Dirty birds

Towards the end of last year a report from the Otago Regional Council raised concerns about deteriorating water quality in the Kakanui River.

One of the contributing factors was an increased level of E.coli.

Dairying was blamed although the council couldn’t find the source.

One of the dairy farmers decided to do his own research and canoed down the river.

He found a couple of dead sheep caught in submerged branches then he came on a large colony of seagulls nesting in a canyon.

He reported this to the council which sent a helicopter up the river and found the source of the problem.

. . .  a large colony of nesting gulls – was found in rugged terrain, about 5 km above the Clifton Falls bridge.

Water quality samples were taken immediately above and below the colony, with widely divergent results Upstream of the colony, the bacteria concentrations were 214 E.coli/100ml, whereas immediately downstream, the concentration was far greater at 1300 E.coli/100ml .

ORC manager of resource science Matt Hickey said that according to Government water quality guidelines for recreational swimming areas, those with less than 260 E.coli/100m should be safe, whereas water with more than 550 E.coli/100ml could pose a health-risk.

Mr Hickey said six colonies of gulls were found in total, on steep rocky faces, where they clearly favoured the habitat for nesting.

While they had gone undetected up until now due to the inaccessible nature of the gorge, it was likely the gulls returned each year to breed in the same places.

“Unfortunately, these nesting gull colonies are likely to continue to cause high E.coli concentrations in the upper Kakanui River, particularly during the breeding season,” Mr Hickey said.

“Bird activity, river flow, or even whether it is a cloudy or sunny day, (as E.coli often died quickly in clear water when exposed to sunlight) will influence actual bacteria numbers at Clifton Falls bridge. With hindsight, it reflects the random nature of the historical bacteria results at this site.”

Mr Hickey said the E.coli concentrations reflected a large number of birds congregating in a small area and we are fortunate this situation was not common in Otago. Historically E.coli concentrations in the lower Kakanui River have been very low, despite the gull colonies being found upstream.

The council is warning people against swimming in the river but we’ve had no warning about drinking the water, presumably because it’s treated.

Locals are very keen to solve the problem but it’s not necessarily a simple matter:

Coastal Otago biodiversity programme manager David Agnew said the Department of Conservation would look into the situation and try to identify which species of gull were nesting in the area.

Mr Agnew said the species involved would determine what could be done to remove them.

”Black-backed gulls are not protected so that’s not a problem as far as if they are causing a problem. They are not rare or threatened, they are not even protected, whereas red-billed gulls and black-billed gulls both have their own conservation concerns.”

There’s no concern about conservation with cows. If they were causing water quality problems farmers could face prosecution and would have to act quickly to address the cause.

Some gulls have a special status and if they’re the ones fouling the water the clean up will take some time.

Milk up 2.4% in GDT auction

The trade weighted index increased 2.4% in this morning’s GlobalDairyTrade auction.

This is the fourth price gain in succession.

The increase is particularly good news as this was the first auction since news broke of tiny traces of the nitrogen inhibitor DCD being found in some milk products.Even though there was no food safety risk there was a perception risk but that doesn’t seem to have impacted on demand.Price changes:  Anydrous milk fat was up 7.2%; butter milk powder increased 3.7%; cheddar was down .1%; milk protein concentrate was up 1.2%; rennet casein increased 3.3%; skim milk powder increased .5% and whole milk powder, which has the biggest impact on the farm gate price, increased 5.4%.

Dairy trumps wool

Fonterra Shareholders Fund units jumped 26% on their first day of trading and will tip wool carpet maker Cavalier Corp out of the benchmark NZX 50 index this month.

The Fonterra fund, which has surged by a third from their $5.50 offer price, has met the ranking and liquidity requirements and will join the benchmark index on Jan. 21, the stock exchange operator said in a statement after the close of business.

Cavalier, which has shed 23 percent over the past 12 months, will leave the top 50 being the lowest ranked stock.

Units in the Fonterra fund, which give investors a slice of Fonterra Cooperative Group’s dividend stream, rose 0.8 percent to $7.31 in trading today, while Cavalier shares gained 1.8 percent to $1.71. . . .

