The days of people like Norgate borrowing to the eye balls to set up deals like the wrightson, PGG ,williams & Kettle deal, the Uruguay farms and then the PPCS deal are over the great de leveraging is here, lets see how smart they are now they actually have to make money the old fashion way.

Andrewj

PPCS had already cleaned up its balance sheet and P&L. This money was going to be used to accelerate a reinvestment programme in new technology and marketing.
No one is suggesting PPCS will fall over because this deal hasn't happened. It has already closed plants and cut costs and reduced debts.

cheers Bernard

Bernard
The meat industry has been unprofitable for years. There have been changes and these are important to understand. Affco floated and is basicly debt free and with a large holding by talleys. Riverlands are in a strong position and overseas owned. Alliance is in a strong position as are the other smaller players like taylor/preston progressive etc.
PPCS is the weak link. Last year we had a cold dry spring farmers were forced to off load stock early and the situation carried on until winter. Waiting lists at all works were weeks and in some cases farmers waited months to get Ewes killed. The works had a dream year tonnes of supply and no pressure on prices. This year stock numbers are down by as much as %30 and stock will be retained to rebuild herds. This year there will be a procurement war and the weakest link is PPCS. It has plants that need capital spent on them and its foray into the north Island has been a disaster. It has done one of the great, public relations disasters and no name changing will make the north island farmers forget. there will be more restructuring in the meat industry and PPCS are the ones most likely to lose.
Wrightson where going to give it an opportunity to streamline its procurement and also provide much needed capital. I think Wrightson saw an opportunity to capture a business in a much weakened position Wrightson are wolves. Wrightson have some problems coming up too. I suspect supply contracts at premiums were offered to large farmers to get support for the deal but Im unable to find proof. But its what i would have done in their position this again becomes a public relations disaster. Farmers borrowed another 750 million in august so now debt is really starting to pile up and returns look woefull for all farm exports, grain farmers in the UK are getting half the price for grain they got last year. Wrightson used to have 2 very profitable parts real estate and banking. Banking profits went up by 108% last year so they have been growing their book fast when prices for land have been at record levels and now profits have evaporated their loan quality must have been weakened. Farm sales have collapsed.
this is just me guessing time will see how close i am.

Bernard

Do you think I should take out a 100% loan for this or wait for the price to drop 30%?

Neven

Neven,
Good idea. I'm happy to lend you 100% of the NZ$2 needed at a weekly interest rate of 8% compounding. Would be NZ$100 by the end of the year.
cheers
Bernard

Bernard

I never took you for a loan shark! :-)

The food/oil tango is going to be interesting to watch in the next few years, If the US cuts back corn ethanol we get more food, less fuel. Dairy/Meat would drop but Oil would rocket. Which is the worst evil?

Similarly the mid east (KSA, Iran esp) are going to cut back their agriculture (due to a chronic lack of water as they have all but exhausted their aquifers see here and here), That
100 million people (and particularly fecund ones at that) but they probably eat more goat than lamb. Maybe that was Norgates big plan, high country goat farms

Neven

Yes but ive heard rumors of huge sheep farms being set up in north Africa. Also Muslims dont eat virgin sheep so our lambs are not much use. We rely on the UK Quota with out it sheep farming in NZ would be a lost cause, partly because the rest of the world eat lambs at 20 kg + most of our hill country lambs are between 13-15 kgs.There is a huge shift away from lamb consumption I think more beef cows will be the order of the day.
There is way too much killing capacity in NZ and will be for several years PPCS will wear it.
Im betting on protectionism rearing its ugly head. I just think the wounded west will protect its own to hell with the free market that experiment didnt work. Wrightson have been on a mission to take over the world but in the days of hard to find credit those business models fall on there backside.

