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NAPCo result indicates start of recovery, after two tough years

Jon Condon, 26/05/2015

THE North Australian Pastoral Co looks to be on the road back to recovery, after two very dry years’ impact on productivity and financial performance.

The company has reported a pre-tax net profit for the year ended December 31 of $5.1 million – a solid, if not partial recovery from a corresponding losses of -$7.35m the year before, and -$5.7m the year before that, when drought across the northern Australian region took a heavy toll.

Losses have only rarely been reported by the conservatively-managed NAPCo in its 138 year history.

This year’s improved result follows turnarounds in financial performance recorded recently by listed cattle agribusiness entities AA Co, Ruralco and Elders.

Double Blue Bush 2. - Copy

This aerial image of Mitchell/Flinders downs country on NAPCo’s Alexandria Station was taken in late January, before the wet season came to an abrupt and early close. From November to January, Alexandria recorded 415 mm of rainfall, followed by just 9mm in February and 40mm in March, with nothing since. February should be the region’s wettest month but it was the driest and very hot. Consequently the country has dried out at a much faster than normal rate and left behind a body of feed that could be a huge fire risk later in the year.

 

NAPCo’s 2014 net profit from ‘ordinary activities’ of $5.1m includes a significant increase in the value of its cattle herd. Reflecting the recent positive move in the Australian cattle market, the increase in NAPCo’s cattle herd value resulted from an overall increase in per-head value (rising $110 to $746), which offset a reduction in overall herd size of 10,000 head due to impact of earlier drought.

The increase in value/head was driven by an increase in average cattle weights and higher market prices towards the end of 2014.

The company’s cattle herd contracted for the second consecutive year in 2014, due to the accumulated effects of the previous terrible 2012-13 years. From a starting herd of 187,795 head, a combination of much lower than expected brandings, higher than forecast mortalities and lower than forecast sales, resulted in a closing herd balance of 177,775 head at year’s end.

Brandings last year of 50,721 calves (down from 58,638 in 2013) were the lowest since 2009. Lower conception rates caused by poor seasonal conditions in the previous year, lower calf survivability and wild dog predation all affected brandings in 2014.

The company sold 57,998 cattle during the year, down almost 10pc from 2013, due to cattle not achieving required sale weights.

Chief executive officer Nigel Alexander said while 2014 represented a ‘turnaround’, it was still a long way short of where the company needed to be in terms of recovery.

Last year’s top line (sales revenue) was ‘pretty much the same’ as the previous year, he said.

“The major difference was that it was on the sale of about 58,000 cattle, as opposed to 64,000 the year before,” he said.

Sales revenue last year was $64.5m, up only slightly on the year before, reflecting the trend in higher cattle prices, and additional weight in sale cattle.

“We managed to preserve the herd number last year as best we could, albeit it still fell about 5pc in size. We were pretty happy that we managed to contain the decline as much as we did – although it came at a cost, in having to spend more on supplementation, diesel costs (to pump bores given the minimal surface water available), and shifting cattle earlier to preserve breeders,” Mr Alexander told Beef Central.

He said the actions had meant NAPCo had ‘got off to a pretty good start’ this year, with prices and weights up on 2014.

napco-logo-padded“By preserving that herd size as best we could, we’re currently estimating sales this year to be in the order of $82 million,” Mr Alexander said. That rise, up about 27pc if it is to be realised, will come via higher prices and animal weights, and will come on sales of about 57,000 head – slightly down, again, on the 2014 year.

While it is still too early to gain an impression of 2015 pregnancy performance from last season’s joinings on NAPCo’s northern ‘calf factory’ breeding properties, the company’s head office yesterday received some encouraging early preg test results from Mittiebah Station, located to the north of Alexandria and East of Brunette Downs.

General manager Sam Harburg reported an excellent 89pc PTIC rate in his 2014 joiner heifers, which received a wet season phosphorus lick over the summer period. An additional 300 were already wet, with young calves at foot. Mittiebah, like other parts of the Barkly had a good start to the last wet, mostly storm rain rather than monsoonal, but it was cut short when rain stopped in February.

It is still much too early to suggest such a pregnancy performance is common across the Barkly region, but it is an encouraging sign, indicating the general trend of how the region is going this year.

Another indication of strong conceptions this year came via recent preg testing to identify empties to go into NAPCo’s domestic grainfed beef supply contract.

“We’re coming up short for empty heifers for feeding, which is an encouraging sign for pregnancy rates,” Mr Alexander said.

As a consequence, the company expects herd size to grow marginally in 2015, but it will take a couple of years, at least, to recover to the levels achieved in 2012, before the onset of the most recent drought event.

Mr Alexander said while the company’s properties on the Barkly and in the Gulf region had enjoyed a reasonable summer season, mostly storm rain, the Channel Country properties had received only a modest, main river and channel run in both the Georgina and Diamantina, without the more extensive beneficial flooding needed to deliver a really good season.

“Our outside country in the channel country is pretty awful,” he said. “As evidence of that, we currently have only 26,000 head in the Channels, down from a normal number over 40,000 head at this time of year.”

“But we are comfortable that we have enough grass to feed those cattle through to heavy grassfed slaughter weights. We think that’s a pretty good result, all things considered.”

