Archive for September, 2019

Southern sales start 2015 on high

THE drenching rain across parts of NSW, Queensland and Victoria in December and January helped set the stage for an extraordinary opening to cattle sales, in both store and physical markets, for NSW and Victoria.

January commenced with rainfall in the Riverina and outer regions of up to 300 millimetres. The extensive rain raised the hopes of producers who were struggling to cope with the debilitating dry spell in some regions.

The biggest issue up until the deluge of rain was surface water, with reports of producers destocking sections of farm land in order to alleviate the shortage of ground water. The most affected areas of the Riverina were from Wagga Wagga to Hay in NSW.

Victoria’s Annual Blue Ribbon weaner store sales in January got off to an unprecedented start, reflecting the unusual rain event across the eastern states. Early sales of up to $1100 a head for yearling steers were more the rule than the exception. Over 65,000 cattle were sold at store sales throughout Victoria for the month of January with two thirds of the cattle trucked to various destinations throughout NSW and Queensland.

At Wodonga a large contingent of store buyers travelled from Queensland, northern NSW and the New England, while feedlots were well represented from both states. Despite the large field of restockers, feedlot buyers were the market drivers and dominated most categories, which forced restockers to compete for the lighter weight steers.

Steers purchased by lot feeders reached a top price of $1170/head, to average 241¢/kg lwt. Medium weight Steers returning to the paddock averaged 250¢ to 257¢, with the lighter weight portion reaching a top price of 282¢/kg lwt, an estimated live weight equivalent of $886/head. A significant portion of the lighter weight steers were purchased by store buyers from Dubbo, Moree, Walcha, Inverell, Tamworth, Armidale, Glenn Innes and Benambra.

Interestingly, the number of females offered at the annual store sales had notably declined to previous years, which resulted in stronger competition over all weight classes. The bulk of well-bred heifers to feed on made from 211¢ to 239¢, to average 229¢/kg lwt. Heifers purchased by producers topped at $885/head, with only limited numbers returning to the paddock.

Rain inspired restockers and lot feeder buyers at physical markets in January as supplies tightened in Queensland and northern NSW. The physical markets opened strongly with lot feeder demand driving prices significantly higher. The higher prices led to a record yarding of 7,057 head at Wagga, and over 3,700 steers and heifers were purchased for grain feeding, while many lighter weight cattle returned to the paddock. Steers to place on feed, weighing 400kg to 500kg, averaged 236¢, reaching a top price of 249¢/kg. Medium weight heifers suitable to lot feed averaged 218¢/kg lwt.

Confidence, driven by northern rain, lifted cattle numbers at Wodonga mid-way through the month to 5045 head. Prices through January were very solid over all categories, with bidding intensifying from lot feeders. Last week however, prices lost traction with falls generally between 15¢ to 22¢/kg, with plainer cattle most affected. There were several lot feeder orders absent from the market which contributed to the cheaper trend for cattle which lacked finish.

While northern export processors remained under pressure for numbers, both Wagga and Wodonga’s cow supplies surged on the back of strengthening markets further north. Wodonga’s cow market broke their long standing record with the market offering 2,060 cow’s mid-way through January.

The substantial increase in numbers did test the market, with prices slipping 17¢ to 23¢/kg. Last week cow numbers halved to 1,021 head at Wodonga and prices lifted 17¢ to 35¢, to average 400¢/kg cwt for heavy well finished lines. Store cows have been keenly sought at both Wagga and Wodonga markets over January with a significant portion purchased by Dubbo and Forbes producers.

Light weight young cows returning to the paddock weighing 375kg reached a top price of 196¢/kg lwt, the equivalent of $735.28/head.

The Eastern Young Cattle Indicator is at a record 451.25c a kilogram today, up from 340c in November.

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Nufarm’s McGauchie not so hard

Chairman Donald McGauchie at the 2013 AACo AGM.IT IS not clear why Donald McGauchie has a reputation as one of the hard men of Australian business, given that he has allowed at least three chief executives to stay in the job too long.

As chairman of Telstra he should have moved much faster to rid the company of Sol Trujillo, the American CEO who tried to teach Canberra how to play toxic politics.