Given Fonterra is New Zealand’s biggest company it’s not surprising it is seen as an attractive investment. Cavalier is a much smaller operation.

However, the fortunes of the FSF units so farand Cavalier on the NZX 50 index is a reflection of dairy and wool farming.

Dairy conversions, while slowing from the peak, are still going ahead and wool is in the doldrums – again.

Wool ticks so many marketing boxes  free range, renewable, sustainably grown. It ought to just about sell itself.

But in spite of initiatives like Campaign for Wool demand is low and the price reflects that.

Fonterra’s forecast payout for this year is down on last year’s but the outlook for dairy is still far better than for wool.

However, Hugh Stringleman thinks Fonterra suppliers might have mixed feelings about the the increased price of shares:

Since Trading Among Farmers (TAF) was launched about $300,000 has been added to the share capital of the average Fonterra supplying farm.

That increases the temptation to redeem all or part of that capital to apply elsewhere in the farming business, where it would earn a better return and perhaps supply a Fonterra competitor.

Also, milk production increases averaging 5% nationwide in the season to date mean Fonterra farmers will eventually have to “share-up” (purchase new shares to match increased production) at the much higher market prices.

This will be especially important for recent conversions with expanding milk production in regions like Canterbury, which is 11% up on last season.

The new three-year rolling average share standard will, however, moderate the compliance cost for established farmers who most-recently increased their share holdings by 10% or more at $4.52/share, following the 2011-12 record milk season.

The high turnover of units, totalling two-thirds of the issue volume in fewer than 30 trading days since launch, shows the depth of investor interest in New Zealand dairying and in Fonterra in particular.

However, it also means the market tail is wagging vigorously, feeding farmers’ concerns over possible effects on the dog.

Is a well-informed market sure that higher world dairy prices are in prospect or is an investment bubble growing?

Will the high unit and share prices reinforce dairy farm values through demand from expanding farming families, corporate farmers and syndicates?

On the other hand, Fonterra’s forecast dividend of 32c reduces in yield as the unit and share prices climb, for farmer-shareholders and unit investors. . .

The international demand for milk is expected to increase and the end of the season looks better than the start did.

But it’s very early days to be drawing conclusions on the future prospects for the share price.

MIlk price up .7% in GDT auction

The trade-weighted price of dairy products increased .7% in this morning’s GlobalDairyTrade auction.

This is a reassuring trend after winter’s price drops.

Today’s results continue to keep the price above the long term average.

The price of anhydrous milk fat increased 1.2%, cheddar was up 12.4%; milk protein concentrate was down 1.8%; there was no change in the price for rennet casein; skim milk powder was down 1.7% and whole milk powder was down 1.9%.

 

 

 

 

 

Rural round-up

The return of milk scarcity – Rabobank on dairy:

The global dairy market appears to be heading for a period of renewed supply scarcity in the coming 12 months, according to Rabobank.

Rabobank senior dairy analyst Hayley Moynihan says the impetus for tightening emanates largely from the supply side, where low milk prices, extreme feed costs and pockets of unfavourable weather are expected to slow growth in milk production in export regions.

“We fear that much of the market has been lulled into a false sense of security by the phenomenal growth seasons we saw late in 2011 and early 2012, with the next 12 months to provide a rude awakening,” Ms Moynihan says. . . .

Dairy farming New Zealand can be proud of – Milking on the Moove:

I’ve changed my header to the Milking On The Moove logo. My goal is to create a dairy farming system that New Zealanders can be proud of.

I’m passionate about dairy farming and agriculture. While I have blogged about aspects that I think should change, I’m a fan of the industry. I’m concerned that Fonterra seems to get so much flack from the New Zealand public, which includes individual farmers.

I can understand left leaning environmentalists having a dim view of Fonterra, as that would be in keeping with their attitude towards corporates and big business in general. I’m concerned by the attitudes of middle New Zealand. It seems that many view Fonterra as a money hungry corporate giant that is screwing New Zealand consumers. I’m prepared to be a little understanding of a middle of the road New Zealander, who knows nothing about farming being influenced by the media. . .