I believe they have found water underground and are setting up large scale sheep farms in North Africa.This from a French contact involved with a project i can try to get more info if you wish.
regards Ethanol I expect it to be abandoned as oil drops in price due to falling demand.
I dont think it will be reinstated when oil prices inevitably rise again.
Im not aware of stats regarding average wealth levels in Arab countries expect them to be fairly concentrated at the top they have been taking mutton of our hand for years but the market dosnt appear to be going anywhere. remember that under $90 a barrel I think Russia stops running a surplus interesting times ahead. It interesting to see that Volvo sales in the USA have dropped by 50% I wonder where this is all going to lead to?

Andrew

1/ Oil is not going down, marginal cost of new production is above $70, so if it drops, new projects stall, demand will not drop as fast as supply, when the MSM talks about "falling demand" they a babbling about the US/EU ignoring the places it is growing, the US is consuming its own inventory see TWIP, WTI futures market is now diconnected from reality.

2/ Ethanol would remove more than 1% of worlds liquid fuel, its now to big to remove

3/ Russia is the biggest car market in Europe now

4/ KSA has huge food subsidies, its actually almost socialist, a benign Kingdom?

Where is it leading, a different world, a war possibly

My prediction for the US in the next 6 months, an assassination (or attempt) on Paulson or Bernake

Neven

Neven, if ethanol takes as much energy to make as you get back, stopping production has no effect on available fuel.
Id like to think that there is commonsense in the world of oil or maybe im the only one marching in step! It obvious that the small amount of oil NZ has will be worth more in the future so why are we pumping so hard, we should be leaving it in the ground but we are a spoilt generation. i think this goes double for many oil producing countries they will keep pumping when logic tells them to stop. Russia has a few problems demographics are interesting I think that russia will continue a course much the same as its history, volatile.
The effect of Mexico's production falling will be an interesting one for the states.
Its interesting how they have gone against the voters and bailed out the banks Im guessing in a couple of weeks we will be back again to where we started. Mean time im picking consumption levels to fall (not mine other peoples) which will flow around the world in the form of very high unemployment.

Neven - the 'bailout' bill has passed the Senate, but is yet to be passed by Congress. That is expected to pass now the Senate have 'sweetened' the bill with a bunch of well targeted bribes, but who knows this close to the election?

Hi Andy
ive got reports from the states that milk powder is in free fall dropped 12c a lb friday 3c a lb monday to 1.20 a lb expecting price support to kick in next week at 80c a lb it looks like its going south fast.

Andy

Careful, I think it will also become evident (even to the dimwitted Greens) that going from private transport to public is no solution. If you do the calcs we would probably end up using more fuel (this is why any private/public comparison has to include ephemera such as parking and accident costs as a justification) look at this article and spot the stupidity.
The average load on a bus in Auckland is less than 6.1 pax per k travelled (and they are crowing about 10% growth that would take it up to 6.7)

Public transport appeals to the Greens for the same reason it appeals to Labour, state sponsored egalitarianism.

(Un)fortunately I'm away on holiday for a week so Bernard can rest easy (actually i think he'll miss me, he even reused one of my quotes)

Neven

Hi french farmer where abouts in france do you farm. Ive been looking at land around Eauze will be back in France May. some thing happened between wrightson Pgg and Uruguay farms they were selling shares to each other or something, fair put the wind up institutional investors something they really didnt like was going on.search www.stuff.co.nz business and it may pop up. I suspect there may be more to the story but im not getting anywhere finding out. Wrightson have been competing in a very competitive market for market share so I would have thought would have had to take a few risks just a guess maybe someone from Wrightson could inform us.
Also worried about meat companies securing credit for new season they may front up to Govt. Thats the great thing about a free market when it goes sour you front up and get a bit of taxpayer infusion.

French Farmer I agree investing in Uruguay is not for the faint hearted in fact its not for anyone who values their capital. Chile is better but it still scares me. If I had my savings in Uruguay Id be on sleeping pills at night and during the day.

Its pretty cool though , say French farmer purchased a company that has land in Sth America you then set up a farming company based in this country but to get capital you go to a country where credit comes easy and banks are more than willing to lend against assets.You sell your existing land to the company at multiple times what you paid for it and hey presto you now have a 25% stake for nicks. Then every year you buy more land for a higher price than the year before and then value all your other farms at the new value then you charge millions in fees which is a bargain because the value of your investment is doing so well.
french farmer that makes you a genius, a hero of the working man, a model of how to be a good bastard.

