Wednesday, May 29, 2024

Pāmu profit forecast takes cyclone hit

State-owned enterprise, Pāmu, has updated its Net Operating Profit full-year forecast amid softer milk prices and in the wake of Cyclone Gabrielle, which impacted 24 of its farms.

Pāmu is anticipating a full-year Net Operating Profit of between $34 and $44 million compared to its original budget forecast of $55m, as contained in its Statement of Corporate Intent.

“Our early assessment of the damage caused by Cyclone Gabrielle is $6.5 million over two years, with $2.5 million falling into the current financial year. The cost will be a mixture of operating and capital expenditure,” said Chief Executive Officer, Mark Leslie.

Cyclone Gabrielle damage to a Pāmu farm.

The change to expected Net Operating Profit also reflects a reduction in forecast revenue from both dairy and livestock, Mr Leslie said.

The forecast milk price – which fell from $9.00 per kilogram of milk solids in February to $8.50 per kilogram of milk solids – combined with lower-than-expected milk production has reduced forecast milk revenue by $14.6 million, he said.

“Lower milk production mainly occurred in the first half of the season due to wet spring conditions impacting pasture growth although a wet summer has seen a small recovery in milk production.”

Offsetting the lower forecast milk price is a forecast $13m gain on the organisation’s milk futures hedge position, Mr Leslie said.

Pāmu expects livestock revenue to be $14.3m lower due to a combination of Cyclone Gabrielle, softer sheep prices, and lighter animals from Southland and Te Anau farms which have experienced dry conditions the past two summers. Cyclones have exacerbated the situation with wet conditions in the North Island requiring lower margin store stock sales versus planned animal sales to processors.

Meanwhile, farm working expenses have continued to remain high due to interrupted supply chains and the Russia-Ukraine war. The annual increase to December 2022 in the farm expenses price index of 15% is more than double the consumer price index for the same period.

“Despite these challenges, forecast Net Operating Profit remains significantly higher than $22 million the year prior. This forecast obviously assumes there will be no adverse weather conditions over the remainder of the season, material changes in foreign exchange rates, or market prices,” Mr Leslie said.

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