Asked whether NAPCo was likely to be in the market for restocker cattle sometime this year if it rains, given recent herd run-down, Mr Alexander said it was definitely not on the cards for breeder replacements (the company relies heavily on its own composite breeding program, and outside genetics could compromise that), but purchases of feeder cattle for feedlot operations would again occur.

“We’ve deliberately done that, because having received a slightly better season overall this year, we’re able to leave cattle out on properties for longer, adding more weight on cheap grass rather than more expensive grain. That’s unlike the previous year where we had to bring cattle into the feedlot earlier, limiting the opportunity to buy external feeder cattle.”

Having said that, the company continues to bring station-bred heifers south, at lighter weights than that required for domestic feeding programs, being backgrounded on a lower-cost silage-based ration to advance them to entry weights.

 

 

 

Here’s a summary of some other key points from NAPCo’s 2014 annual report to shareholders:

 

Capital improvements

Expenditure on capital improvements was kept to a minimum through 2014 as the company attempted to reduce its cash outflows in the face of the difficult season and poor prices.

Seasonal outlook

In early 2015 all but some of the backgrounding properties received an encouraging start to the year, with widespread and useful rainfall.  While still only storm rain, good falls were received on northern properties, and particularly on those parts of Alexandria and Coolullah which has missed out last year.

Since then, only the company’s backgrounding properties have received limited but useful falls.  A lack of follow-up rain elsewhere, coupled with continued high temperatures, particularly in the Channel country, has delivered another challenging, but manageable season.

Feedlot emphasis

Another major cost in 2014 was for increased feedlot rations used to feed company cattle. Wainui feedlot was kept full for most of the year, while grain prices were near historical highs.

Feeding of silage based ration to cattle on pads in the paddocks at Wainui was also necessary to avoid forced sales. This strategy, although it came at a cost, meant that many more cattle could be ‘finished’, enabling sales to be achieved, while ensuring that the company retained a substantial number of cattle to sell in 2015 – unlike many producers across the region whose herds were severely reduced by the drought conditions.

The mid-year rain on NAPCo’s western properties also helped light cattle to be held back for longer, allowing them to put on more weight. This impacted the supply of cattle into Wainui feedlot, but created the opportunity to purchase cattle for grainfeeding, helping to keep the feedlot fully utilised towards the end of the year.

Wild dog management

Contributing to lower brandings in 2014 was significant wild dog predation, the annual report to shareholders said.

“Although impossible to quantify, the evidence of attacks could be clearly seen, particularly on our channel country and NT properties,” shareholders were told. “Coordinated baiting programs with neighbours, national parks and wildlife authorities, and aboriginal communities were conducted with apparent success during the year. Ultimately, brandings of 50,721 calves in 2014 were the lowest recorded since 2009.”

Cattle prices

Prices received for the company’s main turnoff lines – grainfed steers and heifers – appreciated steadily throughout 2014, but were capped by drought-induced oversupply in the early parts of the year.  Grainfed steers for the export market started the year at 400c/kg dressed weight and closed the year at 450c/kg.  Grainfed heifers for the domestic supermarket trade opened at 385c/kg and finished the year at 435c.

Much of the increase in both markets occurred late in the year.

“So far in 2015, ongoing dry conditions have continued to cause high slaughter numbers across the industry. However prices for all cattle classes have risen sharply since the beginning of the year, and despite some softening at the end of the first quarter, are still substantially higher than both year end and year ago prices,” the report said.

Breeding and Genetics

During 2014 NAPCo continued to implement various recommendations from the critique of its genetics program conducted earlier by consulting geneticist, Dr David Johnston.

A key action was the implementation of ultrasound scanning of top stud heifers for carcase traits (rib fat, rump fat, intramuscular fat and eye muscle area).  These heifers were scanned in late April on both Alexandria and Boomara at 18 months of age.

“It is a testament to the genetics of both composites that the heifers exhibited sufficient expression of these traits for the necessary data to be collected successfully, without the need for prior intensive feeding or preparation,” the report said.

Previously, data on carcase traits was obtained via ultrasound scans of elite bulls only, consigned to Wainui as part of the annual feeding trial.  The ultimate aim is to cease this feeding trial, with its high transport and feed costs, replacing it with annual ultrasound scanning of the top stud heifers back on their stations of origin.

The company has also moved its genetic evaluation across to the Breedplan platform. Previously, Zoetis (formerly Pfizer) undertook genetic evaluation services on behalf of the company.

Alignment with Breedplan allowed easier access to the suite of enhancement programs such as BreedObject (selection index program) and MateSel (mating allocation program), provides greater database accessibility via a web interface, and aligning NAPCo with the standard genetic evaluation platform employed by the broader industry. This would have obvious advantages should the company decide to start marketing its composite genetics to outside breeders.

The company has also partnered with CSIRO in undertaking a project to study the current breed composition of the Alexandria Composite using DNA profiles.  This project will examine how the ratios of the original breeds within this Composite (Brahman, Shorthorn, Charolais and Belmont Red) have changed over time in response to selection, and will establish the current ratio of these breeds within today’s Alexandria composite.

The study will also attempt to correlate the ratios of these individual breeds to specific traits, so as to identify whether selection for, or against, specific traits could further alter the breed composition of the Alexandria composite.

 

 

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