Because, it suggests something at odds with AHF. For a long...

Because, it suggests something at odds with AHF.

For a long time, now, AHF has crowed about its JV arrangements with ODFA. Refer even most recently the 11/7/17 update where it says:
----
"The largest Australian cooperative group of Organic Dairy Farmers are Victorian based Organic Dairy Farmers Australia (ODFA) which accounts for around 50% of Australian organic milk production and is a JV partner with CDC in the production of organic butter at CDC’s Camperdown Factory."

12 months ago, ODFA accounted for >75% of the Australia wide organic milk production. Refer for instance ASX 25/7/16 (EGM) presentation and the CDC acquisition presentation of 8/2/16, where the following was said:
-----
A cooperative of 16 dairy farmers in Victoria
 Produces over 70% of Australia’s organic milk
 Distributes ‘Organic Dairy Farmers’ and ‘True Organic’ brands
 CDC has a ten year joint venture agreement beginning in 2013 with ODFA.

Today's WHA announcement restated the ODFA market reach at+75%:
----
"ODFA supplies over 75 per cent of all organic milk produced in Australia and comprise certified organic and bio-dynamic farms across the main dairying regions of Victoria."

It also went on to advise the following:
----
"Wattle Health Australia has entered into a non-binding heads of agreement with Organic Dairy Farmers of Australia Pty Ltd, Mason Ventures Ltd (an indirect wholly-owned subsidiary of Mason Group Holdings Limited) and Niche Dairy Pty Ltd (wholly-owned by Mr. Andrew Grant, the founder of Blend & Pack) to undertake a commercial due diligence for the establishment of a joint venture for the production of organic powdered milk."

So, today's announcement already calls into question two of the key elements of last week's 12 month long, gestated, strategic update, namely, (*) organics, and (*) powders. For example, this was from last week:
----
"Wet-blend milk powder drying for Specialty Milk particularly for organic milk and ingredients aimed at the Organic Infant Formula markets."

It therefore seems that AHF has been particularly adept at trashing its existing relationships, including in relation to WOW (lower store coverage than previously alluded to), ODFA (organics and JV), and competitors.

If then the potential "organics" edge has been lost (ie: which is what Michael has been going on about for >12 months), or alternatively that AHF is going to go it alone with organics (in which case the capital commitment required will be very significant indeed, both farming wise and facilities /powders wise), then AHF will be starting from well and truly back in the pack (ie: 5 producing farms and one feeding farm, vs 16+ producing farms which ODFA already has in place, established and maintained).

This however may well explain the sub-50% utilisation rate that is now happening at CDC, namely that one or more of AHF's customers have either shifted elsewhere, or have scaled back significantly on their throughput requirements. It also suggests that AHF has retreated somewhat during YTD 2017 through scaling back more towards batch (ie: milk only) processing.

These are but several of the points to which the WHA announcement has alerted.

Beyond this, the WHA announcement (insofar as ODFA is concerned) suggests, in the alternative that either:
1. ODFA considers AHF more of a competitor /threat into the future so therefore is wanting to diversify itself away elsewhere (ie: through mitigating its own potential future exposure risk); or
2. that ODFA considers that any further tie-ups with AHF could potentially amount to undue execution risk, financially, commercially, operationally and /or strategically, in which case ODFA is again seen to be looking away and moving towards mitigating its risk.

So whilst the WHA announcement is no more concrete in terms of certainty of future outcome than have been any of AHF's recent announcements (Lian Hi, Lencia, etc), it is nonetheless more detailed than any of the comparative AHF announcements of the last 12 months. This therefore infers that what was being seen as an emerging opportunity some 12+ months ago, has now faded somewhat into the background with all manner of alternate risks (not the least of which being execution risk) now arising.

The lights might be on but it seems that no-one's at home.