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  1. #3051
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    Thanks for that Black Peter. Last year on a whim (yes I know that's what idiots do), I bought a few PGW when they crashed to $.29 I still haven't got around to understanding the fundamentals of there business. I own another stock FPH which is largely affected by the exchange rate so I follow the exchange rate closely. I see the currency depreciating but anyone who puts much faith in their ability to forecast the exchange rate is in my opinion a fool. Part of the reason I was curious was if say foot and mouth disease hit New Zealand could the subsequent decimation of the $NZ help PGW stay afloat. Much like my original post when I mentioned the $US.50, I do not think foot and mouth disease will hit NZ- I just think it can be good to know the implications of what one off disasters would be. I imagine a lot of people made a killing not in accurately forecasting the US sub prime collapse but by knowing what to do in advance, and doing it quickly, when it did strike. If there was a foot and mouth outbreak in NZ- I would say there would be a couple of smart people in this country who would know roughly how to price this in instantly, giving them an advantage over the market in the short term. I guess you could argue that all rural analysts at investments banks etc know the risks and opportunities but I wouldn't be shocked if not one analyst had a 'foot and mouth' algorithm. I'm not seriously going to research the implications of foot and mouth outbreak just interesting to think about it.

  2. #3052
    Guru Xerof's Avatar
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    Default Quite the opposite effect

    If NZ had a 'credible' case of foot and mouth, then any agricultural based company would be decimated within a day or two for two reasons:

    1. They would be required to write off all inventory, as it would be unsaleable
    2. As most sensible exporters carry FX cover on either sales and/or inventory in store or on the water to markets, if the currency collapsed, they would have to SELL that cover into a collapsing NZD FX market, as the inventory being covered no longer has any value, i.e., the company is effectively suddenly VERY long NZD. Crystalised losses would be horrendous.

    other factors to account for are:

    most of these company's are poorly capitalised, with high debt levels. The Banks would want their money back immediately. No chance. The 'assets' comprise of inventory and specialised slaughter plants, which would be idle within days, and unsaleable. Staff redundancies would add further costs to the disaster.

    Admittedly, one could argue PGW are not directly affected by such an outbreak, but the impact would nevertheless be quite severe, by having a large proportion of their customer base decimated.

    quite frankly, it's simply a scenario we don't even want to contemplate ever befalling this country.

    discl: been there as a risk manager through two 'scares' in last 25 years

    but you are right, some smart-arse bank FX traders would immediately take advantage of the currency, but, their Corporate lending dept would take a hammering
    Last edited by Xerof; 03-05-2014 at 10:18 PM.

  3. #3053
    Speedy Az winner69's Avatar
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    Quote Originally Posted by nzspeak View Post
    Could someone please let me know how the exchange rate affects PGG? obviously it affects farmers income etc but what would happen if say the $NZ went to $US.50 overnight? how would that affect the company/share price?
    Was sub 40 in 2000 and sub 50 not that many years ago

    Can you remember what happened then?

  4. #3054
    always learning ... BlackPeter's Avatar
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    Quote Originally Posted by Xerof View Post
    If NZ had a 'credible' case of foot and mouth, then any agricultural based company would be decimated within a day or two for two reasons:

    1. They would be required to write off all inventory, as it would be unsaleable
    2. As most sensible exporters carry FX cover on either sales and/or inventory in store or on the water to markets, if the currency collapsed, they would have to SELL that cover into a collapsing NZD FX market, as the inventory being covered no longer has any value, i.e., the company is effectively suddenly VERY long NZD. Crystalised losses would be horrendous.

    other factors to account for are:

    most of these company's are poorly capitalised, with high debt levels. The Banks would want their money back immediately. No chance. The 'assets' comprise of inventory and specialised slaughter plants, which would be idle within days, and unsaleable. Staff redundancies would add further costs to the disaster.

    Admittedly, one could argue PGW are not directly affected by such an outbreak, but the impact would nevertheless be quite severe, by having a large proportion of their customer base decimated.

    quite frankly, it's simply a scenario we don't even want to contemplate ever befalling this country.

    discl: been there as a risk manager through two 'scares' in last 25 years

    but you are right, some smart-arse bank FX traders would immediately take advantage of the currency, but, their Corporate lending dept would take a hammering
    To predict the future its useful to know about the past. Interesting report about the economical impact of the foot and mouth disease outbreak in the UK (2001), written from an Irish perpsective, but looking into the impact on the effected regions: http://www.agriculture.gov.ie/media/...L%20REPORT.pdf

    Yes, typically 20 to 30% of the agricultural businesses reported to have been "severely" impacted.