Organics – Milking on the Moove:

Research out of Stanford University has shown that organic produce has no greater nutritional value than non-organic produce.

That’s not news to me, but I don’t think people buy organic food because they feel it is has a higher nutritional value, but rather because it is not covered in sprays and pesticides.

Jacqueline Rowarth points out repeatedly that organics generally produce 20% less yield than conventional farming methods. These farmers need to receive the premium that organics provides in order to stay profitable. But as the world begins to meet the needs of a growing population, all the figures I’m seeing require more product being produced from less and with a lower environmental impact. I’m doubtful that organics can achieve this.. .

 

Tokyo launch for coat range - Sally Rae:

A range of coats using merino wool from Closeburn Station in the Maniototo has been launched in Tokyo to much media interest.

Suit makers Konaka Co Ltd launched a range of 15-micron New Zealand wool coats to rival cashmere, under the label Limited Wool Premium. . .

 

New tech can help farmers head off enforced regulation

Farmers have an opportunity to put themselves ahead of the game regarding fertiliser application and avoid tough regulations being imposed on them, the annual meeting of Ravensdown was told in New Plymouth on Monday night.

Ravensdown Chief Executive Rodney Green told 500 shareholders that the company had developed new tools to enable farmers to get the most value out of their fertiliser regime, while still dealing with concerns raised by the likes of the Environment Court’s recent decision in favour of the nitrogen limits set by the Horizons Regional Council.

“We stood with Federated Farmers, Horticulture NZ and Fonterra making many submissions on behalf of farmers that were ultimately not given sufficient weight by the Environment Court,” said Rodney Green. “One thing, however, that is not in dispute is the fact that reducing the environmental footprint of New Zealand farming is increasingly important. Sustainable practices are an important part of the story to tell overseas customers about our farming produce and can also help deliver better results for the farmer’s bottom line.” . . .

Ngai Tahu boosts earnings from commercial operations, eyes bigger dairy development -  Paul McBeth:

Ngai Tahu Holdings, which manages the South Island iwi’s commercial operations, boosted earnings across all of its units and is looking to ramp up its exposure in dairy.

Net profit climbed to $95.7 million in the 12 months ended June 30, from $15.9 million a year earlier, the iwi said in its annual report. Operating earnings, which strip out gains from asset sales and property values, climbed 48 percent to $55.1 million on sales of $209.36 million.

Ngai Tahu Holdings invested $39 million in property development, $19 million in investment property mainly to do with dairy, and $22 million in the Agrodome and Rainbow Springs tourism operations. . .

 

‘ve changed my header to the Milking On The Moove logo. My goal is to create a dairy farming system that New Zealanders can be proud of.

I’m passionate about dairy farming and agriculture. While I have blogged about aspects that I think should change, I’m a fan of the industry. I’m concerned that Fonterra seems to get so much flack from the New Zealand public, which includes individual farmers.

I can understand left leaning environmentalists having a dim view of Fonterra, as that would be in keeping with their attitude towards corporates and big business in general. I’m concerned by the attitudes of middle New Zealand. It seems that many view Fonterra as a money hungry corporate giant that is screwing New Zealand consumers. I’m prepared to be a little understanding of a middle of the road New Zealander, who knows nothing about farming being influenced by the media.

Comparing apples with milk – updated

Update: The tech fairy is playing games with this post.

It first made the comments I wrote below the picture, which I found on Facebook, disappear. Then it got rid of the all the links in the side bar.

Because of that I’ve dumped the picture and typed what it said:

If everyone went vegan, would it destroy our economy?

The milk industry uses 1,638,706 hectares of land. With this it employs 45,000 people and earns, $NZ10.4b in profit annually.

Per hectare of land that is:45000/1638706 = 0.027 employees and 10.4×10⁶ = $6.346.47 in profit.The horticulture industry uses 121,000 hectares of land. With his, it employs 50,000 people and earns $NZ 4b in profit annually. Per hectare of land that is 50000/121000 = 0.4 employees and 4×10⁶ /121000 = $33.057.85 in profit.

