Call me cynical but PGGW Finance offer to fund farmers shares in Wool Partners Co-Op's bid for more capital reeks of self interest.
The parent company is desperate to sell its wool arm at the price agreed, and farmers need to think carefully before borrowing at 10% for this investment.
This will be a long term investment requiring large amounts of capital, and an ongoing market development fee, using money that many farmers do not have, or could use in areas where the return will be more profitable.
History has proven wool investments and PGGW ventures have been disappointing in the past, so careful thought needs to be made before borrowing for this deal.
The number of strong-wool farmers signing up to a proposed new co-operative aimed at dominating the wool industry has slowed, with growers unwilling to commit because they are cash-strapped. As a result, PGG Wrightson Finance says it will step in to lend funds to wool farmers to subscribe for shares in the 100 per cent grower-owned Wool Partners Co-operative. The PGW Finance's parent PGG Wrightson is trying to exit its 50 per cent ownership in the company from which the new co-operative company is being formed.
WPC will not proceed unless it gets commitment from wool farmers with more than 50 per cent of the strong wool market. WPC is a vehicle that could consolidate the fragmented wool industry but it poses a challenge to rival wool brokers and exporters.
So far, the farmers in the industry – totalling about 12,500 – have yet to give their support to the prospectus-based offer in sufficient numbers to satisfy the backers. If it does succeed, the new co-op would replace Wool Partners International – 50 per cent owned by the growers (Wool Grower Holdings) and 50 per cent by PGG Wrightson. PGW Finance is offering growers finance for their initial subscription of 20 cents a share, with a repayment to be made on or before May 2012 and charging 10 per cent interest reports Stuff.
PGW Finance chief executive Mark Darrow said it made good business sense for the finance company to advance funds to farmers. Asked if the loan strategy was driven by PGG Wrightson's desire to exit the old WPI , Darrow said: "No. It's what we do – we lend to farmers, we lend for farming purposes ...
Grant said he was concerned at a drop off from the previous indications of support in the last couple of days shown in fewer subscription cheques arriving. Grant said in the last few weeks farmers had identified cashflow problems, around the spring period, and in the last few days there had been a lot of concern about the dryness now starting to develop within the sheep and beef areas of NZ.
"If we took the tracking of the last couple of days we would be struggling to get to the $65 million by the 17th ... [but] we are still confident that 60 per cent of farmers are interested to be in the co-op going forward," Grant said.WPC deputy chairman Mark Shadbolt said farmers that joined the co-operative would be tied into the model for five years, before being allowed a chance to redeem shares.
23 Comments
I ain't got no issue with self interest. So long as the rule of law remains. If the offer is bad, it won't be taken up (at least not by informed folk).
I would caution farmers to read the fine print... many of us got screwed on NZFSU with performance fees. Personally I see PGGW as more of a formitable opponent than a partner, even when they are in a partnership position with you. So watch out.
It is well known that the wool industry needs rejuvenated but I struggle with the facts that Wool Partners are putting in front of us the farmers.
I cannot get a grip of the financial situation of Bloch & Behrens Have they recently defaulted on payments? How much debt is on their balance sheet? At present they handle 10 million Kgs of wool a year and Wool Partners are wanting 65 million Kgs signed up. I presume the 55 million Kgs will just go back into the auction system.
Not the innovation i was looking for when I get told that this is the saviour of the wool industry. Who carries the can if Bloch & Behrens goes tits up. Look great if Wrightsons Finance want their money back as well for their share advances!
Ant you make a pertinent comment "if the offer is bad, it won't be taken up". But where do we find the facts. the ODT has carried the story for the last two days, something seems to be amiss.
The valuation of assets being purchased has been questioned. Are the assetts from PGG Wrightsons worth the $35,000,000 approx or the value that an article had in one of the Farmers weeklies of $10,000,000. Huge discrepancies of information. It is quite obvious that PGGW is desperate for money but sorry not mine on this fiasco.
I am very disappointed that the Agriculture Minister has not responded better than the statement in the ODT today Saturday. He labeled the previous days comments as "poisonous" It looks as if there is a lot to be unraveled yet before anyone should consider writing a check.
Sorry but the old boys network of the past decade and before have not delivered again. Mr Carter you are now one of these.
"...in the last few days there had been a lot of concern about the dryness now starting to develop within the sheep and beef areas of NZ.".....yes....and 10%!..not friggin likely. The lesson also learned has been to cut stock numbers and reduce the supply of wool...funny how prices rise when supply drops.
So the answer is no. Not that it matters as my clip is minimal. However being a suspicious sort of a girl, and having tried exceedingly hard over the years to understand a telecom bill. I still reflect on that comment by Ms Gattung on how more profitable it was to confuse the customer. Then there was the Wrighties board that voted to charge Uruguay Farming megabux for What?...their EXPERTISE. Hysterical lol....
Hows the feed situation down your way Andrew? I went to a sale again this week, calf prices were holding up, but yearlings were beginning to struggle getting about $1.80/kg. Its unbelievable how few calves there are about. Hawkes Bay farmers were there buying though.
Gee just caught the 4.30 news on one, Feilding sale didnt sound so good. Last night some poor cow cocky on the news, wondering allowed at the point of it all when you cant grow grass season after season.
