KEY POINTS:
New Zealand Farming Systems Uruguay (NZFSU) has expanded its forecast losses in the light of volatile milk prices and dry conditions.
The New Zealand company has about 36,000ha of dairy farms in the South American country and with most production being exported, earnings have been hit by lower milk prices and half the usual rainfall.
The short-term outlook had been for milk prices to fall below US30 cents per litre. Fonterra's December online auction for whole milk powder saw prices at about US20 cents per litre.
In an announcement to the NZX, NZSFU said earnings before interest and tax were now anticipated to be a loss in the range of US$7 ($12) million to US$11m ($18.9m) rather than the US$8m to US$10m indicated in October.
Rainfall across Uruguay in 2008 has been about half the usual historic average of 1200mm.
Milk production for the year is now lower than anticipated - in the range of 50-60m litres, compared with the previous forecast of 60-70m litres.
However, farm operating expenses were likely to be well below plan for the year, with lower fertiliser and urea prices and usage more than offsetting expected higher supplementary feed costs.
NZFSU chairman Keith Smith said that despite the variations in short-term performance arising from current market volatility the board remained satisfied with progress in the company's development.
Irrigated pasture was regularly achieving grass growth of around 70kg of dry matter per hectare per day, which was equivalent to spring growth in New Zealand.
"Milk production on our lead farms has averaged 16-17 litres per cow per day since the start of the new season in July, which is in line with the original steady state projections and provides confidence that our targets are achievable once we have fully developed the farms including irrigation."
A US$16m long-term funding package has just been finalised with local Uruguayan banks. Further funding in order to meet ongoing development requirements is currently under negotiation. Economic projections for Uruguay anticipate a relatively solid economy in 2009, with 3 to 4 per cent GDP growth expected.
Mr Smith said the board's confidence in medium and long-term prospects was supported by net book value now standing above NZ$1.60 per share based on an exchange rate of US55 cents to $1 and the June 2008 asset book values.
- NZPA