Changing land from dairy to horticulture would employ 15 times as many people and improved New Zealand’s profit 5-fold.

No it would probably improve it.

I have no idea if those figures are correct but even if they are, there is a serious problem with the reasoning because it’s not comparing apples with apples.

 

Not all land which is suitable for dairying is suitable for horticulture.

Many horticulture products are fragile, don’t travel well and have short shelf-lives. If they’re not sold they perish; milk powder travels well and can be stored for ages.

Dairy products are high in protein and calcium, few if any horticulture products have these nutrients.

Markets which want dairy products want dairy products. If they can’t buy ours they’ll buy someone else’s, they won’t swap to fruit and vegetables instead.

The anti-dairy lobby is visible and vocal but if this picture is typical their arguments are long on emotion and short on facts.

US dairy offer not up to scratch – Groser

Trade Minister Tim Groser says the USA is yet to produce an acceptable offer on dairy access in Trans Pacific Partnership (TPP) trade talks.

Despite two years of formal negotiations, he says, the US is yet to produce anything of substance on the dairy market, the biggest prize for New Zealand in the TPP.

“We are not going to sign up to a deal that doesn’t improve the export position of our principal exports,” he says. “We will wait and play our cards in the endgame.”

The USA dairy lobby must have strength far in excess of its numbers to keep negotiations stalling on the issue of access for our produce.

Any benefit to the relatively small number of them from protection comes at the cost of higher prices and less choice for many millions of consumers.

Can’t work or won’t?

When unemployment is at its highest rate in 13 years, it’s difficult to understand why some employers are struggling to find people willing to take on manual work.

Several employers desperately seeking reliable workers say it is as if people are unprepared for the workforce and don’t want to prove themselves.

Orchardists and dairy farmers have been noticing this for some time. Local people aren’t interested in the jobs they offer which is why there are so many workers from overseas employed in these industries. Orchard and dairy farm work might not be everybody’s first choice. But any job should be better than no job and people in employment are much more likely to get a job they want than someone who is unemployed.

One fall does not a winter make

People wagering on iPredict are putting their money on a fall in Fonterra payouts for this season and the next one.

Forecasts for Fonterra’s 2011/12 and 2012/13 payouts have fallen following last night’s 10% plunge in prices on the company’s global dairy auction system.

According to the 6000 registered traders on New Zealand’s online predictions market, iPredict, the 2011/12 payout per kilogram of milk solids (before retentions) is now likely to be $674, down $0.07 from the $6.81 forecast when iPredict last reported on Monday.

The 2012/13 payout forecast has been harder hit, and is now just $6.14, down $0.35 or 5.4% from the $6.49 forecast on Monday.

Federated Farmers is also warning of a possible drop in the forecast price for next season:

World wide demand for milk products remains steady despite a 9.9 percent price index fall on the GlobalDairyTrade online market. Federated Farmers agrees with Fonterra this reflects the current abundance of milk being produced around the world.

“Almost ideal growing conditions around most of New Zealand this season has seen a record amount of milk production and a corresponding increase in products on the market platform,” Federated Farmers dairy chairperson Willy Leferink says.

“There is also more milk coming from the United States and Europe at the moment, meaning there is an abundance of milk products going through GlobalDairyTrade.

“This month alone there has been a 10 percent increase in volumes on the platform, so a price drop was not unexpected.

We will have to watch what happens over the next few months, but with Fonterra already having revised down it’s payout by 45 cents to $6.30 per kg of milk solids, New Zealand dairy farmers should begin preparing for a potentially lower milk price forecast for the 2012-13 season.

“However, the price of whole milk powder indicated by GlobalDairyTrade represents just one day on the market.

“This is a volatile market with many factors influencing it. One thing which could have a big effect on global dairy production over coming months is the very strong beef prices at the moment, which could sway production towards the meat rather than the dairy side of the equation.