That was a dumb strategy considering telecommunications is one of the most heavily regulated industries in the country. It resulted in the departure of Trujillo in February 2009 and McGauchie in May 2009.

McGauchie’s replacement as chairman, Catherine Livingstone, had to rebuild the relationship with Canberra from scratch.

She showed how astute she is by hiring Russell Higgins as a non-executive director. Higgins is a former secretary of the Department of Industry, Science and Resources and served on the boards of a wide range of government business enterprises.

He quickly smoothed the troubled waters in the nation’s capital.

The most important positive development to come out of the McGauchie debacle at Telstra was the appointment of David Thodey as chief executive.

Telstra shares fell 36 per cent under McGauchie’s reign as chairman. The stock has doubled under the stewardship of Livingstone and Thodey.

McGauchie’s tendency to have unflinching loyalty to his CEOs was on display in 2012 when he was chairman of Australian Agricultural Company.

He sat back and did nothing when AACo’s CEO David Farley delivered what is arguably the lowest, gutter-level remark ever made by the head of an Australian public company.

While outlining plans for a new abattoir to process old cows, Farley was quoted as saying: “So the old cows that become non-productive, instead of making a decision to either let her die in the paddock or put her in the truck, this gives us a chance to take non-productive animals off and put them through the processing system. So it’s designed for non-productive old cows. Julia Gillard’s got to watch out.”

McGauchie, who has always declared a commitment to equal opportunity and diversity, sat back and watched.

At the time the remark was made, AACo had no women non-executive directors or top managers, even though 36 per cent of its staff was female. It still does not have one female non-executive director.

Farley did not leave the company until almost a year after his outrageous remarks. His departure in July 2013 marked a turning point in the company’s fortunes. The stock has since risen about 52 per cent.

Loyalty in the way of senseTo his credit, McGauchie did not rush the CEO appointment at AACo. He did the usual international search then appointed as CEO Jason Strong, who was the former general manager of marketing.

Once again loyalty appears to have stood in the way of common sense. Nufarm is the latest example of McGauchie standing by while a CEO stays too long.

Doug Rathbone, who founded Nufarm and has been its CEO since 1987, clearly should have gone long ago. The company has performed poorly for years despite a succession of restructurings and asset disposals. Rathbone moved the deck chairs but failed to take really tough decisions.

The company was blindsided by the shift by farmers in Australia to the use of generic glyphosate herbicides.

Nufarm holds the unenviable record of consistently surprising the market with earnings on the downside for the past seven years. Rathbone and McGauchie cannot be blamed for big structural shifts in markets but it is only with Rathbone’s departure that the cost base is being brought into line with revenue.

McGauchie said on Wednesday that the management team at Nufarm would pursue a $100 million “reduction and continuous improvement program” as well as “a separate program to aggressively reduce working capital to meet the company’s target of 40 per cent average net working capital to sales by the end of the 2016 financial year”.

To be fair, the company’s performance has suffered from volatile weather. However, earnings per share are today half what they were 10 years ago. Nufarm shares have gone nowhere for about five years.

Rathbone has had his fair share of controversy. In 2011, Rathbone sold 4.5 million shares just two months before Nufarm downgraded earnings. That prompted fund managers to steer clear of the stock. Another lowlight was in April 2010, when Nufarm completed a $250 million equity raising only to breach its banking covenants and suffer a credit rating downgrade weeks later, prompting an ASIC investigation and a shareholder class action, which was settled for $46.6 million in 2012.

McGauchie has been in a difficult situation at Nufarm because as founder and major shareholder Rathbone was, in effect, more powerful than chairman and board.

As one fund manager told Chanticleer, while McGauchie was an independent director by name he had no hope of moving Rathbone along until recently, when his shareholding was reduced to levels carrying little influence.

If you read between the lines of the Nufarm announcement revealing Rathbone’s decision to step down, it is clear McGauchie finally had to nudge Rathbone out the door.

The company says it is on a growth path and that is backed up by analysts’ forecasts for earnings, according to data compiled by S&P Capital IQ.

The lesson for investors is to closely examine the track record of company chairmen and CEOs before trusting that the corporate governance systems will work in your favour.

