Posts Tagged ‘cull cows’

Dairy beef profitable for beef and dairy

July 20, 2017

For well over 20 years one of the largest challenges in the meat industry has been dairy farmers’ lack of recognition of the opportunity to make more money from their calves by selling them to calf rearers for beef production. There have always been calf rearers willing to stick their neck out and buy calves, but this was highly dependent on both beef and milk price. But for dairy farmers it was easier to select their replacement heifers and put the rest on the bobby calf truck, rather than find rearers to take the bull calves or keep them on the farm for up to three months. (more…)

Two exciting years in a row

December 20, 2014

2014 and 2015 promise to be two of the most exciting years the red meat industry has seen for a long time and for a change the news is not all bad. There are some clouds around, but also silver linings like better beef and lamb prices, improved profitability and the possibility of positive developments in the industry’s structure.

 

At long last, after a slow start, there are plenty of signs the industry as a whole has recognised the need for change to address the main challenges of inadequate prices, declining sheep and beef numbers and excess capacity which have inexorably brought about land use conversions to more profitable activities.

 

The launch of the Red Meat Sector Strategy three years ago signalled the beginning of the change process which B+LNZ and the meat companies have adopted with support from the government funded Primary Growth Partnership projects. MIE has also gained traction during the past two years, having succeeded in gaining representation on the boards of Silver Fern Farms and Alliance as well as obtaining funding to develop its own industry reform strategy.

 

All these events and programmes have been happening against the background of an improving domestic economy and uneven global economic performance with Asia and North America doing better than Europe where political unrest has hindered the recovery. China has been the success story of the past year for the New Zealand red meat sector, providing an alternative export market for beef and particularly sheepmeat.

 

From the perspective of sector morale, it isn’t doing any harm to see sheep and beef returns outperforming the dairy industry for once. In spite of some retreat from the price peaks in the spring when product volumes were low, it is almost inevitable these returns will be better than the dairy payout during 2015 and quite possibly 2016 as well. The lower New Zealand dollar will be a help too.

 

But for all these encouraging signs, it won’t be all plain sailing for the red meat industry next year. There is already the strong possibility of drought conditions on the East Coast and some other regions, while trading conditions in major markets are uncertain. China has slowed, while many EU countries remain in recession and the Russian economy is in dire straits.

 

Meat processors and exporters all returned to profit during the 2014 year, although procurement prices will have to regain a greater sense of reality than has been the case in recent weeks, if 2015 is to allow a repeat performance. While lamb slaughter volumes are forecast to be about 20 million, not as low as 2011-12, but fewer than last season, the low milk payout will mean plenty of cull cows to process. If the US price holds up, the beef processors should be able to make hay to offset excessive lamb procurement costs.

 

Intriguingly both Silver Fern Farms and Alliance begin the year with new Chief Executives who will oversee some significant industry developments which will undoubtedly affect the companies they manage.

 

There are at least three big questions for the red meat sector in 2015:

  1. What will be the findings of MIE’s meat sector reform paper when it is published in February;
  2. Will farmers be prepared or financially able to invest further in ownership of the value chain; and
  3. What will be the outcome of Goldman Sachs’ investment recommendations to SFF’s board?

 

My suspicion is the key to the future shape and structure of the sector lies in strategic developments in the country’s largest red meat processor and exporter. The announcement has already been made about dividing SFF into product based business units which provides the opportunity to sell them individually, quite possibly to an overseas investor.

 

CEO Dean Hamilton has been very open about the company’s need for $100 million capital to reduce debt and allow further investment in its value added business. He also admitted in last week’s Farmers Weekly it was unlikely farmers would be able to stump up much of this capital in spite of a supportive response from supplier meetings. Five years ago the company succeeded in obtaining $22 million from suppliers invested in $1 shares which are now worth 40 cents, so there isn’t much chance of getting nearly five times the investment from existing shareholders, many of whom will already have lost 60% of their initial investment.

 

Unless Alliance or another local investor is willing to buy all or part of the SFF business which is unlikely, the alternative options appear inevitably to be from overseas. An external entrant to the sector would not welcome any constraints on its right to expand capacity. This would effectively derail any industry reform involving farmer investment in owning the value chain that MIE may envisage or that might be agreed as a result of the moratorium proposal.

