Buttery prize
OPINION: Westland Milk may have won the contract to supply butter to Costco NZ but Open Country Dairy is having the last laugh when it comes to cashing in on NZ grass-fed butter.
The company has also kept its pay-out prediction for the 2013-14 season at $7.50 - $7.70/kgMS.
Chief executive Rod Quin says Westland's predicted pay-out is in line with the predictions by other New Zealand companies, all of which are experiencing the same international market conditions.
"The decline in pay-out for 2014-15 is due to lower international dairy prices and the relatively high New Zealand dollar," Quin says. "The market has continued to decline as customers limit their purchases due to higher inventories in their supply chains, and growth in milk and dairy product supply from Europe and the USA.
"What we have to consider is whether we are at the bottom of the price cycle, and here the signs are slightly more encouraging. There are indications that customers are buying more than prior months to refill their supply chains."
Quin says that some industry commentators have speculated that the weakening New Zealand dollar might off-set the impact of lowered dairy prices and therefore benefit pay-outs, but he cautions that, to date, the decline in the dollar has been very small and the currency remains over-valued.
"Westland's response to this situation is to continue its strategy to grow its capacity to produce higher value nutritional products such as infant formula," Quin says.
"Our traditional reliance on bulk dairy commodities makes us more vulnerable to the cyclical swings of the international dairy market. Our recently announced investment in a $102 million nutritionals dryer at Hokitika will give us the capacity to shift more of our production to this end of the market where profits are higher and opportunities to lift pay-outs are better."