Superannuation fee squeezeA new paper on superannuation and behavioural economics being released on Thursday by Industry Super Australia presents strong arguments in favour of union-aligned default super accounts.

In a nutshell, it says the Wallis Inquiry 13 years ago got it wrong when it assumed consumers would act rationally. The assumption was that when faced with free choice in super, consumers would find and understand all relevant information and make informed financial decisions.

Industry Super Australia, which represents industry funds, concludes workers “forced” into default super options achieved better performance than those who made active choices about where to place contributions or who were sold retail super funds.

The flaw in this analysis is that it does not take account of the big shift to self-managed super. Also, it does not include sufficient analysis of the new MySuper products. They just have not been around long enough.

The Industry Super Australia analysis conveniently ignores recommendations made in relation to improving the governance of industry funds.

Another factor that needs to be taken into account when assessing default super using industry funds is the looming structural changes which will force up fees.

Analysis by Alun Stevens at actuaries RiceWarner says there are two big trends that will force up fees: increasing numbers of retirees and account consolidation.

Stevens says that the shift to an increasing number of retirement accounts caused by baby-boomers entering the retirement years will lift costs because these accounts are much more costly to administer.

He says the level of service demanded by pension accounts and retirement accounts is much higher than that demanded by accumulation funds which have significant scale benefits from dealing in bulk via employers. “The large numbers of members retiring from the system will have an impact on fees as funds will need to increase their resources to service their members approaching and in retirement,” he says.

He says another factor is the shrinkage of the number of accounts within funds, which will impact heavily on industry funds with flat rate fees. Stevens says funds which deploy a flat-fee model and expect to pay for everything within that fairly inflexible pricing structure will be found wanting.

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Asia’s noodle hunger drives demand

AUSTRALIAN wheat farmers will face an increasing challenge keeping up with their neighbours’ appetite for bread and noodles.

Demand from Indonesia, the Philippines and three other Southeast Asian nations is set to jump 40 per cent to 13.2 million tonnes by 2020, said Greg Harvey, chief executive officer of Interflour Group, one of the region’s biggest flour millers.

That may outpace Australia’s ability to supply the wheat variety used in soft bread and noodles, he said in an interview in Singapore. Australia is the world’s fourth-biggest wheat shipper.

Faster growthFaster growth and an expanding population are boosting consumption of everything from wheat and sugar to cooking oils in the region, which has more people than the European Union. Indonesia will become the world’s second-largest wheat importer this year and has overtaken India as the top user of palm oil, the US government estimates. The US, Canada and Russia could fill any shortages in Australian supply, he said.

“It’s a bullish story for Australian wheat,” said Harvey, whose company is a venture between Salim Group in Indonesia and CBH Group, Australia’s biggest grains shipper.

“There will be more demand in 2020 than the ability to supply, at least on paper. That’s a good problem to have.”

Wheat in Chicago entered a bear market last month as world stockpiles of grains excluding rice head for the highest since mid-1980s, the International Grains Council estimates. Prices fell 13 per cent this year to $US5.1575 a bushel on Wednesday.

Hottest springWestern Australia and South Australia, which are top producers of the low-protein white wheat used in noodles and soft bread, are the country’s main suppliers to south-east Asia, Harvey said.

His projections assume that farmers will have difficulty increasing exports from the 11.1 million-ton annual average over the past five years.

Dry weather and limits on the amount of land suitable for cultivation are already curbing supplies.

Total wheat shipments from Australia may drop 7.2 per cent to 16.99 million tons in the 12 months to June 30, the lowest in five years, after the hottest spring on record, according to the Australian Bureau of Agricultural and Resource Economics and Sciences.

While wheat imports by south-east Asian countries from all origins will reach 17.75 million tons in 2014-2015, or 8.6 per cent more than the average in the past five years, exports from Australia are estimated to be 8.2 per cent below the five-year average, US Department of Agriculture data show.

“We have a productivity growth rate at about 1 per cent a year and I hope this will continue,” said Simon McNair, chief executive officer at Australian Grain Growers Co-Operative. “There’s a finite amount of farmlands. There’s competition from other agricultural products like cattle, and other crops.”

