South American dairy farm operator New Zealand Farming Systems Uruguay has increased its Uruguay land holdings more than 7% to 36,300ha during the past six months at a total cost of $US16.2 million ($NZ21.1 million).
The New Zealand stock exchange-listed company, which is one of only two dairy-related investment platforms open to the public, has signalled it may go to the market to raise more funds for further acquisitions, which could include farms in other South American countries.
Yesterday, NZFSU chairman Keith Smith reiterated the company's earlier forecast of an after-tax profit for the six months to June of $US1.5 million, excluding a performance fee to be paid to manager and shareholder PGG Wrightson.
In late April, Mr Smith said Uruguay milk prices had lifted 25%, with the Uruguayan price of about US40c per litre, equivalent to $NZ7.35 per kg of milk solids. Fonterra's pay out at present is set at $NZ7.30 and is expected to rise again this week.
"Importantly, the balance of the international market has continued to improve in favour of producers, with positive implications for future years when the productive capacity of NZFSU's assets is fully on stream," Mr Smith said.
NZFSU was established in 1999 and, in December 2006, as an unlisted public company, raised $105 million, with a further $39 million raised from institutional investors in April 2007.
A further oversubscribed $110 million was raised at its main board listing in December last year, making the total raised $254 million.
The $US16.2 million acquisition of 4400ha boosts its Uruguayan holdings to 36,300ha, totalling $US94.4 million paid overall for its Uruguayan land holdings.
Last month, NZFSU had 4300 cows, 10 cowsheds in operation, and 22,000ha had been regrassed, 5000ha more than planned.
The average cost per hectare to NZFSU of largely undeveloped dairying Uruguayan land was $US2601 ($NZ3304), compared with general estimates of pre-conversion South Island prices of $NZ20,000 to $NZ40,000 per hectare.
ABN Amro Craigs broker Chris Timms said NZFSU's profit forecast and confirmation that it was looking for further acquisitions showed it was in a bullish and positive mood, the result of increasing local prices.
However, he reiterated the findings of earlier ABN research which noted the business model had an "above-average" risk profile because of climatic variables, commodity prices and the geopolitical situation in South America, a continent renowned for its volatility.
Mr Smith said NZFSU had experienced increasing pressure on operational costs because of the rise in international commodity prices and the flow-on effects on fuel and fertiliser prices.
Also, the weakening US dollar had increased the cost of services, notably farm labour, paid for in local currency.
However, these increased costs had been more than offset by the rise in the Uruguayan milk price, Mr Smith said.
Land purchases in countries neighbouring Uruguay would be considered where the politics and economics warranted shareholders' interests, he said.
