New Zealand Wool Prices Hit Highest Levels Since 2011 Amid Tight Supply and Surging Demand
Strong competition and tightening supply have seen wool reach its highest prices paid at auction since 2011.
The NZX-listed company last month told the market its full year earnings before income, taxes, depreciation and amortisation (EBIDTA) would be towards the lower end of its guidance range of $62 million to $68m. As a result, its net profit after tax will also be on the low side -- $46m to $51m.
Chief executive Mark Dewdney says as 2017 began the firm expected the financial year to be tougher than 2016.
“Prior to autumn we were tracking ahead of our forecasts, but the weather in this final quarter of our financial year has put a dampener on our 2017 earnings expectations,” he told NZX. “April was wet for most of the country and this made crops difficult to harvest and paddocks challenging to work.”
The group business most affected is NZ Seed and Grain: lower harvest yields have reduced earnings from processing and drying facilities. Autumn demand for seed products fell short of forecasts as many farmers were hampered in their re-grassing and autumn pasture renewal.
“While we saw some lift in activity into May as the country started to dry out, falling temperatures brought the autumn planting season to its inevitable close,” he says.
But in a diverse business like PGG Wrightson, there are “some silver linings”.
Livestock in particular had a strong final quarter as strong international demand for protein and lower stock numbers combined to push livestock prices above previous expectations.
Retail traded extremely well given the challenging weather, says Dewdney.
“With spring being the key trading period for our rural supplies business they were less affected by the April rains.”
Dewdney sees confidence rising in key farming sectors, and early indications for 2018 financial year are encouraging.
“Our 2016 earnings were a record, and we are hoping FY18 will be close to that again,” says Dewdney.
Agria and PGG Wrightson chairman Alan Lai says PGW is performing well despite the challenging conditions.
“When we began the 2017 financial year we expected the low commodity prices at the time to reduce farmer spending and lead to a dip in operating EBITDA.
“What we could not foresee was the inclement weather over our final quarter, which is likely to push PGW towards the bottom of the guidance range. Despite these challenges PGW expects to post a credible result showing the strength and stability built into the business in recent years.”