AFFCO warned farmers that %75 of the value of a lamb come from the 20% that goes fresh if the fresh market tips over its curtains for sheep farmers.

andrewj.one story is norgate came to PPCS late last year with a proposal and was told to b.....off.Early this year he was back and the subsequent proposal was hatched and hammered out by Garden and CooperAND Norgate and Miles.and the subsequent raft of contracts covering the proposal, procurement and the rest, there's about six of them,were drawn up by the resp, coy plebs.
The question is whether by then SFF Directors had any say or were told where to sign.
Interesting too is given the timing of the proposal's incubation and no up-turn in the sheepmeat markets until after March, and that valuations were done early June then the rapid changes since, begs the question why they (SFF) didn't have the proverbial "cup of tea"
Therefore the things that have changed above aren't the drivers of the proposal.
SFF has acted like it is sick of the debt, sick of the difficulties with procurement, sick of dealing with the ungrateful ex-Richmond suppliers that would not take up shares,
instead of seeing the opportunities unfolding; rising sheepmeat markets,currency down,high 2008 throughput,a better balance sheet,a gradual maybe reluctant acceptance of SFF in the NI and the need for better supplier behaviour every where if we want a viable industry in future.
Also ( i think) they have been sucked in big time with the Norgate/McConnen Bros
spin, read bull...t,on meat marketing, really" Plate to Pasture"remember Challenge Meats, Fortex and compare how Anzco, Affco, Lean Meats etc. just go about their business with out the fanfare and reinvention of the wheel.
SFF want PGW for their procurement ability that they think will save them from declining stock numbers.
Every one has a story to tell about wrighties and if they change their spots.
But the scepticism is rooted in the different relationship farmers have/have had with their stock agent vs their drafter. One working on commission the other coy paid and with a closer association with suppliers.
These guys bring nothing to marketing that isn't known already so why the 50%
sale, precisely, a waste of a good co-operative, well almost until the worlds financial markets arrived to the rescue at the 11th hour.
Norgate should fail. Garden was still trawling for votes in support Sunday evening before the SGM.having been sent their names and addresses and interim results by the returning officer in the week leading up to the SGM.Just how corrupt is that?
That SFF failed to provide timely disclosure of the proposal, the Grant Samuel report and copies of the rewritten Constitution to rebate suppliers before the last weeks meetings smacks of a calculated campaign to deny information in time, deny questions on the contents and then extract support from an inadequately informed membership
to get past the thresholds to get the proposal through.
Even in the wild west of Nz this should fail, and the directors taken out behind the shed.
Given that SFF has their credit lines in place means you have to take out pressure from the banks supplying seasonal finance as a reason for the panic.
What stupid, gullible, infidels would fall for that .
What did PPCS learn from Fonterra's attempt to part corporatise, answer NOTHING.

andrewj.SFF grafted to secure the vote as shares held are consistent irrespective of supply.
ie: max 17500 $1 shares but some will not be fully paid up since one-third of rebates are retained for share aquisitions up to limits.Not sure if Landcorp are shareholders by farm or collectively, i suspect the latter.
The new supplier investment shares were only for voting Directors on, not constitutional issues.
Stupid Directors, had the above been full shares,then the Richmond converts may have taken them up more readily.But you know what canny scots are!!
Now they deduce they have to go to norgate for capital and sell half the silverware.
Notwithstanding,Landcorp have had discretionary preference from both PPCS and Alliance, and who knows, that will continue.
This week have heard of farmers being enticed (successfully) to assign all their stock to PGW with the gaurantee that PGW will take the best price on the day from any company.Sounds like NI practices spreading like the varroa.
Norgate just loves clicking the ticket dont care who's dont care when, and SFF directors wont know half of it.Naive, ignorance, stupidity drelection of duty, behind the shed would be too kind,some public thrashing and then drawn and quartered, sold fresh .Garden would only go for"bulltong"-dry and stringy.