“New Zealand’s dairy industry is very resilient and used dealing with small downturns while looking to the long term picture, which is very rosy indeed,” Mr Leferink concluded.

One price fall, even a 9.9% one, doesn’t mean we’re in for wintery market conditions, but it does show the need for caution with budgeting for the coming season.

It might also have a moderating influence on price rises for land, wages, supplies and services.

 

 

Food safety’s the key

It’s not just growing demand for food but safe food which makes New Zealand dairy products and the land which produces them so attractive:

It’s not just New Zealand’s temperate climate and ability to grow lush green  grass that has caught the eye of Chinese investors.

Our ability to produce high quality milk cheaply and efficiently is matched  only by our ability to do so safely.

As an analyst for NZX, Susan Kilsby has compiled a report on the booming  Chinese dairy industry. She says for the Chinese, it’s all about food  security.

“It’s not just setting up the farm, it’s also the security of supply chain  from the time the milk leaves the cow to the time it reaches the consumer  product at the end,” she said.

Our reputation for food safety is priceless and something we must do everything in our power to safeguard.

I don’t have any problem with the sale of farm land to foreigners as mandated by current legislation. But we do need to ensure that any food which is produced in, and marketed as from, New Zealand conforms to our standards.

 

Dairy prices trending down

In polling and business it’s the trend that counts and the trend in dairy prices is down.

The trade  weighted index dropped for the fourth time in a row in the fortnightly globalDairyTrade auction.

However, it wasn’t a big drop – just 1.3% – and prices are still above the long term average.

Whole milk powder was down 0.3% to $3,474/MT; skim milk powder was down 1.4% to $3,479/MT; anhydrous milk fat dropped 7.2% to $4,297/MT; butter milk power was up 3.3% to $3,319/MT; rennet casein was down 4.6% to $9,498/MT; milk protein concentrate icnreased 1.7% to $5,632/MT and cheese was down 2.3% to $4,220/MT.

Steam going out of milk price

The trade weighted price dropped 5.1% at this morning’s GlobalDairyTrade auction.

Prices were: Whole milk powder down 4% to $3,475/MT;  skim milk powder down  5.2% to $3,488/MT; anhydrous milk fat down  12.5% to $4,614/MT;  butter milk powder up 0.3% to $3345; rennet casein down 1.4% to $9,992/MT; milk protein concentrate down 10.2% to $5,525/MT.

Cheese which sold on this platform for the first time went for $4,315/MT.

This is the third auction in a row in which the TWI has dropped suggesting the steam is going out of dairy prices. Prices are now at a similar level to this time last year and still above the long term average.

In a newsletter to shareholders Fonterra chair Sir Henry van der Heyden says the company has signed an agreement with the government of Yutian County to develop 3rd China farm.

This is expected to increase Fonterra’s production in there to around 90 million litres. They’re on track to start milking on a 3,200 cow farm in November.

The next step in the company’s strategy is to build high-quality fresh milk supply for Chinese customers.

March record month for dairy exports

There isn’t a lot of good news on the economic front at the moment and most of the bright spots come from primary industries, notably dairy:

Fonterra has recorded its highest ever month for exports with 229,000 tonnes of its dairy products leaving New Zealand shores in March.

Gary Romano, Managing Director of Fonterra Trade & Operations, said the record shipments are the result of continued growth in global demand for high quality dairy products from New Zealand.

“Our supply chain team were effectively closing the door on an export container every 2.6 minutes. That’s equivalent to 560 containers a day.”

“As a result of this effort we expect the record month will inject around $1.2 billion into the New Zealand economy,” he said.

The outlook is for continued high demand and the challenge is to keep up with it.

Increased domestic production will be satisify some of the demand but we can’t do it all here.

Joint ventures and the development of dairy farms in other countries will also be needed if dairy produce is to keep increasing its much-needed contribution to export income.

Low incomes not high prices still the problem

Fonterra agreed to freeze the price of milk for the rest of the year but other dairy products are getting more expensive:

The price of cheese and yoghurt could be on the way up at a supermarket near you.