Rising consumptionSouth-east Asian nations are still expanding. The International Monetary Fund forecast last month that growth in the five biggest economies will accelerate to 5.2 per cent in 2015 and 5.3 per cent in 2016, from 4.5 per cent last year.

Demand for wheat flour will increase at the fastest pace in Indonesia, Vietnam and the Philippines, with the average exceeding 7 per cent a year in the decade through 2020 according to Interflour’s Harvey. Consumption per person in the region will climb to 29 kilograms in 2020 from 20 kilograms last year, he said.

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Fresh blood needed at Nufarm

Casting a long shadow: Doug Rathbone made a shock exit from Nufarm yesterday.WAS that blood seeping out from under the CEO’s door at Nufarm, or was now former boss Doug Rathbone just sharing a farewell red with his long-time chairman, Donald McGauchie?

We shouldn’t read too much into the fact that the weed and bug killer’s boss stepped down with no warning on Wednesday after 15 years as CEO, and with no permanent replacement.

Or, the fact that he received a $1.643 million “termination payment” on top of his statutory entitlements.

And it isn’t like McGauchie has form. He swears that he did not – in his role as AACo chairman – dispatch the beef farmer’s chief, David Farley, to its abattoirs in 2013.

“Doug believes that new leadership can bring a fresh perspective and energy to driving important change in the business. Doug and the board have agreed that now is the right time to make a change to new leadership,” McGauchie said in a statement from Nufarm.

I wonder whether it would have been the same outcome if Rathbone hadn’t been forced to sell down his 18 per cent stake in Nufarm in recent years to support his rather expensive wine hobby, which soaked up an estimated $100 million as he acquired wineries like Yering Station, Xanadu and Mount Langi Ghiran.

The share sales certainly caught the attention of his fellow investors.

In May 2011 Rathbone was forced to explain to the market that a $23.7 million share sale to Japan’s Sumitomo Chemical Company at an 11 per cent premium to the prevailing share price “avoids any market disruption that might result from the on-market sale of Nufarm shares owned by me”.

In March and April 2010 he offloaded $94 million worth of shares at up to $14 a share. Not long after, the debt-laden Nufarm announced a profit downgrade which sent the stock below $4.

A real point of interest is whether the ASX forces Nufarm to revisit a speeding ticket it issued last week after Nufarm’s shares rocketed from $5.04 to $6 in a matter of days.

Nufarm said at the time that it was not aware of any information in its possession that would explain this sudden surge in share price and trading volumes.

Nufarm also announced a $100 million cost reduction program on Wednesday. Just saying.

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Nats back Abbott as PM

Nationals leader and Deputy Prime Minister Warren Truss.NATIONAL Party leader and Deputy Prime Minister Warren Truss says the Coalition agreement would need to be renegotiated if Tony Abbott was removed as Prime Minister.

Mr Truss spoke to media today as the National party gathered for a meeting in Wodonga, Victoria, to prepare battle plans for the year ahead, with a specific focus on regional issues.

However, the National party’s key planning session also arrived with mounting pressure on Mr Abbott’s leadership amid tightening scrutiny from Liberal colleagues.

Opposition leader Bill Shorten said the Liberal government was “absorbed with fighting over their own jobs and they have forgotten about Australia in the process”.

“The last two weeks have been shambolic and chaotic and in the meantime real Australia is doing it hard,” he said.

“It’s long overdue that the Liberal government in Canberra stop worrying about who is going to sell their unfair message (and) they go back to keeping their promises they made before the last election, the basis upon which they hold power in Australia.

“And they need to remember that cost of living is far more important than whether or not it’s Julie Bishop, Malcolm Turnbull or Tony Abbott as chief salesman for this Liberal government.

“What matters is for Tony Abbott or any of his people who are circling him looking for his job, is they say clearly to Australia ‘we will keep our promises we made before the last election’.

“Just dumping the salesman of the broken promises doesn’t change the truth of the broken promises.”

Nats would renegotiate CoalitionMr Truss reiterated his support for Mr Abbott and conceded a different Coalition agreement would be needed if a new leader was appointed.

But he also said, “At this stage, I don’t think that’s likely to be an issue”.

“The Coalition agreement is actually between Tony Abbott and me and that’s an agreement that we submitted to the Governor-General so that she was able to commission the government,” he said.

