Fonterra Payout Increase Buys Time for South Canterbury Finance

With the news today that the Fonterra milk payout has been increased from $5.10 to $6.05 will my prediction of doom and gloom for dairy farm prices and dairy farm owners and financiers be proved wrong?


Well I hope so, for the sake of all the dairy farmers out there, for the sake of the financiers and for the Crown who guarantees financial institution debt, but realistically, as Fonterra itself warns, the price increase should be treated as a temporary windfall, and for the likes of South Canterbury Finance, it represents a golden opportunity to offload giant, loss making and on the market corporate dairy farms: South Island Farms, Dairy Holdings and Crafer Farms, on more favourable terms than might exist a year from now. It also presents an opportunity for the more exposed, and more troubled financiers, not least South Canterbury Finance, to reduce its lending exposure to highly indebted loss making dairy farm customers.

But the question is, how will South Canterbury Finance take advantage of this opportunity by moving aggressively? As I have argued before, the response planned by SCF and its owner is anything but aggressive, and could be described as feeble (previously I used the less derogatory term 'modest').

One relevant management lesson is called the control equation:

Need for Corrective Action = Planned Performance - Actual Performance

Perhaps Mr Hubbard slept through that lecture when he was at university back in the 1940s (?), or has since forgotten it. Or perhaps they planned to make a lot of losses and run low on cash this year? Go figure!

Comments welcome, and thanks for visiting.