Im knackered, I sold most of my yearlings,all my old ewes and purchased some two tooths to carry through, im under 1/2 stocked. The ridges are brown but still a bit of feed around. My neighbour just did his hay and its bloody light. We just had a very poor spring and we have no bottom to the pasture so if it stays dry then we will struggle. Having said that stock numbers are very low so most farmers are ok. Im getting sick of these seasons bad after bad, wettest winter mud everywhere then no spring following on from the worst droughts in history.
Im pessimistic about lamb prices my last draft I went hard and they only weighted 14.5 kgs. I got $88 for them. I just have no lamb feed left. I think the beef like dairy will head to their respective long term averages which is well off the present highs. I think cattle prices will be good buying for a while, lots of heavy cattle and buyers for lighter ones.
A friend in cambridge said he is as dry now as at the peak of the 2008 drought, and another in the king country said his creeks are drying up.
Another neighbour reared a lot of calves and he still has them on, he must be worried, he's days from being out of feed. The 'Techno' systems must be buggered, I don't feel sorry for them what a way to treat bulls.
Good news is the grapes are great, no buyers but a great crop.
Sounds like what should have been a great a great year finacially is turning bad allround NZ. Unless you have irrigation things don't look bright. Although as I type, it is raining from the nor west, a rarity in coastal North Canterbury, to late for that though. Bloody dry here too. Only two inches of rain since Sept 15. Had a years rainfall (24 inches) from late May to mid Aug, and that was after an autumn drought. So not many farmers went into winter with any feed. Ewe condition leading into lambing was average to poor, cold soil temperatures , minimal grass, slow lamb growth rates, lowish lambing percentages barring a few. Now drought looms, although we know to expect that most seasons around here. Haven't seen any decent brassica crops. So far have only killed about 40% of normal. Still averaging about 17kg, but that will drop markedly in the next 2 drafts pre Xmas
On the flip side averaging $100 for lambs so far, SFF are taking store lambs at $2.60. Heard of a lot of farmers taking up the offer that often finish their own lambs themselves. Farmers a bit more bouyant about wool. Cattle prices have been solid. Fat ewes going for as much as lambs, can't get too pessimistic. I guess we down here have the advantage of large areas of irrigation a couple hours south, they always seem to chase stock and a willing to pay reasonable money.
Keep your chin up, reduce stock numbers down to capital stock early and take advantage of store prices before its too late
Gee Andrew you know how to paint a picture. I have heard Cambridge is really bad. Where I have kept cover, the clover is quite feisty. But and a big but, to keep some cover I have had to graze some paddocks quite hard and they look pretty bad. The bad area is bigger than the good now. On the bright side, the lawns dont have to be done. And there are bugger all young thistles coming through. The local dairy farms are awful for this point in the year. No silage or baleage done, the crops are now through, but they wont be much cop. Ah well, maybe an opportunity for the south islanders to import stock from the north.
Just few figures to throw into the mix: main shear clip value $29,000. Shearers costs $21,000. 5 days mustering 2 people 12 hour days.$2500.3 days in shed general hand and yard person $1200, power,shearing gear.oil.fadges.levies for auction house,wool testing fee, transport charges .Net profit $342 !!!! At least I did my bit for nz by providing employment, and people don't understand why there is no apetite to cough up for next 5 years, simple no money, every bugger wants to clip the ticket.
Andrew, the question should be, how much have the receivers made so far? Answer $15,000,000. Another question, how much debt has the receivers paid from income the Crafar farms have earn't , answer: $0.
I agree,I have seen the wool industry restructure 3 times I still have some useless shares somewhere. I am certainly not happy with that return. The industry took their eyes of the ball,relied on China and Russia to buy and industry haven't developed new products unlike the Merino sector that took control of their product. The problem with the wool industry too many snouts in the trough and when wool was 60% of farm income and wool was king the industry weren't forward thinking enough and now we are paying for it. Got too lazy and complacent. I would front up and invest but the bank is selling me up.
Janette, im very sorry to hear that. Im aware of your situation through the media and I applaud you for getting off your backside and raiseing awareness of some appalling bank behaviour. Proactive leadership from people like yourself is sorely lacking in our industry. I wish you well and hope you are able to find a way through to what I geninely believe to be a much brighter future,
Janette and Sheepshagger
I am a believer in the website theautomaticearth.blogspot.com. AndyH got me onto it about 3 years ago. If you read this article which is part two, you will get an understanding of my thinking about the GFC and where we are heading.
Ashvin Pandurangi:
The Debt-Dollar Discipline: Part II - Conservation & Release
http://theautomaticearth.blogspot.com/2010/12/december-11-2010-debt-dol… I also believe very strongly the fact that processed Carbs are poisoning us. I dont eat processed Carbs and haven't for 2 years. This could be a bonus to the meat industry. http://theautomaticearth.blogspot.com/2010/12/december-6-2010-our-daily-bread-or-not.html
Back to the original subject: I think financing your own asset sale is called "Pork on a Pig".
And it's probably a technique that is one of several used by finance companies that is at the root of the GFC!!!
The WPC plan does not deliver anything new to the wool industry - other players are already doing everything WPC says it plans to do. It's nothing more than a contrived, political attempt by the old guard to protect their privileged positions and an easy way for PGW to offload some of its debt mountain onto farmers.
Sheepshagger, thanks for your comments. Had another article in the Furrow about the review of the code of bank practice underway at present ,Page 8 of this weeks publication. So any of you cockies out there want to put pen to paper all the details in the article. Title your chance to have a say on banking policies. On the same page the usual tripe from Graham.
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