Global dairy commodities market forces reduction of payout prediction at Westland Milk despite strong milk flows, as they move to access new capital and reduce debt

Content supplied by Westland Milk

The decline in global prices for dairy commodities, especially butter, has forced the Board of Westland Milk Products to lower its predicted payout range for the 2018-19 season to $6.10 - $6.50 (previously $6.50 - $6.90).

Chairman Pete Morrison said the factors driving the revision were largely out of Westland’s control, involving international market forces and an increasing abundance of milk supply globally. He said current indications were that the co-operative would come in about the middle of that range.

“This, of course, will not be news our Shareholders want to hear,” Morrison said, “however, we owe it to them to be transparent about our predictions. The last thing we want to do is over promise and under deliver. It’s better Shareholders are prepared now and budget accordingly.”

Morrison said some internal factors were also influencing the payout.

“Ironically, we have had a very good start to the season. However, the build up to peak milk period is higher than predicted and lasting for longer. While this might appear to be a positive for the co-operative, the reality is that during peak our processing capacity means we have to produce mostly low value bulk commodity powders in order to ensure we can get the milk through. That means we have to make less high value product, such as Infant and Toddler Nutrition, which give us the best returns.”

Morrison said, however, that Westland was making much improved progress on the matters it had direct control of.

“Westland has the right business strategy with its shift in focus to specialist products produced from milk segregated by qualities such as A2, grass-fed and environmentally sustainable.

“Demand for our Ten Star Premium Standard (10SPS) milk is high and will give good returns. We have enormous interest from international markets and predicted demand outstrips forecasted supply. We need more shareholders to convert to this standard as soon as possible.  This type of product will provide much better returns and not likely to be affected by international commodity pricing movements.”

10SPS Milk is a standard developed in partnership with Westland Shareholder Southern Pastures. It is based on grass-fed milk, produced on farms complying with very high environmental, animal welfare, and human resource standards.

“Westland will be ‘breaking ground’ on new capital works at Hokitika next month,” Morrison said, “to increase the company’s capacity to process segregated milk, even during peak milk periods. While this work will not be completed in time for this season, it will help manage peak periods better and allow the co-operative to continue to grow its ability to produce and market value-added products.  This will help move the co-operative towards a more secure future.

“While the international butter price has fallen, it is important to note there are some positive signs regarding our butter product and marketing,” he added.

“Just recently Westland passed the three million pack mark in sales of its consumer butter, Westgold, into the New Zealand ‘gourmet’ end of the market. Going into the retail consumer goods market in New Zealand was a new foray for us and it is paying off. In only three years we are now outselling all other gourmet brands combined and sales are increasing steadily.”

Morrison repeated his message that Westland’s Capital Structure Review, currently underway, has the potential to come up with options that could help the co-operative accelerate its Five Year Business Strategy, lift the company’s value and add value to Shareholders.

“That review is proceeding as planned and we expect to give shareholders an update at our annual meeting on 5 December. Accessing new capital and reducing debt is a key element of our plans to further develop our segregation capacity.  The aim of the review process is to create possible options for the Board to consider, and for the Board to then take to shareholders for their consideration.”

A full dairy industry payout table with history is here.