Supplier Newsletter – Winter 2016
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Supplier Newsletter – Winter 2016 100% MADE OF NEW ZEALAND Dear Farmer Partners, A date of 30 September 2016 has We summarise current end market been agreed between ourselves and conditions later in this newsletter, and Shanghai Maling to meet the only update you on the launch of our beef remaining condition – OIO approval retail products into Germany. – for their $261m investment. Whilst Needless to say, the Brexit decision and disappointing having to extend, the impact this has had on the Pound and OIO need to do their job, and both Euro currencies has had a meaningful Shanghai Maling and Silver Fern negative impact on NZ returns, in Farms have continued to provide the particular for lamb. The longer term requested information and respond to impact is much less clear given the third party submissions – even those Rob Hewett Dean Hamilton minimum two year period to negotiate that were lodged over 7 months after revised trade access and terms into the OIO process commenced. We Europe and the UK. We are keeping a While we are now in a relatively quiet remain confident that the OIO will very close eye on this as things unfold. period of the season on the processing approve the transaction. front, things have continued to be In May, shareholders were involved We continue to believe our partnership busy – we are continuing to progress in the ‘To the Core’ Governance and represents a great opportunity to the Shanghai Maling investment, our Leadership Development course create significant positive change for sales team is selling through inventory in Dunedin where they discussed shareholders and suppliers, rather than and advancing conversations on governance with our Board and other be mired in more of the same that has new season demand and pricing, we experienced Directors. The course produced poor returns on average for are launching consumer-ready beef was very well received by those who dry-stock farmers and processors for a products into German retail, we are attended. We intend to run further long period of time. developing Pareora to process venison “To the Core” workshops for those and upgrade their coolstores, and In terms of processing, we are now shareholders interested in developing also spending time responding to through the main part of the season. their governance skills in the future. the shareholder requisitioned special After 9 months to the end of June, Keep an eye on our website for details. meeting and the media questions that national volumes are down on last Our first shareholder market tour saw have come with that. season across all species. Total beef a group of 27 visit Shanghai, Inner- processed nationally was down 4% on The partnership with Shanghai Maling Mongolia and Beijing to get a fuller the same period last year, sheep down is progressing. The announcement of understanding of this exciting and 3% and venison down 17% – the latter the agreement (subject to respective complex market. A full run-down of the as venison farmers slow the rate of formal Board approvals) to extend tour and these other developments at hind culling in order to stabilise and we the dates for OIO and completion is a Silver Fern Farms can be read inside expect ultimately grow their herds. clear sign of the commitment of both this newsletter. parties to completing this transaction. Continued over page >> 1 Continued from page one As previously announced, work on our which is disappointing. Pleasingly, and financial resources. The Board new venison processing facilities at our the elements we have direct control considers that the allegations made by Pareora processing site (replacing the over – for example, operating costs Messrs Shrimpton and Gallagher are Islington site where our lease expired) and inventory levels – continue to legally and factually wrong. The Board is progressing to plan – the old cattle be well controlled and reflective is firmly and unanimously of the view yards have been demolished to make of a continuation of the disciplined that the Shanghai Maling partnership way for the new development. We operating focus within the business. was and remains in the best interests of have also started to upgrade some Silver Fern Farms and its shareholders. The date for the shareholder of the coolstore capacity at the site. requisitioned special meeting is now We will be holding meetings around Pareora venison will be up and running set for 12 August. Materials for the the country ahead of the requisitioned in time for the new season. meeting will be mailed to shareholders meeting to allow shareholders to ask We announced in April the expectation from the 22nd of July. The Board is questions. Information on dates, times that our full year result will be obligated to call this Special Meeting and locations will be published shortly significantly down on last year. Since under the Companies Act, but is As always if you wish to comment on that time, operating conditions (for unanimous in stating that this Special anything relating to your co-operative ourselves and the industry) have Meeting is of no benefit to the please contact us on 0800 362 362 continued to be challenging – with Co-operative or its shareholders, or email [email protected] or lower national volumes and lower cannot be binding on us, cannot [email protected]. margins (exacerbated recently by the undo the previous overwhelming 82% NZ dollar strength). We now expect approval and the binding contracts Yours sincerely our full year net operating profit before we have, and is not an effective use Rob Hewett & Dean Hamilton tax to be approximately breakeven, of the Co-operative’s management Market update Sheep Beef Deer China and Middle East Markets are As expected Australian beef supply into Negotiations with customers for August recovering for lower value forequarter the market has fallen over following – September chilled orders are well and flap items. We now sense both their record kill. They are now rebuilding advanced with positive signs for pricing these markets have found they are their herd - aided by good wet and and demand. Prices are well ahead of short of supply coming into the new mild weather conditions in the Eastern last season though the strength of the season. North America is stable. They States. The Australian cattle price is now currency is a counterweight to returns. are predominantly a French Rack the highest in the world a result of the We have managed to lift prices, though market were we see stable pricing and scarce supply and Australian processors we are being cautious that the product returns. The UK lamb leg market has are closing capacity to match supply. is not overpriced to a point which would seen intense competition between UK This has taken some imported supply result in customers taking venison off supermarket retailers. It has caused pressure out of the US market though restaurant menus and supermarket uncertainty around pricing and Brazilian supply is expected to fill some shelves. genuine consumer demand ahead of of this supply gap in coming months. For Silver Fern Farms the livestock the new season. European markets Overall NZ lean meat and trim have supply shortage has been amplified by remain subdued, with demand in shown gradual positive movements. the new demand generated by the fast equilibrium with supply at this point in Steak cut demand has been steady, growth of our retail programme into the season. For Sheepmeats, currency with the NZ domestic market absorbing Germany. As we prioritise our chilled is having a real dampener on NZ dollar excess June production. Our domestic programmes and retail customers we returns out of the UK and the EU. The market has grown off the back of strong will likely be in a situation throughout Kiwi has strengthened against the tourism numbers fuelling demand for the season where we will have to short Pound, the Euro and to a lesser extent restaurant cuts in particular. customer orders for frozen product. the US. UK pricing is so far unchanged Our outlook for beef prices next season post-Brexit, however NZ dollar value is still positive, with in-market pricing has been eroded by the kiwi being up forecast to be consistent with this over 12% against the pound. past season. Currency is the key factor This is the low point of the season for eroding returns. Similar to lamb, farmers mutton and demand out of the UK and are receiving broadly similar prices to EU for frozen product is weak. this time last year, however in-market returns are actually down over $150/ head in NZ dollars. 2 INSIGHT China Shareholders’ Tour A group of 27 farmer shareholders, sophisticated point of sale marketing and is partnering with other New Zealand including Plate to Pasture Award winner visual billboards stretching 20 stories high exporters, NZTE and Ministry of Foreign Neil Aicken, Chairman Rob Hewett and in some cases, contrasted with low-tech Affairs staff in Beijing to learn more about Director Fiona Hancox spent 9 days photocopied posters pasted onto lamp the market. last month in Shanghai, Hohhot and posts and walls on city streets. Farming systems in the key sheepmeat Beijing to gain a better understanding of An insight into the rapidly growing region of Inner Mongolia highlighted Chinese consumers, food retailers, red online market for products was provided the challenges of protecting native meat processors and farming systems. by NZ Trade and Enterprise Business grasslands from the encroaching Each day in the market involved multiple Development Manager Echo Tan at NZ sandstorms of the Gobi desert and visits to see aspects of the red meat Central – a key business hub for New the harsh climate’s impacts on animal supply chain in China.