“So that is an agreement between the Nationals and the Liberals, but particularly it’s an agreement between Tony Abbott, as leader of the Liberal Party, and me, as leader of the Nationals.”

Mr Truss said the leadership issue was an issue for the Liberal Party to resolve but he’s made it “absolutely clear that I’m happy to be working with Tony Abbott”.

“I think he’s doing a good job and I would like his leadership to continue,” he said.

Asked whether he’d been sounded out from any third party in the Liberal Party on whether he’d support any leadership change, Mr Truss said, “no”.

“I think everyone should support the leader; they should make it clear that they will back this government and they’ll work constructively with Tony Abbott to make sure that we deliver for the people of Australia,” he said.

Mr Truss also played down questions about whether the Nationals could work with former Liberal leader Malcolm Turnbull, who they rejected when he was beaten by Mr Abbott in a leadership ballot in 2009, if he became PM.

“I don’t think there will be any other candidates,” Mr Truss said.

“I think Tony Abbott is the leader, he should remain the leader and everyone should get in behind him.

“I hope that shortly you might get around to asking us questions about the Nationals and what we’re doing and our determination to work as a united team who contribute constructively to the government and also, in particular, to deliver good policies for Australia.

“Now, we’ve got ministers who are involved in some of the key areas of the economy and service provision in this country and we have, therefore, a vital role to play and we’re determined to do that in a constructive way and we want to get on with that job.

“And therefore we want to talk about policy issues not distractions about leadership or other questions.”

Rather than ongoing distractions, Mr Truss said it was important to have strong and stable government and therefore important that the leadership issue is “settled and settled quickly”.

“I’ve regarded as a privilege to work with Tony Abbott,” he said.

“He’s got a strong commitment to our country, a vision and determination, he works hard and he has been a good partner for the Nationals.

“So it is important that those issues be resolved and be resolved promptly and then we get on with the business of delivering strong, stable and assured government.”

Regional Australia agendaMr Truss said the party’s agenda for today’s meeting included “a wide range of issues of importance to regional Australia” including health care, improved education for country residents, delivering the government’s $50 billion infrastructure commitment for roads and railway lines, regional communications .

“We all know the regions contribute enormously to our nation’s wealth and when the regions are strong so is our country,” he said.

“And so for that reason it is vitally important that we have strong and healthy and vibrant regions to guarantee that our country will get through the difficulties, the economic difficulties that are confronting the globe at the present time and indeed problems with commodity prices et cetera that are affecting our own profitability as a nation.”

The Melbourne to Brisbane inland railway line was also a key focus to the party’s meeting today which Mr Truss described as “a nation changing project”.

“Essentially the road transport task or the transport task for our nation is expected to double over the next 20 years and treble over the next 30 years,” he said.

“So unless we’ve got a better rail system, unless we’ve got better shipping arrangements the reality will be that our road system will simply be unable to cope.

“So projects like this are vital to ensure that our economy will be mobile and able to move freight around the country in the decades ahead.”

Mr Truss said the government had committed $300 million to prepare the project for the construction phase and begin early construction, via a committee headed by former party leader John Anderson.

“They’ve been doing work on identifying some of the key issues to be addressed in relation to the route and I’m pleased to announce today and additional $29 million commitment to that process,” he said.

“This $29 million will help to complete the business case for the project, identify routes (and) deal with some of the challenging engineering issues particularly in this instance in Country New South Wales and Southern Queensland.”

Mr Anderson said the project was in the order of a modern snowy mountain scheme in terms of its scope, size and its cost.

“I would say that we need it as a matter of national priority now as construction jobs in the mining sector are lost, this can soak up a great deal of unemployment that would otherwise occur,” he said.

“That’s in the short term.

“In the long term this hooks up the most productive regions of Australia in a way that will help them enormously boost their existing businesses, build new businesses.

“It will for the first time give a modern economy a modern rail network.

“Whilst there’ll be enough jobs for the truckies to keep them busy forever, because of the expanding economy, this will take about 100,000 truck movements a year off the corridor, it will free up Sydney’s rail and road network, so there’s a great benefit for a very crowded city in that and of course trains are environmentally friendly and particularly fuel efficient.”

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