Skellerup (SKL) Fundamentals

[RTM]

Not sure ... it is easier to delay maintenance of dairy liners and sealing (though it still might not be wise) than to stop feeding your animals. As well - PGW has a significant exposure to non dairy agriculture (wool, red meat, horticulture, pip fruit, wine), and many of these sectors are currently doing quite well.

Agreed. So like SKL, PGW are likely to report uneven results across the different sectors they operate in. Not sure the Market is going to like that. Hope the dividend does not need to be reduced.

[Beagle]

It doesn't auger well. Now two full years of low dairy prices with many farmers struggling to come anywhere near breakeven. Pretty clear they're trimming...no slashing costs wherever they can.
Not even the faintest sign of a glimmer of any price recovery on the horizon and with the supply demand imbalance on a global basis this suggests dairy will be extremely challenging for the foreseeable future.
PGW do 24% of their business with dairy farmers. You can't get blood out of a stone...

[RTM]

It doesn't auger well. Now two full years of low dairy prices with many farmers struggling to come anywhere near breakeven. Pretty clear they're trimming...no slashing costs wherever they can.
Not even the faintest sign of a glimmer of any price recovery on the horizon and with the supply demand imbalance on a global basis this suggests dairy will be extremely challenging for the foreseeable future.
PGW do 24% of their business with dairy farmers. You can't get blood out of a stone...

Thanks for the 24% figure....I hadn't checked. Its a lot like the oil story we are enduring at the moment. Although I suspect Dairy is being screwed more by subsidies that what the oilers are,

[xafalcon]

Keep in mind that "accounting break-even production cost" is quite different to "real break-even production cost". At least $1.00/kgMS. Real break-even production cost for a primarily grass based dairy farming system without excessive debt servicing cost is in the $3.50-$4.00/kgMS range

Yes, dairy farmers are having a challenging time atm. But they were "on the pigs back" 2 years ago, and generally for the 4 years before that

Dairy is a cyclical industry with a long lead-in period. Always has been, probably always will be. Allowance must be made for this aspect of business in cash flow and debt management decisions

But any business which does not spend "stay in business" expenses, is simply making their situation worse. Milking plant consumables fall into this category. They are only "discretionary spending" to delusional farmers, because milk yield decreases as liners age. Kind of like a spark plug in an engine. It still works as it gets older, but you use more petrol if you don't change them periodically

Gumboots are a different situation......

[BlackPeter]

But any business which does not spend "stay in business" expenses, is simply making their situation worse. Milking plant consumables fall into this category. They are only "discretionary spending" to delusional farmers, because milk yield decreases as liners age. Kind of like a spark plug in an engine. It still works as it gets older, but you use more petrol if you don't change them periodically

good comparison ... and here is the research paper:

http://www.uwex.edu/uwmril/pdf/MilkM...r_Abstract.pdf

[Jantar]

....
Gumboots are a different situation......

Not a dairy farmer, but I do have a lifestyle block, and need gumboots for a few times each year when I get irrigation. I used to get cheap Chinese gumboots from the red shed, and a pair would last a couple of years before leaking. Then, 12 years ago, I bought a pair of Skellerup boots at 5 times the price. They are still going strong. So it is possible that some dairy farmers think they are saving $40 by buying cheap boots, but it will cost them more in the long run.

[Biscuit]

good comparison ... and here is the research paper:

http://www.uwex.edu/uwmril/pdf/MilkM...r_Abstract.pdf

The economics of how often to change liners comes down to the cost of lost production incurred through not changing the liners compared to the cost of changing the liners. The older the liner, the more production is lost. As the price of milk comes down, the cost of lost production also reduces, so farmers are correct to replace liners less often when the milk payout is lower.

[Biscuit]

Also, it is wrong to think of "deferred" spending on "stay in business" expenses as meaning that eventually the farmer will spend the money and Skellerup's revenue will go back up again. If the milk pay-out stays down, sensible farmers will replace liners less often and skellerup's revenue will stay down.

[xafalcon]

Another million shares for Sir Selwyn

https://nzx.com/companies/SKL/announcements/278214

[Biscuit]

Another million shares for Sir Selwyn

https://nzx.com/companies/SKL/announcements/278214

He might have done better to buy some EBO shares