SFF chairman Garden is caught indefinitely in the mensroom and is unavailable
for comment following news that the white knight Norgate has ghosted off without leaving a deposit.
No procurement agreement,bother will we really be required to do it ourselves?
like the old days, and we get to keep the company, all of it, Geez!!

PGW need SFF way more than SFF need PGW. Most works have their own supply agents as do SFF. I dont think this deal will be revisited. Id go for all the compensation SFF can get, a few cents a kg buys a lot of loyalty.

Brian Gaynor: Silver Fern setback raises questions
4:00AM Saturday Nov 08, 2008
By Brian Gaynor

Best of business analysis

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* Recession blues? Go rural

There is a huge difference between the current sharemarket downturn and the 1987 crash, particularly as far as New Zealand is concerned.

Most of our large listed companies are now in good shape whereas in 1987 many NZX companies had a strong growth emphasis, were highly leveraged and their expansion plans hit the wall when funding dried up after the sharemarket crash.

In addition there had been a large number of listed property spin offs in the mid-1980s as NZX companies attempted to cash in on the commercial property boom.

PGG Wrightson is the only large company with both of these characteristics in the current downturn.

The farming services group had a big setback this week when its proposal to purchase 50 per cent of Silver Fern Farms was terminated because of funding problems and the share price of NZ Farming Systems Uruguay, which was spun off to take advantage of the dairy boom, has underperformed the sharemarket in recent months.

It will be fascinating to see whether PGG Wrightson Chairman Craig Norgate, who is the driving force behind the group's ambitious growth plans, will change his aggressive approach in light of the sharp downturn in dairy prices and the company's inability to fund its Silver Fern Farm acquisitions.

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NZ Farming Systems Uruguay (NZFSU) was established by PGG Wrightson in September 2006 to raise equity from the public and purchase dairy farms in Uruguay.

The company believed that it could acquire cheap farms in the South American country and increase productivity by introducing New Zealand pasture management.

The $1.00 shares were initially paid to 50 cents with the remaining 50 cents due one year later on December 14, 2007.

NZFSU purchased three farms from PGG Wrightson for US$11.9 million. These cost PGG Wrightson US$7.6 million although the prospectus stated that these two figures were not directly comparable because of "development that has been undertaken during the period of PGG Wrightson's ownership".

Consideration for these farms was a combination of shares and cash, in equal parts. The shares were issued on the same terms as to the public.

PGG Wrightson sold its farms to NZFSU but it acquired the lucrative management contract over the Uruguayan operations. The management fee was 1.5 per cent per annum on the gross asset value of NZSFU until June 30, 2008 and 1 per cent per annum after that.

In addition PGG Wrightson has a performance fee calculated as 20 per cent of the amount by which the total share price plus dividend return exceeds 10 per cent per annum.

NZSFU had a 1 for 2 rights issue at $1.50 per share, which closed on December 14 last, and the company listed on the NZX four days later.

NZSFU's share price rose steadily to peak at $2.00 on May 28. It closed at $1.74 on the June 30 balance date, a key date in determining the annual performance fee.

The result for the year ended June 30 was substantially below prospectus forecast with NZSFU reporting a loss before interest and tax (ebit) of US$25.9 million compared with a prospectus forecast surplus of US$1.2 million (see table). The June 2008 year ebit is before a US$17.9 million livestock revaluation.

The Uruguayan based company had total revenue of only US$8.1 million in the June 2008 year yet it paid PGG Wrightson an amazing US$16.2 million in fund management fees and an additional US$10.3 million for farm management services.

NZSFU argues that revenue was lower and costs higher than expected because its farm acquisition and development plans were accelerated.

NZSFU's annual meeting, which was held in Auckland on October 16, was notably subdued. Chairman Keith Smith told the meeting that earnings for the June 2009 year would be below analysts' forecasts while shareholders asked a number of questions about the low number of animals per hectare, the company's ability to sell its additional milk supply, the high livestock death rate and the huge performance fee.

