New Zealand Farming Systems Uruguay (NZFSU) has signalled a breakeven cash flow in two years after posting a net loss of $US45.9 million today.

By then development expenses, particularly on infrastructure including irrigation and electricity networks, should be in place and on-farm profit based on higher stock levels, increasing milk production and better returns will rise.

The NZX-listed company was founded by PGG Wrightson and former PGG Wrightson chairman Craig Norgate and listed in 2006.

While revenue for the 2008/09 year was up to $US15.8 million from $US7.8 million the previous year, farm working expenses nearly doubled to $US22.7 million from $US12 million. Nearly three-quarters of farm working expenses related to labour, increased feed and cropping and pasture maintenance.

The operating result before fair value adjustments was a loss of $US15.6 million, down from a negative of $US8.8 million. The adjustments of $US23.9 million included writedowns of $US3.6 million for land and $US20.2 million for livestock.

While its development and growth has not gone according to plan, it is now the largest milk producer in Uruguay producing more than 45 million litres during 2008/09. This is more than three times the previous year’s volume, but milk revenue climbed just 50% to $US10 million.

These production levels are expected to double over the next few years with full production levels achieved by spring in 2013, following competition of development by mid-2012.

While the 2008/09 year started well, plummeting dairy prices, the global financial crisis and the worst drought in decades strongly contributed to the company’s short term results and overshadowed progress towards its long term goals, chairman Keith Smith said today.

“The company, however, remains positive on prospects for the business in the medium term,” he said.

It believed commodity prices for milk have bottomed out and will improve. This is based on increasing demand in Asia and the Middle East and likely reductions to supply out of the United States and Europe.

The latest prices received were US20c per litre which is equivalent to $US2,100 per tonne of whole milk powder or $NZ4.30 per kilogram of milksolids.

Milk production on NZFSU farms has been limited with a slower than expected irrigation infrastructure rollout stymied by a lack of funding, available electricity and water storage due to the drought.

However, irrigated land performed well according to the company. NZFSU has monitor farms in two of three regions of Uruguay it operates in.

Its Monasterio farm showed positive pasture growth under irrigation and pasture durability during the drought as “pleasing.

Around 15.5 of dry matter per hectare was grown this year on the initial irrigated land, despite it not being commissioned until late spring.

Over the year, NZFSU has increased land in dairy production from 4,700ha to 10,500 and commissioned 15 new milking sheds to take the total to 26.

It has doubled the number of milking cows to 11,300 which has led the boost in production averaging 290 kilograms of milksolids per cow, up 50 from the previous year. NZFSU expects that to double this year with increased dairy stock.

Further development funding of between $US50-60 million is required following a successful bond issue earlier this year raising $US30 million for further irrigation, milking sheds and livestock.

So far 407ha is irrigated. By the end of summer in 2010, the company plans to have 1,600ha irrigated and then doubling that in the 2010/11 financial year.

The company has signalled that funding will probably come from a second bond issue this year and the outright sale or sale and leaseback of some farms. The company owns 35,500ha.

NZFSU (NZS on NZX) share price remained at 45c this afternoon following the release of its annual report.