Cafe owners supplied by dairy processor Goodman Fielder have received word the price they pay for some dairy products will go up from next Monday.

Some say that’s a result of Fonterra’s freeze on milk prices, and the same could happen in supermarkets.

Fonterra CEO Andrew Ferrier was interviewed about this on Campbell Live last night. He said the company’s profit margin on milk was around 12%:

“All we do is run a milk price which converts the world market price to the New Zealand equivalent,” . . .

Mr Ferrier says it is the distributors who set the price consumers pay in the supermarket.

“Ultimately it’s the distributors who are buying product – whether you are in a dairy or a supermarket – who will set pricing polices as they see fit.

“They buy from us and they have there own pricing policies.”

He reiterates that Fonterra is not pointing the finger at supermarkets, saying price structures are often very complex.

“I’ve been in business a long time, the last thing you do is try to put important customers in a difficult situation – and I won’t.”

I have no doubt that price structures are complex but how often do you see milk, cheese or yoghurt on special?

What about other basic foods – meat, eggs, bread, fruit and vegetables?

Is it my imagination or are non-staple foods and grocery items on special much more often than the staples, most of which are produced domestically if not locally?

Regardless of the answer to that question, higher prices for goods we export are good for the country. Producers are already benefitting from better returns and that will filter through the economy. Unfortunately the higher prices are filtering through first which makes it difficult for people on limited budgets.

But the problem of affordability is not high prices it’s low wages and better prices for exports is one of the best ways to improve them.

Farmers aren’t creaming it

It’s not difficult to find out the prices farmers receive for their produce. Unless they sell by private sale the price paid for milk, stock and crops is public information.

What those who criticise us of creaming it when prices are higher overlook is that the price is an indication of gross income only and takes no account of the costs of production and other necessary expenditure.

Many also forget that the price of dairy products or meat in the supermarket aren’t a very good indication of the returns to producers.

“The current high milk prices has many thinking that farmers must be creaming it but we’re not,” says Lachlan McKenzie, Federated Farmers Dairy chairperson.

“If you look at a litre of milk, the farmer’s share expressed as revenue, is about 300 mils.

“Most dairy farmers, myself included, got less than $0.60 for a litre of milk last season. From these 60 cents, we had to pay all the costs of production including, wages, vets, tax as well as paying the mortgage.

“A small number of dairy farmers are paid more for producing “winter milk”. There are a lot of extra costs running a dairy farm through winter but even they get only a small premium on a per litre equivalent.

“So if someone’s making a mint from milk, I’d suggest looking a lot closer at retail margins.

Fonterra’s decision to freeze the price of milk came as a surprise to farmers. I suspect it’s a PR exercise because the damage to the brand of ever rising prices was deemed to be greater than the cost of keeping it down.

The Visible Hand in Economics sounds a note of caution about this move:

Now if that is what they want to do, I’m sure they have good reason.  However, lets all remember one thing:  if Fonterra decides to sell milk in NZ more cheaply than it does overseas it is taking a litre of milk that would have been more highly valued by a non-New Zealander and giving it to a New Zealander.

 That transfers funds from the co-operative – and the farmers who own it – to domestic consumers. That’s okay if it’s done for commercial reasons but what happens when the freeze comes off?

Supermarkets have followed Fonterra’s lead by announcing they won’t raise prices anymore this year but they have the opportunity to offset the impact of that by increasing their mark up on something else.

This hasn’t stopped calls for price controls which Agriculture Minister David Carter, has sensibly resisted.

David Carter says he will not be advocating the subsidising of dairy products, because there is no reason to artificially establish pricing for any of the country’s export products.

Mr Carter says high international prices for export products are good and the benefits will ultimately flow through to all consumers.

High prices for dairy products is keeping the New Zealand dollar high. If it was lower it would increase the cost of imports including fuel, food and medicine and there’d be complaints about that too.

The problem isn’t the high price of the food we produce it’s low incomes and that won’t be solved by sabotaging the exports which are the key to economic recovery.