    Interestingly - there was in every case as well quite significant impact on tourism in the effected regions (well, on second thoughts, makes sense, but its not what you would immediately worry about)

    Didn't found information about severe impact on agricultural service provider (like PGW). Would expect that it would mean an initial drop of business, but than lots of farmers would need to buy new stock (hopefully paid by insurance).

    So - it certainly wouldn't be pretty, but I don't think it would be the end of the world either - Well, it certainly wasn't the end of the world for the UK .

  5. #3055
    Guru Xerof's Avatar
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    Ok, lets get some perspective then......

    Extract: "With New Zealand’s economy so bound up with agriculture, keeping the country free of exotic diseases is crucial. An outbreak of foot-and-mouth disease, for example, would cripple our export trade in meat and milk.
    The EpiCentre and the Reserve Bank recently calculated that a moderate foot-and-mouth outbreak in New Zealand lasting three months would cost anywhere between USD6 and 8 billion, resulting in large job losses in the agricultural and allied sectors."

    http://www.massey.ac.nz/massey/about...5-A3D19EBE7FF6

    I didn't say it was the end of the world, but the impact would be severe.

    More commentary on our state of preparedness, with interesting reflection on 'replacement stock' issues

    http://www.stuff.co.nz/business/farm...mouth-outbreak




  6. #3056
    always learning ... BlackPeter's Avatar
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    Quote Originally Posted by Xerof View Post
    Ok, lets get some perspective then......

    Extract: "With New Zealand’s economy so bound up with agriculture, keeping the country free of exotic diseases is crucial. An outbreak of foot-and-mouth disease, for example, would cripple our export trade in meat and milk.
    The EpiCentre and the Reserve Bank recently calculated that a moderate foot-and-mouth outbreak in New Zealand lasting three months would cost anywhere between USD6 and 8 billion, resulting in large job losses in the agricultural and allied sectors."

    http://www.massey.ac.nz/massey/about...5-A3D19EBE7FF6

    I didn't say it was the end of the world, but the impact would be severe.

    More commentary on our state of preparedness, with interesting reflection on 'replacement stock' issues

    http://www.stuff.co.nz/business/farm...mouth-outbreak



    Hi Xerof, we might somewhat talk cross purpose, but I don't think that we disagree.

    The original question was what would happen to PGW, if the NZ$ drops compared to the US$.

    My answer was - I think it would be good for PGW (and I think this is true in general). As winner pointed out - the NZ$ has been below US 50 cents before, and the reasons for that had nothing to do with any NZ agricultural issue.

    Only afterwards introduced nzspeak the scenario of a potential foot and mouth disease (FMD) outbreak in NZ (and what the impact would be). I agree that this scenario would bring the NZ$ down (as many other potential scenarios which would be unrelated to FMD), and we agree as well that this particular scenario (FMD) wouldn't be very helpful for PGW. Clearly the share price would initially drop, but I wouldn't think it would kill the company - and a couple of years later it would be business as usual - same as after a severe drought (costing similar sums as you floated above).

    So just for the record - dropping NZ dollar (for most other reasons than FMD outbreak) would be good for PGW (and for agriculture, and for tourism, and for all other export business), FMD outbreak obviously would be bad for New Zealand (and PGW), but not the end of the world either. Do we agree?

  7. #3057
    Guru Xerof's Avatar
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    If you check the correlation between soft commodities prices and the NZ TWI, you will find there is not much benefit for exporters at the end of the day. The occasional shock event might give exporters a window to hedge a low currency level AND obtain high commodity pricing but in my experience the world markets are vicious when it comes to letting anyone make more than they are 'entitled' to.

    As an aside, I used to give my marketing guys the curry when the currency collapsed - all of a sudden they were lazy and soft on the foreign currency price they sold product at, simply because with the low NZD, they thought they were achieving a good price. In fact they were giving all the benefit to the foreign buyers. Hence the correlation aforementioned, IMO......

    The Australians got away with high hard commodity prices and a low dollar for a while, but it didn't last there either, and now look at the strife they are in with minerals - they got complacent on fixed costs, labour costs etc and are really paying for it now - suddenly uncompetitive and unprofitable (in some instances, goldies being a prime example)

    And I genuinely believe a strong NZD is good for NZ overall. We are a heavily indebted nation, reliant on imports,so as a country we are a net SELLER of NZD's. Our exporters have managed well in general. Of course they would like a lower currency, but if they hedge when opportunities arise, there is no reason for these industries to whinge about it - just do the business and get on with life.

    Noted re FMD side issue. Should have it all covered now - no, not the end of the world, but no room for FMD in our economy, and hugely disruptive if it did happen.

