Lambing is being blamed for a slow take-up of Silver Fern Farms’ cash issue.
The offer deadline is Friday, but as of late last week just 15% of the co-operative’s approximately 8000 eligible shareholders had responded reports The ODT.  Of that 15%, 60% had taken up the cash issue entitlement.  Silver Fern Farms  chief executive Keith Cooper said many rebate shareholders were in the middle of lambing which was diverting their attention from paperwork, but he expected interest to increase this week.

He said it was too early to say how much fresh capital would be raised, but company executives had earlier said they hoped for $80 million. Reminder notices had been sent out which should increase activity. Mr Cooper said the response at this stage was consistent with voting turnouts for SFF’s July shareholder meeting, which changed the constitution and paved the way for the capital restructuring, and Meat and Wool New Zealand’s recent levy referendum.

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A new player in the livestock trading business was a backwards step in efforts to shorten the livestock supply chain, Silver Fern Farms (SFF) chief executive Keith Cooper said yesterday. The South Island rural servicing co-operative, CRT, has four livestock agents in Tasman, West Coast, North and Mid Canterbury and has stated that within a year it hoped to have coverage throughout the South Island and lower North Island reports The ODT. Mr Cooper said he was astonished that at a time when farmers wanted aggregation, consolidation of marketing strategies and investment in the supply chain, a co-operative was adding another layer to it.

“One can only question the governance of a business which sees merit in a strategy which clearly adds no value, just cost, and will serve to further fragment the supply chain to market and the relationship with farmers and market, a key issue identified in the recently released Ministry of Agriculture and Forestry report, Meat – the future.” CRT chief executive Brent Esler CRT has described SFF’s reaction as “a storm in a teacup,” saying livestock servicing was a logical step for the rural servicing company to take on behalf of its co-operative shareholders. Mr Esler said CRT had bought Kinzett Livestock in Richmond and Alpine Livestock in North Canterbury and its four agents were now offering livestock services to CRT shareholders.

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A strengthening dollar exchange rate could spoil the party for what should be a second consecutive year of healthy returns for sheep and beef farmers. Silver Fern Farms chief executive Keith Cooper told farmers at a field day near Gore last Thursday that while prospects were bright, the exchange rate was closer to 2008 levels than 2009. While there was time for it to fall and not be disruptive, Mr Cooper said there was some nervousness reports The ODT.

Lamb prospects remained bright and European retailers were investing heavily in lamb, to increase its availability. Mr Cooper said while there was little likelihood retail prices would increase, equally, they should not fall. He said he was “relaxed and confident” about beef prospects, with prices cyclical but trading within a band both for manufacturing beef to the United States and prime cuts to Asia. Venison was causing some concerns. Venison was still selling but orders from European buyers were slow and it was vital prices were not pushed higher, he said. He urged farmers to think carefully about their kill profile because of that.

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Silver Fern Farms’ debt-burdened co-operative structure is no longer viable and the company needs an injection of money to survive, its chairman Eoin Garden says.  “For 60 years it has been a good business model. We had a debt-funded business. That environment has changed,” Garden told 30 farmers at a meeting in Christchurch yesterday reports NZX. The meeting was one of 15 planned across NZ to discuss a proposal to open SFF’s farmer share register to other investors and raise up to $128 million from existing shareholders. The move would effectively end the co-operative status of the company, but farmer shareholders would retain voting and board control. New shareholders would have weaker voting rights than farmers.

NZ’s biggest meat co-operative wants its farmer shareholders to swap their rebate shares and supplier investment shares for new ordinary shares, which could be traded on the unregulated share exchange Unlisted. Those shareholders would then be eligible to pay cash for two more shares at a dollar a piece. In a presentation to farmers, Garden and SFF chief executive Keith Cooper said the co- operative structure was no longer the ideal model. Garden said he knew many farmers were worried about the co-operative status being threatened, but he believed shareholders were getting confused about ownership and the business. “It’s not about losing control. We will lose control of the co- operative if we don’t put the capital base in place.”

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If sheep and beef farmers had any doubt about the need for a workable traceability scheme in NZ a trio of speakers at a recent seminar might have changed their minds reports Rural News. First, Agriculture Minister David Carter warned the 200-plus delegates at the Lincoln Sheep and Beef seminar that Australia would take ‘every possible opportunity to use to its advantage’ its equivalent of NAIT. He also noted that the Waiheke Island foot and mouth hoax highlighted NZ didn’t know who owned what animals and where they were.

Later in the day Silver Fern Farms chief executive Keith Cooper chipped in on the need for a national system. ‘We could, overnight, have a policy imposed on us [by customers] which we are not ready to be compliant with,’ warned Cooper. He said whatever traceability scheme is implemented it needs to be industry-wide with no free-loaders. Other nations are implementing schemes just to gain access to markets NZ is already supplying. ‘This is about market it access… It’s got to be viewed as an investment, not a cost.’