Dairy price up again

The trade weighted index for Fonterra’s globalDairy Trade auction increased 7.2% at this morning’s auction.

The price of Anhydrous milk fat went up 9.2%; there was no change in the price of butter milk powder, skim milk powder increased 8.5%; and whole milk powder went up 5.7%.

The TWI is now back up to levels not seen since late 2006.

World food price rises good for NZ

High world food prices are good news for exporters and the New Zealand economy.

The United Nations food price index shows prices for staple food items  – cereals, dairy products,  meat, oils and fats and sugar – in December were higher than the last peak in 2008.

The first auction of the year resulted in a good boost to milk prices,  meat prices are holding up and cropping farmers are getting better returns too.

The floods in Australia are already impacting on grain prices here, although if their milling wheat is downgraded to feed grain that will compete with local produce and counter some of the gains for New Zealand growers.

Flooding of of fruit and sugar cane will also lead to price increases.

In some years the wider economic benefit of  rising prices for one group have been offset by falling prices for another but this time dairy, meat and cropping sectors are all receiving better returns.

Higher export prices will lead to domestic price increases which will put pressure on budgets for those on low incomes. But we’re a food exporting nation and our overall wealth and wellbeing depend on good prices for our produce.

High dollar stops increase in Fonterra payout

Fonterra has confirmed the forecast payout for this season at $6.60 per kilo of milksolids and said the high dollar prevented an increase.

Farmers who are fully shared up will get an extra 25 to 35 cents per share.

This means an average farmer who is 100 per cent shared up to milksolids production is forecast to receive a total of $6.85-$6.95 per kgMS in cash payments for 2010/11, with the balance of Distributable Profit being retained by the Co-operative.


Fonterra Chairman Sir Henry van der Heyden said dairy market prices were holding up better than initially expected, leading the Board to contemplate an increase in the forecast Milk Price. However, the recent strength of the New Zealand dollar against the US dollar meant it was not prudent to increase the forecast at this time.

Increasing the advance payout from $4.30 to $4.60 a kilo will help cashflows over the next few months but the company warns the outlook is volatile.

Sir Henry commented, “When we issued the season’s opening forecast of $6.60 in late May, we indicated that then market prices could have suggested a much higher Milk Price – but that given volatile market conditions at that time we expected to see some softening in prices and we therefore forecast at a lower level. While market prices retreated sharply over the next few months before stabilising more recently, they have held up better than initially expected. However, we’ve also seen the New Zealand dollar strengthen significantly against the US dollar, eroding the value of dairy export returns for our farmers.

“We should remain cautious as there’s still uncertainty and volatility in global markets and we remain vulnerable to adverse movements in dairy prices or exchange rates which could hit the Milk Price. There is always potential for both downside and upside in the forecast, so I would encourage all farmers to continue to take a conservative approach in their farm budgeting.”

Those of us who’ve learned the lessons of the last few seasons are taking a very conservative approach to budgeting. It’s only a couple of seasons since the forecast payout dropped and we don’t want a repeat of the problems that caused.

Fonterra milk peak sets new record

Fonterra’s 26 sites processed 7608 million litres of milk last Wednesday, October 27, setting a new record for peak production.

Gary Romano, Managing Director – Fonterra Trade and Operations, says the new record is three million litres up on last year’s record peak.

“It’s a real credit to our teams and our plants that we processed all the milk so smoothly.

“It was a slow start to the season with wet weather in the Waikato and Taranaki and snow in the South Island. However, this recent spell of fine weather has seen a sharp increase in production on-farm. . .

“Since Fonterra was formed, we’ve increased our processing abilities by investing in new technology and plants such as ED4 – the most efficient powder plant in the world – to ensure we can keep ahead of milk production increases in an efficient and sustainable way.

“We’ve handled this growth while maintaining a strong focus on the quality of our products and the health and safety of our people and we’re setting internal quality benchmarks in a number of areas as we continue to focus on improving our performance.

Mr Romano said season-to-date, overall milk production was now slightly ahead of last year but, with the season only a third of the way through, it was too early to talk about actual production figures for the year.