 

Therefore 2015 will be exciting for participants and fascinating for observers with a strong probability we will all be much clearer about the future by this time next year.

MIE may be sailing into a head wind

June 24, 2013

The Meat Industry Excellence (MIE) group has appointed businessman and former sheep and beef farmer Ross Hyland to set up an establishment team, as it ramps up its campaign to achieve a restructure of the red meat sector.

 

After a series of meetings round the country at which it gained plenty of farmer support for its campaign, as well as backing from Beef & Lamb NZ and Federated Farmers, MIE has decided that it is now time to inject some muscle and structure into its plans. Chairman Richard Young said last week they had made this decision to ensure that they have an agreed solution and plan ready for the start of next season.

 

This is in spite of the confidential discussions between the four largest meat companies which have not yet reached a conclusion, but next season is only three months away on 1 October. MIE has talked to all the main meat companies and appears to have no desire to pre-empt the outcome of those discussions, but wants to try and make sure things don’t drag on well into next season without any progress.

 

MIE has now reduced its goal of having 80% of the meat industry combined in farmer ownership to a more realistic 60%, although it is still very doubtful how this will be achieved. Another major goal to have all livestock supply on contract to one processor has also been replaced by a commitment to supply stock to specification. The goal of transparency and fair treatment for all suppliers remains a key plank of the programme, while the costs of restructuring are to be shared by all industry stakeholders including the Government, except unions.

 

This is still a very optimistic wish list. It is uncertain just what a farmer owned trading entity with 60% market share would achieve, even if the necessary mergers and acquisitions happened. It leaves 40% of the industry in non farmer hands with almost certainly stronger balance sheets and more capacity for innovation and productivity improvement. My impression is that MIE’s original desire was to sort out the state of the sheep meat sector, but the board has now decided beef must be included, if the plan is to work.

 

With a maximum of 40% of sheep and beef farmers attending the meetings, this still means 60% didn’t attend, although some of those may support the objectives. It also ignores dairy farmers who provide around 40% of the industry’s cattle supply. A dairy farmer’s only thoughts with his cull cows are to get them off the farm as soon as possible and to receive a fair price for them.

 

A former livestock manager’s opinion of cull cows was that it’s the only time dairy farmers can behave like capitalists, because everything else is handled by the cooperative. So it’s hard to see how MIE can expect the meat companies, some of which specialise in grinding beef, to change their procurement methods for this part of their business.

 

I sympathise with MIE’s intentions, as well as the efforts to achieve progress before the start of the season. But realistically there will be no industry restructure in three months. There is currently no indication any of the meat processors are yet in serious financial trouble which reduces the likelihood of a Weddel or Fortex type of event in the near future.

 

Nor can I see the Government wanting to get involved in forcing a restructure of an industry, none of it state owned, which is completely exposed to commercial forces including the value of the New Zealand dollar and international commodity prices.

 

MIE says it will seek any required legislation which I presume could mean trying to enforce any of the following measures: merger of the coops, Silver Fern Farms and Alliance, sale into the farmer owned entity of one or more companies to reach the target market share, mandatory livestock supply contracts to specified meat companies, and a moratorium on any new meat plants or additional shift capacity.

 

What on earth would the Commerce Commission say about all that?

 

 

Meat season hits the wall

June 11, 2012

Settlement of the industrial dispute at AFFCO barely came in time to beat the passing of the season’s processing peak. Contrary to expectations that the supply of cattle, particularly cull dairy cows, would last until the end of June at least, the flow has virtually dried up. (more…)

North Island beef processing competition heats up

February 28, 2012

In spite of the slow start to theNorthIslandseason, currently 18% behind last year, forecasts suggest it will catch up, even exceed last season. But it is certain to come late with dairy farmers likely to keep milking as long as they can, unless we get an unseasonably cold early winter. What’s also certain is there will be plenty of processing capacity to handle it, especially when the Te Aroha rebuild is finished. (more…)