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Silver Fern Farms is predicting that for the season to September 30, 2010 lamb will fetch between $4 and $6 a kilogram of meat between the low and high points of the season. Chief executive Keith Cooper said while it was difficult to make such forecasts, SFF saw a similar pattern in lamb prices in the market to those achieved in 2009 reports Business Day. Lamb prices reached $6 a kilogram in the current season, but wool, pelts and hides prices would be flat, reflective of the discretionary spend globally, Cooper said. “Drivers next year will be traceability and yield. That’s what we will be putting our focus on as we look to extract more value from the market,” he said. “It goes without saying that the currency is going to be the ultimate calculation in terms of your livestock values.”

SFF achieved lamb prices of around $89 a head in March 2009, up from $57 a head in March 2008. But it was helped by a kiwi in March of US53.34c versus US79.46c in March 2008. The kiwi closed yesterday at US63.79c.

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North Island-based director Ian Grogan has resigned from the board of Silver Fern Farms citing “fundamental and philosophical differences”. Mr Grogan declined to elaborate further when approached yesterday, and chief executive Keith Cooper said little should be read into the incident at last week’s board meeting reports The ODT.  But it occurs at a key period for the meat co-operative as it makes major changes to the way it operates and prepares to raise new capital from shareholders through a share issue. It was also planning a governance review, which included reducing the size of the board from its current 12 members.

A Manawatu sheep and beef farmer, Mr Grogan was one of two North Island directors on the board, having been elected in February 2008. He was also a member of the company’s North Island shareholders council. Chairman Eoin Garden earlier this year said the capital would be used to boost investment in the company, especially its pasture-to-plate strategy, and to insulate itself from the recession.

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Lamb prices are riding high but the perfect time for industry reform is in danger of being missed, says SFF chief executive Keith Cooper. ‘No one is doing anything. That’s a travesty in my view,’ he told Rural News. ‘The time to think long and hard is in more buoyant times.’ Lack of reform in 2002 and 2003 when lamb was $75 saw the sector ill-prepared to cope with the subsequent downturn and unless changes are made now it’s ‘inevitable we will go through another cycle’, he warns. At the recent Sheep and Beef Veterinary Conference in Rotorua Cooper hammered home what he sees as current problems with the sector.

‘The NZ red meat industry profitability is impacted by the lack of a pan-industry strategy, which in turn creates inherent structural inefficiencies, and the blinkered focus by both meat companies and farmers on selling or buying livestock, rather than on pricing a product to customer’s specification, as and when the customer wants the product.’ Farmers and processors chase volume production to spread overhead costs, while farmers’ ‘discretionary raw material supply’ translates to an inability among processors to guarantee supply, inhibiting ability to invest in long-term marketing strategies and initiatives.

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Prime lamb prices may be soaring, but analysts still predict a 3% reduction in ewe numbers this year, following a 10% decline last year. M&WNZ’s Economic Service executive director Rob Davison said the expected decrease of one million ewes would be accentuated by an ageing flock, low retention of females, drought and continued land-use change, albeit at a slower rate than in previous years.  This would take the ewe flock to about 33 million, but Mr Davison forecasts a heavier lambing due to favourable conditions when ewes went to the ram reports The ODT. He expected 27.85 million lambs to be born this spring, 850,000 more than last spring. “This outlook, as usual, depends on a normal spring and variations in the outcome depend on actual spring conditions.”

A continued shortage of lamb could see sheep farmers enjoy a second year of close to $90 for their prime lambs. Alliance Group chief executive Grant Cuff could see no reason for lamb prices to ease next year, other than an unfavourable exchange rate. Sales through retail outlets in Europe and the United Kingdom were strong, as the recession encouraged consumers to eat at home. While exchange rate movement remained a threat, banks and observers have forecast it to weaken in the coming year due to a low official cash rate of 2.5%.

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NZ’s biggest meat co- operative Silver Fern Farms is looking at creating a new class of shares as part of capital-raising options and governance revamp. This follows the failure of a $220 million merger with PGG Wrightson in which SFF would have enjoyed a $220m capital injection reports Business Day. Chief executive Keith Cooper said a possible new share structure would reduce the reliance on external funding sources, and facilitate a stronger relationship with the farmer owners. “The shareholding [structure] at present doesn’t really do anything for the relationship between the shareholder and the company which they own .

“We could move away from the dollar-in dollar-out [model] to a share that had moving values in accordance with the value of the business. We haven’t got any more firm detail on that, but that’s sort of the concept.” There was no plan to open up SFF’s ownership to the public at this stage, Cooper said. The co-operative’s 75 million shares on issue could be increased and the class of shares changed. Farmers each owned a maximum of about $30,000 of shares in the Dunedin meat processing co-operative but could be given the opportunity to voluntarily increase those shareholdings, Cooper said.

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