is also doing other major capital developments, including further conversions from forestry to add to the 4500ha of dairying and support acreage on leased land in the Wairakei Estate north of Taupo, expanding its Maronan Pastures dairying operations in Mid Canterbury with the addition of another farm being brought into production, and converting much of the former Eyrewell Station into dairying as part of the nearby Waimakariri cluster.

Wairakei Estate conversions are starting again after a halt in 2007 because of ETS rules. Though production gains are being achieved on the six current farms, stocking rates are relatively low because there is no irrigation. Landcorp hopes for resolution on this issue during the current year, leading to potential major gains on stocking rates and productivity per cow.

Landcorp is also developed the 1290ha Cheltenham Downs in Manawatu as a major lamb finishing property since buying it in mid-2011. The plan is to use the farm’s consistent rainfall and sunshine hours in year-round grass and feed crop growth to finish up to 30,000 lambs annually through a 12-month cycle once development is completed, as part of the focus on fixed price contracts.

The farm is being converted from large-scale arable cropping and finished about 20,000 lambs in its first year under Landcorp.

Cheltenham will also have the scale to graze stock having to be moved because of dry conditions in other regions, and will have some beef finishing as well.

The big development programme will mean a significant increase in capital expenditure from the $50.7m in the 2012 year, chief executive Chris Kelly said.

This will mean an increase in borrowings, but the farming company is conservatively managed, and had an equity ratio 87% at the latest June 30 balance date. Bank loans funded $171m of the total assets of $1.66 billion. Interest costs of $10.2m were covered 3.6 times by the Ebit figure of $37.2m, though the lower operating profit forecast in the current year would impact on that ratio.

The joint venture with Chinese company Shanghai Pengxin to run the “Crafar’’ farms is a key strategic step for Landcorp, the directors said. This involves about 16 farms covering 5689ha in the central North Island and Hawke’s Bay.

Landcorp has also taken land out of grazing, as part of protection work in the Lake Taupo catchment. A total of 1627ha on three farm blocks (Wairakei Station, Tauhara South, and Wharewaka East) will be planted in pine plantations.

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