Saturday, December 2, 2023

Alliance heading for a loss on the year

Neal Wallace
Worst result in more than a decade set to follow year of record profits.
Reading Time: 2 minutes

Alliance Group will next month report a loss for the 2023 financial year in what the board says will be its worst result since 2012.

This follows a record $73.6 million net profit after tax in 2022.

Chair Murray Taggart told farmers it has been a tough year for livestock farmers and meat processors alike.

Livestock manager Murray Behrent said markets remain soft.

From October to December Alliance expects lamb to be worth $6.80/kg-$7.30/kg and handpicked premium lamb $7-$7.50. Sheep will make $3-$3.50.

Handpicked premium beef is expected to be worth $6.10-$6.60, prime $5.30-$6 and bull $5.20-$6. Handpicked venison prices are expected at $10.20-$10.50 and prime $10-$10.30.

Behrent said prices for lamb are likely to remain soft due to the effects of global inflation, but beef prices are stabilising in China and North America.

Taggart said Alliance’s financial year ends on September 30 so the 2023 performance was hit when lamb prices fell sharply from October to December 2022, requiring the co-operative to write-down inventory by $55m.

It will release its annual results next month, but Taggart said weak sheep meat markets had a disproportion impact on Alliance as New Zealand’s largest ovine processor.

A further factor affecting its performance was the earlier-than-usual pre-Christmas gearing up of staff at its Lorneville plant in Southland, responding to fears that dry weather would require farmers to quit stock early.

The weather was not as dry as expected and killing space was not needed, but the company had to carry the costs of the extra staff.

Taggart told a farmer roadshow at Middlemarch in Otago this week that consumer confidence in China remains low and stems from heavy investment in Chinese real estate, which has subsequently collapsed.

This in turn has created a debt crisis and lifted youth unemployment rates to 20%.

Another factor depressing global markets is large volumes of cheap Australian sheepmeat.

Taggart said Australian exporters are paying $5/kg for lamb compared to $7 in NZ, which means they can sell it more cheaply.

Fears of a dry summer have prompted Australian farmers to quit livestock early, adding to global competition.

Taggart said the Australian domestic market for ewes has collapsed, with some selling for $1/head or they are being shot and buried on farm.

Chief executive Willie Wiese told farmers the challenging year has prompted a review of its strategy for the next five years.

The fundamental aims remain: ensuring livestock farming is viable, growing market value and being an efficient processor, and developing new products.

It recently started recovering cattle reproductive organs and selling them for $251/kg.

It is also introducing throughout its seven plants a meat probe that measures marbling, tenderness and intramuscular fat in ovine and bovine, which impacts eating quality.

The probe has been tested on 300,000 carcases and Wiese said the data will be fed back to farmers to help with their breeding and management decisions while Alliance will use the information to identify superior eating animals that it can market to affluent customers.

Wiese said they have listened to shareholders who want greater rewards for loyal suppliers.

That includes ensuring shareholders have sufficient shares to match the stock they supply, and this season Alliance will be retaining 50c/head from those needing to increase their shareholding.

It is also increasing and making changes to its loyalty payments and its volume suppliers.

Wiese said in the coming year it will be talking to farmers about how to reduce its greenhouse gas, or Scope 3, emissions, plus Alliance is looking closely at its waste to landfill and water use.

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