One was given the strong impression that NZSFU is performing well below expectations and that Smith and his board should issue more comprehensive updates and guidance, particularly as PGG Wrightson's performance fee is mainly based on NZSFU's share price movements.

In addition, one of the lessons from the 1980s is that bull market spin-offs can boost the status and performance of the promoter in the short term but the whole group is adversely affected if a spin-off fails to meet its long-term projections.

On June 30, PGG Wrightson announced that it would take a 50 per cent stake in Silver Fern Farms, the Dunedin based meat processing co-operative, for $220 million.

An evaluation undertaken by the acquirer identified "short-term gains of more than $60 million per year, with longer-term financial benefits ranging up to $110 million per year".

The deal was subject to approval by 75 per cent of shares cast at a special meeting of Silver Fern Farms shareholders. The meeting was held on September 8 with 75.62 per cent of votes cast in favour of the partnership.

This meant that PGG Wrightson had to pay $145 million by the end of September and the remaining $75 million, plus interest of 10 per cent per annum, by March 1, 2009.

The agreement was unconditional with PGG Wrightson having no ability to renege even if adverse economic or financial conditions developed.

For all intents and purposes PGG Wrightson undertook to complete the transaction on the same basis as Blue Chip investors agreed to fulfil their property purchases.

Immediately after the Silver Fern Farm meeting, PGG Wrightson declared that "it would undertake an equity raising of approximately $100 million" and 18 days later, on September 26, announced that it had "successfully completed" a new share issue that had raised $78.1 million from institutional investors.

PGG Wrightson said that this would be supplemented by a $5000 New Zealand entitlement offering targeting retail shareholders.

Three days later the company announced that this retail share plan had been underwritten for $32 million by an entity associated with Allan Hubbard.

But the following day, which was the last day of the month, PGG Wrightson made a short announcement after the market closed that "the proposed acquisition of a 50 per cent interest in Silver Farm Ferns will not take place today".

Why was PGG Wrightson unable to complete the deal? Why didn't it have its bank funding in place at an earlier date? Why didn't it have an out clause?

This was the type of setback experienced by Ariadne, Euro-National, McConnell Dowell, Kupe, R&W Hellaby and Renouf Corporation after the 1987 crash but investors don't expect this to happen to the country's largest rural servicing group.

PGG Wrightson now faces a compensation claim from Silver Farm Ferns, which could be as high as the $220 million acquisition price.

This raises the important issue of whether PGG Wrightson should be able to walk away from a major transaction when individual Blue Chip investors cannot. Does this mean we now have two sets of rules as far as unconditional contracts are concerned, one for large corporations and another for individual investors?

The compensation issue, plus the group's aggressive expansion plans, will occupy PGG Wrightson's board a great deal in the months ahead.

Disclosure of interests: Brian Gaynor is an executive director of Milford Asset Management and a PGG Wrightson shareholder.

William - Deal wasn't shonky... Craig is a still a solid chap... It's just that his timing sucked in that instance.

And the lesson for us all is... "it's not just about TIME IN the Market... it's also about TIMING the market. Both are important.

William... agree, the bigger the leverage bigger the risk. though Increasing economic value of land (for farming potential) in Uruguay through changing out the tucker really has value adding potential... also does Better intergrating/Planning in the Farm to Customer supply Chain still hold Value potential inNZ... The question is who has the equity+vision to make it happen... sadly, none of us... As Pink Floyd would say... "He reached for the Secret to soon... He Tried for the Moon"

AndrewJ... Many are not happy with $4.50KG/MSR... and this will impact us all... I'm not sure though, how Craig Norgate impacts Dairy Returns as I thought they voted him out as CEO of NZDB many years ago after the merger between NZCDC and Kiwi?

Gaynor in the Herald on Norgate

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1058...

I see Bill English in todays Dom saying that our economy is a car on blocks.

http://www.stuff.co.nz/business/industries/2672785/Economy-a-car-on-bloc...

