Fonterra reviewing forecast

August 4, 2010

The drop in price at this morning’s auction wasn’t good news and it’s been followed by a media release from Fonterra saying the company is reviewing it’s forecast payout:

Fonterra confirmed today that a strong New Zealand dollar and further drop in international dairy prices meant that the Board would be reviewing the current 2010/11 payout forecast. 

Following the globalDairyTrade event overnight, the gDT-TWI index was down 8.3%.  This followed a 13.7% decline at the July event.

“Encouragingly, Whole Milk Powder had strengthened slightly for the February to April period,” said CEO Andrew Ferrier. “But, the New Zealand dollar was at very high levels.”

Mr Ferrier said that as part of its normal planning process Fonterra is reviewing the current forecast in light of these developments. 

“We always said there would be a lot of volatility in the market and we are seeing it. It’s important in this environment to let our farmer-shareholders know as soon as possible if we think there could be any impact on payout.”

In this morning’s post I noted an email to shareholders at the weekend had said that the  season’s forecast payout still remained in the $6.90 to $7.10 range.

A review doesn’t have to mean a change, but banks have been recommending budgets work on a lower payout than $6.90. That would be wise given the volatility on the markets and the relatively high dollar.

At the supermarket

August 4, 2010

John Venn was born on this day in 1834 which was a good excuse to visit graphjam.

Things on my list Things i buy At the supermarket

Keep Right On To The End Of The Road

August 4, 2010

Harry Lauder was born 130 years ago today.

The nature of opposition

August 4, 2010

The Farming Show is a must-listen for many in the rural sector.

It also has gems for political junkies like this one from Monday’s show when Jamie Mackay asked Bill English about Chris Carter.

 Bill replied:

This is a man on a mission. He’s a symptom not a cause.

The hardest thing in Opposition is to get to the point where you accept the voters were right to kick you out when they did and the Labour Party hasn’t got there yet and Chris Carter hasn’t got there either.

So what you’re just seeing is the internal tension which is a group of people frustrated and angry that they’re not making any political progress.

That is the nature of Opposition, that’s inevitable. They’re going to have a lot more scraps, they’ll change leaders a time or two and eventually when they accept that they were right to be kicked out the public will start listening to them again.

When you look at the internal ructions and the little policy they are suggesting it doesn’t look as if they’ll be accepting the public was right to kick them out for a while yet.


August 4, 2010

12/15 in the Dominion Post’s weekly political triva quiz.

All the sums for IRD’s refurbishment seemed like very big numbers.

Milk auction price down again

August 4, 2010

Prices for skim and whole milk powder and anhydrous milk fat all dropped at last night’s globalDairyTrade auction.

The gDT-TWI index was down 8.3%, skim milk powder dropped 8.9%, whole milk powder was down 7.7% and the price for  AMF fell 7.6%.

An email to shareholders from Fonterra chair Sir Henry Van der Heyden noted the relatively high value of the New Zealand dollar but said the current season’s forecast payout still remained in the $6.90 to $7.10 range.

World milk prices have been volatile, but there’s nothing new in that. Dr Jon Hauser at X-Cheque has graphed milk prices in Australia, France, the UK & USA since 1995 and it looks like coloured spaghetti. (New Zealand prices aren’t included but he says they’re similar to Australian ones).

For me the most interesting data is that of the USA. A regular cycle of volatility has persisted for 15 years.  The peaks are about 3 years apart with a fall to a roughly similar level in between.  There is no doubt that the supply / demand balance in the US is the principle driver of this cycle. In a perverse way the market behaviour is comforting. It is to some extent predictable and it would be more of a worry if there were prolonged periods at the low points.

Australia and New Zealand look like they are trending towards the US cycle. In the short term that will be a positive as it will mean a lift in the long term average price. In the longer term farmers will need to be very careful to avoid getting over excited about the periods of peak pricing. Their businesses need to be designed to withstand the troughs in price. The major risk in this regard is overpriced land and excessive debt.

Our bank is holding a series of meetings for clients at which they give a similar message.

There may be a glimmer of hope for New Zealand dairy farmers though, the price of grain in the UK is very high (close to £140/t). That will increase input prices for dairy farmers there which ought to make it easier for us to compete with them.

Lest we forget

August 4, 2010

A friend’s son is serving in Afghanistan.

My first reaction on hearing the news that one of our soldiers serving there had been killed and two others wounded, was to pray it wasn’t him.

Somewhere in New Zealand this morning the family and friends of the soldier will be coming to terms with the news that the young man they farewelled a few months ago isn’t coming back.

It is the first death of one of our service people in Afghanistan. It reinforces the real and ever present danger they face in trying to help people on the other side of the world so that they might one day enjoy the peace we take for granted.

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