SFF needs a plan B

Silver Fern Farms is putting a positive spin on the decision to extend the deadline for farmers to take up its share exchange and cash issue offer.

The chairman of the meat co-operative, Eion Garden, said 37% of shares had been exchanged so far and “a significant number” of shareholders had taken up or exceeded their full cash issue entitlement.

The company had hoped to raise at least $80 million, but with a flood of applications arriving before yesterday’s deadline, more expected over the weekend and the clash with lambing, the deadline had been extended until October 9, Mr Garden said.

I don’t think lambing has anything to do with it. The company obviously didn’t get the support they hoped for. The Press  says the maximum that can be raised is $128m but so far only 12 million new shares at $1 each have been bought by farmer-suppliers.

 The extended deadline might pick up a bit more shahreholder support but it won’t deliver the amount the co-operative needs and the directors will have to look for a plan B.

It hasn’t been a good year for the company.

Alliance Group shareholders turned down the Meat Industry Action Group’s plan for a merger with SFF. PGG Wrightson couldn’t come up with the cash for the 50% buy in it had proposed; and the $10 million PGW shares SFF took as part of their compensation for that are worth little more than half that amount now.

The season ahead won’t be easy either.

Demand for lamb in export markets is firm which is holding prices up. But the strength of the demand is on the back of falling supply caused by drought in Australia and New Zealand and the large number of dairy conversions here.

Fewer sheep to kill exacerbates the over supply of killing space. SFF did some rationalisation last year but the industry as a whole still has excess capacity.

It has been a good season for lambing. The weather has been pretty mild and survival rates have been high. Spring grass growth has been good too but most of the east coast is very dry which will put pressure on feed and bring stock on to the market.

But farmers are spoiled for choice when it comes to meat companies and if they aren’t prepared to invest more in SFF it’s an indication they may well look elsewhere for killing space.

2 Responses to SFF needs a plan B

  1. barry says:

    There are very certaintes in life. Some are:
    you will die
    you will pay taxes

    and there is another one.

    Buying shares in a meat company is a gauranteed way to loose money. (eg: HBFMC, Waitaki, CFM, SFM, Swifts. Gear, Nelson, etc, etc)

    And if you want to know why – just take alook at the mess that wool is in.


  2. Ed Snack says:

    I reckon the reason they lose money is twofold, one is that for every $1 that the industry gains through better prices or a lower exchange, they compete to give $1.10 back to the farmers. The second is because a big share of the industry is cooperatives, they think this is a good business model. It isn’t and never has been.

    In addition, with remarkably few exceptions, the industry is run is a remarkably “conservative” fashion, that is the last change of general business strategy (as opposed to minor marketing changes like the move to chilled) was probably the change to allow women to work in the industry back in the 1930’s or so. However this is less important that the oversupply (as you point out HP) of killing space and hence the excessive competition for stock.

    For that reason alone, a move to large scale consolidation would help, but it would not deliver better prices to farmers at all. There are remarkably few efficiencies on offer in overheads, the major costs are direct labour, plant costs, and of course the cost of the stock.


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