Watering down the milk payout

May 27, 2009

The floating dollar usually insulates us from the extreme peaks and troughs of global commodity prices because when prices fall the dollar does too.

That’s not happening at the moment though, global milk prices have fallen and the dollar has strengthened and that’s one of the reasons Fonterra is forecasting a disappointing $4.55 a kilo of milk solids for the 09/10 season.

Fonterra Chairman, Henry van der Heyden, said a volatile currency and continued uncertainty in international dairy markets made forecasting extremely difficult and a constant challenge in the current environment.

“We were looking at a forecast over $5 when the Kiwi was at 50 cents but the rebound means we’re now working with a dollar that’s 10 cents higher. And, just this week – at a time when we’ve been seeing some tentative signs of recovery in the global dairy market – the US Government has announced export subsidies for their farmers, which is bad news for our farmers,” he said.

. . . Mr van der Heyden said: “We had expected dairy prices to be bouncing along the bottom at the moment, but the exchange rate has been a big negative. It has a huge influence on the Milk Price forecast when you go into the new season with a large chunk of your sales unhedged, which is always the case at this time of the year.”

“Our hedging policy is designed to take out the volatility and provide as much certainty for our farmers as possible. But as a rule of thumb a 1 cent movement in the exchange rate realised over a year has an impact of about +/- 10 cents per kgMS in the Milk Price, with everything else being equal.”

Federated Farmers Dairy section chair Lachlan McKenzie said the numbers were bleak.

“In the 2006/07 season, it was estimated it took $4.54 to produce one kilogram of milksolids before a farmer turned a single cent in profit.  There’s very little margin.

Input costs followed the payout price up since the 06/07 season and some have come back a bit in the last few months.

Interest rates are lower and so is the price of fuel; Ballance announced a fall in the price of its fertilser last week and Ravensdown followed with a similar announcement this week  so the three big costs on dairy farms have fallen.

However, wages and salaries shot up in the last few years as a steep increase in conversions led to a labour shortage. The shortage has eased but it is very unlikely that wages will have dropped. Employment contracts on dairy farms usually go from June 1 and most will already have been negotiated anyway.

Deutsche Bank thinks Fonterra is being pessimistic:

Fonterra Cooperative Group’s forecast payout for the 2010 season could be overly pessimistic because the kiwi dollar may retreat from a seven-month high, while the global economy slump may be past its worst, according to Deutsche Bank. . .

Deutsche Bank chief economist Darren Gibbs said dairy payouts had come down significantly from the NZ$7.60 peak last season, and that although the dairy cooperative would see weaker revenues, farms would also benefit from cheaper operating costs.

“It could be Fonterra under-promising and over-delivering,” Gibbs said. “The kiwi has extended a long way ahead of commodity prices” and any pull-back would give the dairy exporter more breathing space, he said.

Other commentators are saying the same thing.

Fonterra had to revise its forecast payment down twice this season so the company may be taking a very conservative view so that any change they make will be upwards.

But sensible farmers won’t be banking on that when the revise their budgets for the coming season.

Farmgirl notes its not the news the government would have wanted on the eve of the Budget and that retailers in agricultural servicing towns were already noticing a drop in spending.


No favours for MP

May 27, 2009

A friend was pulled up at a checkpoint this morning and noticed Waitaki MP Jacqui Dean’s vehicle stopped in front of him. The officer gave her no favours – which is how it should be – he not only got her to speak into the breathalyser he also checked the vehicle’s warrant of fitness and registration. Needless to say, she and the vehicle passed inspection.

Jacqui’s vehicle is hard to miss. It’s a four wheel drive which she needs to cope with the long distances and varied terrain she covers and the adverse weather she encounters when servicing her large electorate – all 34, 888 square kilometres of it.

The vehicle’s also blue and is emblazoned with her photo, but as her newsletter explains, not everyone gets the message:

Jacqui was completing a purchase in a shop when a friend drove her vehicle to the entrance. The photo on it is a good likeness of Jacqui but this obviously escaped the salesperson who was serving her because she turned to a colleague and asked why any woman would choose to have her photo on her car door.

He replied that perhaps it was because she needed help to find her vehicle in a crowded car park.


This would be news . . .

May 27, 2009

  . . . if  the story backed up the headline which suggests the pregnancy is his:

Mel Gibson confirms pregnancy rumours


Bowen Triangle beats Beltway

May 27, 2009

Rob Hosking uses his politics column in the print edition of last week’s NBR to suggest it’s time the term the beltway to be killed off.

