The National Bank studies Fonterra’s proposed changes in capital structure, and looks at how new generation co-operatives( two UK and two NZ NGC’s)  have performed in the market.

They say it seems clear that the financial performance of a new generation co-operative needs to be very strong to support the price of a restricted share close to asset backing. The report shows that share price premiums/discounts over asset backing are quite variable between companies and for the same company over time.

The bottom line is the whole story when it came to analysis of agriculture businesses says National Bank rural economist Kevin Wilson. “Everyone talks about economic surplus per hectare, or per dry matter produced, or dollars, but we don’t talk about the bottom line. “This was gross revenue, lower work expenses, interest, depreciation and drawings.“Sometimes it is above the break-even line and sometimes it is below but what really matters, is where it is over time.”

Looking at statistics for sheep and beef a loss had been happening “for more years than we would like to think.” This was the same in the dairy industry, Mr Wilson said to the Gisborne Herald. Long-term debt would be an issue for agriculture in the future and the outcome was there would be a sharper focus as the industry makes sure the bottom line is plus. Mr Wilson said having a cash buffer gave farmers control over their business and they could manage “one-offs” like drought.

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Many farmers are going to have to make some tough choices, warns Wayne Hawkins, the senior rural manager with the National Bank of New Zealand in New Plymouth. In a sometimes hard-hitting address to about 20 people at a recent seminar at Oakura reports the Taranaki Daily. Mr Hawkins warned that in the prevailing tough economic climate, farmers need to sort out their priorities. For many, this means reducing farm costs and cutting back major expenditure, including on wages, fertiliser, repairs and maintenance and expensive bought-in supplements. “That’s the sort of choice that some people are going to have to make if they want to keep their farm. Do you want to keep the farm or do you want to set it up for somebody else to buy at a fire sale price?

“There are big savings to be made in feed. If you are not doing your weekly farm walk, how the hell can you manage your pastures properly? These are just fundamental things which we all know – a weekly farm walk, feed budgeting and, if you are doing that right, a bit of nitrogen here or there maybe to fill a hole three or four weeks out. You don’t have to get into the high- cost supplements. “Fertiliser and nitrogen can also be cut back. Have a look at your soil tests. If you have an Olsen P of over 30, in a survival situation, how much can you cut that back? I would suggest that you get out with your fertiliser representative and have a look at it. Some paddocks won’t need fertiliser – others might. Use your head in those sort of things.

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Read The National Bank’s summary of the financial crisis, and how it will affect agriculture and the global and local implications.

Also they update their predictions for product prices for the year 08/09.

A summary is as follows: Exchnge rate .60c US .46 Euro, Wool xbred 200-260c greasy, Lamb $75/hd (17kg), $40 for mutton, Steer and bulls 295-320kg $3.30-3.60/kg, Venison (60kg) $7.25/kg, velvet $60-70/kg, and a dairy payout of $5.50-$6.00/kgms.

Let us hope the present dry conditions on the east coast will allow farmers to capitalise on this years better prices for lamb and venison.