  8. #3058
    Speedy Az winner69's Avatar
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    Xerof
    And I genuinely believe a strong NZD is good for NZ overall. We are a heavily indebted nation, reliant on imports,so as a country we are a net SELLER of NZD's. Our exporters have managed well in general. Of course they would like a lower currency, but if they hedge when opportunities arise, there is no reason for these industries to whinge about it - just do the business and get on with life.
    Agree entirely mate

    Interesting comments from one involved as an exporter. I more involved with companies that make stuff from raw materials so at the moment give the marketing guys curry and tell them life easy eh because price not a real issue and margins pretty good.

    I think exporters have got used to the higher dollar. They are now competing on real things and not just from a price advantage. I think a lot of the 'concern'/'worry' is rhetoric cause that what you went to say when dollar is high

    I know that if the dollar fell even to US65 then inflation would not be the sub 2% reported at the moment. Imported products would rise, those who import raw materials would increase prices .... demand down .... jobs lost.

    Hope the dollar keeps rising .... first time I went to the US I got $1.40 US for my NZD ..... but would remain reasonably happy if it stayed where it was now for a while

  9. #3059
    always learning ... BlackPeter's Avatar
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    Quote Originally Posted by Xerof View Post
    If you check the correlation between soft commodities prices and the NZ TWI, you will find there is not much benefit for exporters at the end of the day. The occasional shock event might give exporters a window to hedge a low currency level AND obtain high commodity pricing but in my experience the world markets are vicious when it comes to letting anyone make more than they are 'entitled' to.

    As an aside, I used to give my marketing guys the curry when the currency collapsed - all of a sudden they were lazy and soft on the foreign currency price they sold product at, simply because with the low NZD, they thought they were achieving a good price. In fact they were giving all the benefit to the foreign buyers. Hence the correlation aforementioned, IMO......

    The Australians got away with high hard commodity prices and a low dollar for a while, but it didn't last there either, and now look at the strife they are in with minerals - they got complacent on fixed costs, labour costs etc and are really paying for it now - suddenly uncompetitive and unprofitable (in some instances, goldies being a prime example)

    And I genuinely believe a strong NZD is good for NZ overall. We are a heavily indebted nation, reliant on imports,so as a country we are a net SELLER of NZD's. Our exporters have managed well in general. Of course they would like a lower currency, but if they hedge when opportunities arise, there is no reason for these industries to whinge about it - just do the business and get on with life.
    Quote Originally Posted by winner69 View Post
    Agree entirely mate

    Interesting comments from one involved as an exporter. I more involved with companies that make stuff from raw materials so at the moment give the marketing guys curry and tell them life easy eh because price not a real issue and margins pretty good.

    I think exporters have got used to the higher dollar. They are now competing on real things and not just from a price advantage. I think a lot of the 'concern'/'worry' is rhetoric cause that what you went to say when dollar is high

    I know that if the dollar fell even to US65 then inflation would not be the sub 2% reported at the moment. Imported products would rise, those who import raw materials would increase prices .... demand down .... jobs lost.

    Hope the dollar keeps rising .... first time I went to the US I got $1.40 US for my NZD ..... but would remain reasonably happy if it stayed where it was now for a while
    Probably more an academical discussion. I think what you both are saying is that a strong NZ$ is an indicator for a strong NZ economy. Well, that's not rocket science, and we certainly agree on that.

    What I tried to convey is that a weak NZ Dollar would help our exporters. I note however Xerofs remarks related to sales people getting lazy under benign conditions. Agreed as well - been there (worked for decades in the export sector), seen that.

    This means the strength of the currency is as well indicator for the strength of the economy as well as an input variable. This means we look (as usual) at a rather complex system and not a simple equation.

    However - there are enough examples around where a weak currency did help an economy to thrive:

    Look at China: The Chinese kept their Yuan (Renminbi) artificially low for decades and look where they are now - second strongest economy!

    Look at Germany: their economy got a real shot into the arm thanks to being able to operate now with a rather weak currency (the Euro is pulled down thanks to all the weak south European countries who joined in); I still remember the times when the German export was hampered by the strong Deutsch Mark.

    Look at the US - They work hard to pull the US Dollar down (basically Zero interest and printing money). So far it looks like their recipe to grow their economy might work.

    And looking at NZ: I always remember the smile on the face of our financial director (as indicated - was working in an export industry as well), when the NZ dollar tanked ...

    Now - given all this not sure, what I hope for the NZ economy (well, obviously only the best . I think that a somewhat lower NZ Dollar would be beneficial (though see the problems related to our debt burden), but I agree it is unlikely to happen anyway as long as our economy is strong.

  10. #3060
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    Default High volume and 3,61% up

    Any reasons for the 2 cent (3.61%) up ? Volume 2,5 of the average volume.

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