Recall not worrying Fonterra investors

Investors in Fonterra Shareholders’ Fund units have shown little reaction to the recall of a product reducing nitrates in water being found in milk powder.

The active ingredient in nitrification inhibitors owned by fertiliser co-operatives Ravensdown and Ballance is dicyandiamide (DCD), and traces of it were found in Fonterra powder by a government and industry working party.

Sales of the products branded eco-N and DCn were suspended on Thursday as a result of international food safety bodies adding DCD to a testing list last year.

Until new international standards are set the products are off the shelves to prevent any risk of the dairy export industry’s reputation being tarnished.

Authorities say there is no food safety risk to the compound, but the owners of the products are unable to guarantee its complete exclusion in milk.

Fonterra investors, many of them off the farm, seem mostly unbothered by the recall with fund units trading yesterday down 8c from Thursday’s closing transaction of $7.31. Unit prices went as far down as $7.21 yesterday morning, but nudged back up again to close at $7.23.

Hamilton Hindin Greene director Grant Williamson said there had not been too much of a reaction to the recall with trading down just over 1 per cent.

‘‘Normally when there is negative news we can get quite a bit of selling, but we haven’t seen much reaction at all. It indicates no-one is overly concerned with the news reports at this time.’’

The Christchurch sharebroking company has watched as unit prices have continued to rise since they were first offered two months ago.

Williamson said trading had gone extremely well from the fund listing when new offerings often went above an issue price.

‘‘Since then the buyers have been more in control and prices have continued to go higher. It’s been an extremely successful IPO [initial public offering].’’

He said the price looked to be at full value, based on an examination of the co-operative’s core sectors, and future gains would depend on its financial performance.

Investors buying units in the fund have bought the economic rights to Fonterra shares through dividend payments, but without voting rights and farmers retain control of the co-operative.

The fund was set at $525 million with another $25m reserved for 9000 to 10,000 ‘‘Friends of Fonterra’’ such as farmers, sharemilkers, retired farmers and co-operative employees.