Brief Bites, November 21st

In this edition:

Annual Result
Annual Meeting
Supply chain update
Gold medals for Handpicked 55 Day Aged Beef
COVID-19 on-farm
Global Market Update

Annual Result

On Friday, we published our annual result for the 12 months ended 30 September 2021. Pleasingly, we have recorded an operating profit of $41.9m*. A profit distribution of $8.5m will be made to farmer shareholders, in addition to $16.7m in loyalty payments already paid over the course of the year.

Overall, it has been a strong year for the co-operative.

Whilst pleased with the improved profit result, the global shipping disruption has had a meaningful impact on our inventory and cash flow.

One of the benefits of our balance sheet is that we have been able to use it in these times. It is our view that global logistics and supply chains will be challenged well into the foreseeable future, and we are improving systems and processes to speed our cash cycle. We have endeavored to balance our desire to reward our farmer shareholders with the need for caution in the face of ongoing global volatility.

Our improved performance gives us a strong base to continue to build on and reinforces our reinvestment strategy, with several years of sustained capital reinvestment reflected in the profit result.

We are seeing investment in premium programmes deliver intended value to farmers with support in the Handpicked lamb and beef portfolio continuing to strengthen as premiums paid for qualifying animals have increased.

Our Manufacturing Excellence Programme is paying off with the performance of plants improving year-on-year. This has created greater processing capacity for our farmers. This year, we increased our bovine network capacity by 10 per cent and processed a record number of cattle.

I want to acknowledge the way staff have effectively managed both the response to COVID-19, and ongoing global supply chain issues.

Similar to many New Zealand businesses, we have experienced significant global supply chain disruption over the last 12 months. The credit for this year’s result goes to our people. Our teams worked with farmers, transport providers and shipping companies to make sure we were able to continue to move livestock off farms and utilise both our plant network and infrastructure to ensure the supply chain difficulties were almost invisible for farmers.

Full accounts are available in the Annual Report on the Alliance website.
*Profit before tax, distributions and allowances for historical employee entitlements

Annual Meeting

Alliance Group’s Annual Meeting will be held on Thursday 16 December from 10:30am. Given the current COVID-19 restrictions, the meeting will be held virtually and shareholders will be able to participate via livestream. We will provide further details in the coming weeks.

Supply chain update

Global demand for our product remains strong, and we continue to manage disruption across supply chains. Of most concern to our export supply chains is Los Angeles/Long Beach, Dalian in China and the UK.

In Los Angeles/Long Beach, almost 50,000 containers have spent more than nine days sitting in port awaiting discharge and this number is increasing. In total, there are now 87 vessels waiting in port. This situation has deteriorated despite action by the US Government.

In Dalian, COVID-19 infection levels have returned to the port and importation system and the strict supervision in and out of the Dalian area has resulted in a shortage of truck drivers, who are required to provide a 24-hour COVID-19 test. Dalian is one of our major import gateways to China and while alternative ports are available, this creates new costs and risks for our supply chain.

In the UK, there is a build-up of both full and empty shipping containers at the port of Felixstowe. This has been exacerbated by the ongoing global impact of COVID-19 and increased demand from UK consumers.

This is putting a strain on port operations and the ability to quickly clear containers. Ultimately, it will have an impact on available empty containers in New Zealand.

With processing ramping up, we are carefully balancing plant capacity and livestock flows with storage space, container availability and our ability to ship product to our global markets.

We encourage farmers to bring livestock forward if possible to help us to manage capacity. Please also keep in touch with your livestock representative about forecasts.

Gold medals for Handpicked 55 Day Aged Beef

We are pleased to announce that Alliance Group’s Pure South Handpicked 55 Day Aged Beef has won three gold medals for rib eye and fillet in the prestigious World Steak Challenge in Dublin. This contest benchmarks the quality of beef against global competitors.

The gold medals re-affirm the status of Handpicked 55 Day Aged Beef as among the world’s best. Handpicked 55 Day Aged Beef is in demand across the globe and we expect this to continue.

As a 100 per cent farmer-owned co-operative, we’re committed to building a differentiated premium portfolio to capture more value for our farmers and meet the expectations of increasingly discerning consumers who are prepared to pay a premium for beef raised as nature intended, free-range, grass fed and antibiotic-free.

If you are interested in joining the Handpicked Beef programme, please speak to your livestock representative.

Listen to Alliance General Manager Sales Shane Kingston discussing the gold medals win with Heather du Plessis-Allan on Newstalk ZB

COVID-19 on-farm

As we know, the COVID-19 delta variant is more contagious than other variants and is present across New Zealand including the South Island. With the country loosening restrictions over the coming months, there is a chance more people in rural communities will be infected.

We are continuing to operate our plants in line with protocols agreed with the Meat Industry Association and the Ministry for Primary Industries. This includes physical distancing, further increased cleaning/disinfection of processing areas, the use of Personal Protective Equipment and closing our sites to non-essential people.

It’s a good idea to have a plan to ensure your farm can continue to operate if you, an employee, or a family member contracts COVID-19.

Our policy is as follows:

Farmers should immediately let their livestock representative know if they, their family or workers have contracted COVID-19
Livestock can continue to be booked in for processing, however anyone infected and transport providers must take the appropriate precautions. That means ensuring the person or people infected are not present at the time of pick-up and observing physical distancing at all times.

The primary sector has developed a useful checklist, which you can download here.

Update from our global markets

Lamb

Christmas airfreight to the UK is continuing. Market demand remains strong with retailers planning for a buoyant Christmas selling period, despite the rise in COVID-19 cases. Supply chain challenges remain with congestion at main ports.

The market in North America is strong with competitive tension building between retail and food service channels. Recent economic data out of China suggests a cooling of the economy, which may soften commodity prices. The market in the Middle East is now more competitive with some volume business being concluded. The supply chain situation there also remains a concern.

Mutton

Demand remains strong across all global markets, although there is some push back on current prices, which would suggest the market has peaked. The aim is to have a strategic geographical spread to absorb seasonal volume production. The Chinese market is underpinning the supply programme.

Venison

Game season chilled air freight is continuing. Market demand is firm but there are concerns that the latest COVID-19 outbreak could affect the food service sector, which is critical for the European game season. On the positive side, there is good demand for manufacturing items. There are promising retail developments in China and North America.

Beef

The political stalemate between China and Brazil is continuing with the resumption of beef exports from Brazil still not confirmed. Beef inventories continue to drop in mainland China, with markets nervous about a possible resumption of Brazilian beef. Sales for the post Chinese New Year period are continuing with prices similar to pre-Chinese New Year levels. A significant portion of Alliance grinding production is for China and grinding prices have firmed considerably in this market.

The US market continues to demand New Zealand grinding supply, however they are struggling to compete with the Chinese prices. New Zealand is 70 per cent through its US quota for the calendar year, with Australia at 28 per cent.

Co-products/Specialty Ingredients & Materials

Strong wool pricing is steady and clearance rates are high. Alliance has begun saving premium woolskins for rugs and initial loads will move on in the coming weeks. Early lamb casings are in demand.