Prices were stable in this morning’s globalDairy Trade auction with no change in the trade weighted index.

The price of whole milk powder was even at $3495 a tonne; skim milk powder dropped 1.1% to $3,021; anhydrous milk fat was up 4.5% to $5,394 and butter milk powder was down 1.8% to $3,011.

In a newsletter to shareholders Fonterra chair Henry van der Heyden said CWT (Co-operatives Working Together) in the USA have stopped culling cows in favour of export subsidies.

Cheese prices are likely to come under pressure as a result of subsidised product from there but butter is still in tight supply in the USA and Europe.

Production in Australia has been hit by wet weather in September.

Farm sales and property values drop

The volume of farm sales and prices paid dropped in the three months to August.

From a high of $4,650,000 in August 2008 the three month median price for dairying properties is down by a third to $3,100,000 in the latest REINZ Rural Market Report statistics released today.

Only 17 dairy farms were sold in the three months to August, one less than in the same period last year and significantly below the 67 transactions in the three months to August 2008. Just three dairy farms sold in August at an average price of $2,543,333, and the average price per hectare decreased to $31,598 from $36,435 in July. The average price per kilogram of milk solids has fallen further to $33 from $37 in July, $40 in June and $45 in May.

 

From a peak of $90,125 in August 2009, the average price per hectare of all types of farms has fallen to $29,739. The 192 farms sold in the three months to the end of August is an increase on the 183 in the same period last year, but less than the 516 transactions in the three months to August 2008.

The national median farm sale price eased up from $1,118,500 for the three months to July to $1,127,754 for the three months to August 2010. Well down on the median of $1,742,500 for the equivalent period in 2008, the latest August figure is fractionally above the median for all farms of $1,000,000 for the same three months in 2009. However with the low number of sales currently occurring, price fluctuations, both upwards and downwards, can be impacted by the range of prices of the mix of properties being sold.

On a regional basis the largest number of farm sales during the three months to August was 31 in Canterbury, 24 of them grazing properties, and 27 in Southland, 11 of them grazing properties.

During the past year median prices for farms have declined in eight out of the 14 districts. In the three months to August 2010 compared with the corresponding period in 2009, farm sale prices were down in Waikato from $1,663,655 to $1,187,500, Bay of Plenty from $1,000,000 to $920,000, Hawkes Bay from $1,800,000 to $945,000, Manawatu/Wanganui from $1,275,000 to $1,200,000, Wellington from $3,005,000 to $1,935,000, Canterbury from $1,300,000 to $1,200,000, Otago from $937,500 to $712,000, and Southland from $1,200,000 to $1,125,000.

There was another decrease in the number of sales of lifestyle properties from 1088 at the end of July to 1066 in the three months to the end of August, and the national median selling price eased from $447,500 at the end of July to $436,750 last month. While the August 2010 median is still up on $430,000 for the same three month period in 2009 it is below the August 2008 median of $450,000.

The decline in sales and prices is due to both the recession and the boom which preceded it.

Farm prices for all properties soared on the back of increasing dairy prices until it was cheaper to buy an existing dairy farm than to purchase sheep or cropping land and convert it.

There used to be a rule of thumb that you should never pay more than three to five times the value of a property’s gross income when buying a farm. That was disregarded for not just dairy properties but sheep and beef ones with much less earning potential.

The value of a property is most important when you’re buying or selling or if it’s highly mortgaged.

Lower prices may make it easier for people to get in to farming or increase their land holding, although credit is still pretty tight. But they will also be causing older farmers to re-think their retirement plans and they will be having a detrimental impact on equity of those with mortgages.

That won’t matter if the people can cover interest payments and ride out the current downturn. But it will put pressure on people who were struggling before prices dropped.

However, banks will be mindful that there’s no point pushing for sales when prices are dropping.

The protracted process of the sale of the Crafar properties won’t be helping farm sales and that’s when it’s possible for overseas investors to own farms.

The volume of sales and property prices would drop even more if farm ownership was restricted to New Zealanders.