Fonterra mulls options - sale or IPO
An outright sale of Fonterra’s global consumer business is more likely than a float, says Forsyth Barr senior analyst equities, Matt Montgomerie.
These have included a system of six months deferred payment and low prices for such items as calf milk, glyphosate and tail paint.
Fonterra’s manager of cooperative affairs in the lower North Island says farmers in his region are finding it very tough at the moment with low or negative cashflows.
Dallen Olson describes the mood of farmers as sombre.
“All this has come on the back of three tough things: the recent floods, the low payout and cold, wet conditions. There has been little grass growth and this has made it tough for farmers.”
Olson says the weather this year has been unusually bad with heavy rains making farming especially difficult. But he says farmers have a good awareness of the global situation and that it is tough for everyone, not just Fonterra. He says people are aware of the long term viability of the sector and realise this is a short term glitch.
“A lot of people are changing their farming systems to reflect the global environment and lower milk payout. They are becoming more self contained, buying in less supplement and culling a few cows so as to be self-contained within their own block.”
Olson says it’s hard to generalise about what is happening because everyone has different systems and the degree of flexibility to change varies a lot. But it appears many are trying to revert to a pure pasture model, reducing supplements and reliance on the lease block down the road. Those who built infrastructure as part of their farming system have that debt to service which has its own set of challenges.
“In terms of health and wellness, the problem is the new ones in the game and sharemilkers. The new ones have gone through a couple of bad years and had only one good season in three; the sharemilkers, be they 50/50 or lower order, are struggling. We have a targeted approach using our network within Fonterra to get out there and get a sense of what the sharemilkers need. It’s not always going to be financial support; they may need help with budgeting or on farm practices.
Olson says Fonterra is working with DairyNZ to help farmers make the best decisions in their particular circumstances.
He says the in-store specials at Farm Source and RD1 stores are typical of the help Fonterra is giving shareholders. A special on Ancalf allows farmers to buy milk at the same price as taken out of the vat. Olson says this is a logical move, given that farmers own the stores anyway.
Farm Source is also offering an advance payment of $2.50-$3.00 for cull cows, now being slaughtered in large numbers.
Loan applications open
Fonterra shareholders can now apply for an interest-free loan of 50c/kgMS produced from June 1 to December 31, 2015.
The loan will be interest-free until May 31, 2017, after which Fonterra may charge interest.
Chairman John Wilson says farmers can repay all or part of the loan at any time and no security is required over their shares or any other assets. The loan will be repayable directly from milk payments, and automatic repayments will occur when total advance rate payments exceed $6.00.
Applications are open now and close at 5pm on September 25.
Farmers can apply online (the preferred option) at www.nzfarmsource.co.nz, or by email, fax or post.