Time for some honesty and cut the crappy metaphors. The wheels have come of we are approaching a corner and we are doing 90 mph.
This is going to get ugly and we are going to be in intensive care for a while.
Simply put our debts exceed our ability to service or repay,simple really. Remedy, demolish the state sector slash what are left's wages and get on with it.
The antics that Gaynor highlighted in the herald article are more than likely widespread in our economy and need to be weeded out thew sooner the better.
The, 'sell NZ to the Chinese sovereign wealth fund route', should not be an option under any circumstances. Its time to take our medicine.

AndrewJ, Kettles was indeed a fine business, equally so Wrighties and PGG... trouble was they were loosing Market Share and Profitability because of competition in the form of a more effective Business Model... One that did'nt have the same Debt Loadings and did'nt have to report a 1/4 ly Profit to Shareholders... and that Model... The Co-operative, I'm taking about Farmlands and RD1.

That's why the consolidation happened... and that's why the only of these business's who will pass the ultimate and fast approching stress test is 1- Farmlands and 2- RD1 [given Fonterra Shareholders don't... get conned into the Capital restructure thing]

As the US$ shatters
http://www.321gold.com/editorials/willie/willie072409.html

The chairman of China Development Bank said this week that Chinese outbound investment would accelerate, where focus should go to developing economies rich in resources. Chen Yuan said, "Everyone is saying we should go to the western markets to scoop up [underpriced assets]. I think we should not go to America's Wall Street, but should look more to places with natural and energy resources." They are not fools, and wish to gather in no more trashy paper assets peddled by the US crowd. A bad reputation is solidifying. Premier Wen Jiabao elaborated in clear terms on a new Global Shopping Spree strategy. He said, "We should hasten the implementation of our 'Going Out' strategy and combine the utilization of foreign exchange reserves with the 'Going Out' of our enterprises." He strives for Chinese companies to increase the share of global exports. The 'Going Out' strategy is a slogan for encouraging investment and acquisitions abroad, particularly by big state owned conglomerates such as PetroChina, Chinalco, China Telecom, and Bank of China. Qu Hongbin is chief China economist at HSBC. He said

"This is the first time we have heard an official articulation of this policy ... to directly support corporations to buy offshore assets." Chinese outbound non-financial direct investment rose to $40.7 billion in 2008 from a paltry $143 million in 2002, a rise of 285-fold!

our exporting sector will start to look sick. In the mean time we will continue to rack up debt in both our private and public sectors. Its important we stop debt increasing. The only long term solution is to start saving as a country, living within our means. Depressions are ugly things and we dont want the cold hand of capitalism walking our streets. If depressions were nice we would be looking forward to them. We dont get the choices, we already made the ones that are leading us now, the decision to borrow to sustain our standard of living. The destruction of debt is going to be painful but selling our sovereignty should not be an option.
Also you forgot Ravendowns move to sell drench etc substantially undercutting the competition.
Are you all going to buy share to recapitalise SFF. Im Not! I think it would be as good as burning my money.

Thanks for the link Andrew to Brian Gaynores piece in the Herald. I wouldnt touch SFF either. I am envisioning my current shareholding biting the dust.
As for Ravensdowns drench, cheap useless shite sold to the uninformed (read dairy farmer). But yes imagine the income stream gone west as it includes insecticides, pesticides etc. Must hurt all stock and station agents.

http://www.ft.com/cms/s/0/c1cb24fe-7897-11de-bb06-00144feabdc0.html
China is going to upset UK banks - and undoubtedly kill some of them off (especially the People's Royal Bank of Scotland). Interesting that this happens just days after all those parasitic, over paid, heads of state funded banking are called into Mr Darling's office for a caning. And still refuse to play ball. I bet some of those banksters never contemplated they might be sold off to the Peoples Bank of China. Arrogant idiots must have been choking on their Friday night flutes of champagne as they comprehend the "˜check mate' !!! :-)

French farmer
I agree the board has a lot to answer for. Its going to be lost as a farmer owned entity,another nail in the coffin for farming. Great for the NXZ or who ever manipulates control.

You are a very smart person!