It’s an American import, reflecting the beltway (or motorway, we would call it) which rings the political centre of Washington DC . . . But as a metaphor for New Zealand politics it is about as relevant as calling Parliament Westminster.

Here’s a suggested replacement: The Bowen Triangle.

First the Parliamentary precincts are roughly the right shape, if you include the large public service towers behind the building.

Secondly, it is evocative of the Bermuda Triangle, that mysterious accident-prone quarter of the Caribbean.

The Bowen Triangle is where reality is different from the rest of the world. It is where whole formations of common sense fly into the blue and are never seen again.

And it is full of people seeking the political equivalent of the lost city of Atlantis.

That’s a very persuasive argument and gets my vote.


Meetings b***** meetings

May 27, 2009

A seminar session entitled Meetings, bloody meetings, started with a very good piece of advice: before calling a meeting ask if it’s really necessary.

You will, the facilitator told us, be surprised at how often the answer is no.

Most of us weren’t surprised because we’d sat through too many meetings wondering what we were doing and why we were there.

We’re not alone, a survey of finance, accounting and HR managers by recruitment specialists Robert Half  found more than a quarter of the meetings they attend are a waste of time.

And the main reason they’re a waste of time is the participants lose focus and discuss anything they want, rather than the issue the meeting was called for.

But that’s not the only reason – frequently the finance, accounting, HR and executive-level managers Robert Half surveyed don’t know why the meeting was called in the first place. And they often feel people are involved who simply don’t need to be there.

It’s even worse in Switzerland and Spain where people think 38.8% and 38.4% of meetings respectively are a waste of time.

In Switzerland they are most commonly a waste of time because they include too many people who don’t need to be there, while in Spain the attendees too often don’t prepare properly for the meeting.

And there’s no point in trying to escape by heading for New Zealanders’ two favourite overseas working destinations – Australia and the United Kingdom – because companies there, too, have more pointless talkfests than Kiwi employers.

In Australia, 34.5% of meetings are deemed a waste of time, as are 32% of meetings in the UK. The main reason for the frustration in both countries is the same as in New Zealand – lack of focus.

They have better meetings, or more tolerant attendees, in Luxembourg and Dubai, where only 13.7% and 16.9%, respectively, thought meetings really should not have been called at all.

That reminds me of the quip for which I’ve always had a lot of sympathy: that the best meetings are between two people, one of whom sends an apology.


Better standing on our own feet

May 27, 2009

New Zealand farmers’ anger at the USA’s decision to subsidise its dairy exports is well founded.

Federated Farmers dairy section vice-chair John Bluett says:

“It’s a serious concern. The US is going to subsidise 92,000 tonnes of export product. In perspective, New Zealand only produces 105,000 tonnes, so it’s the equivalent of almost subsidising all New Zealand’s production.”

In the Waikato alone it could cost farmers $180 million and it is likely to mean a lower payout next season.

There may be a small benefit to consumers if the subsidies result in lower international commodity prices because that could flow through to lower retail prices here. But any gain will be more than cancelled out by the pain imposed on the wider economy.

However, angry as farmers are, none are calling for a return to subsidies. Hard as it is in the real world at the mercy of markets, it beats the days which Rob describes when farmers’ incomes went up and down at the whim of the government.

There’s another reminder of how bad that is at Phil Clarkes’ Business Blog:

In France, for example, some 81 dairies have been blockaded and dairy farmers have threatened a national “milk strike” if an ongoing “mediation process” fails to deliver a meaningful lift in prices.

In Germany, meanwhile, six women have gone on hunger strike, while around 6000 dairy farmers took to the streets of Berlin to demand a national milk summit.

And this week the protest headed to Brussels, with a claimed 2000 farmers from 10 member states clashing with riot police outside the EU Council building, while farm ministers discussed the market situation.

Taking what the market offers isn’t always easy, but standing on our own feet beats going cap in hands to governments as they do in Europe to find out not only what they’ll earn but also how much they can produce.

Hat Tip: QuoteUnquote


Ask not what the Budget can do for you . . .

May 27, 2009

What can we do?

I’ve been asking this question of people who ought to have the answer – an economist, an accountant, politicians, business people . . .

They’ve all given a similar answer: if you’re in business the best contribution you can make to counter the recession is to employ people.

Do all you can to ensure your business retains it’s current workforce and if possible create new jobs, even a part time one because a bit of part time work here and a bit there can turn into fulltime employment.

Are they right?


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