Bank the gains, budget conservatively

When was the last time prices for lamb, wool, beef, milk and grain were all reasonable at the same time?

I can’t remember.

In the last decade or two if returns for one product was up the rest were usually down.

But this year, in spite of the high dollar, all commodities are receiving better prices.

Even Federated Farmers , is chirpy:

While appreciating commodity prices will be positive for the New Zealand economy, it is only part of the cost equation for goods for all farmers, whether you’re producing cheese or lamb.

“Global commodity prices are up. Whole Milk Powder (WMP) prices have doubled in the last 12 months, and butter is at 20 year highs because of constrained supply,” says Lachlan McKenzie, Federated Farmers Dairy chairperson.

“Wool and meat are also showing positive signs and the positive economic contribution of agriculture is benefiting every New Zealander, every day.

“These are sustainable prices because food is the new black. About 70 million people join the human race each year as the global population heads towards 6.9 billion.

“We are seeing strong price signals from the ANZ Commodity Price Index and from Fonterra’s GlobalDairyTrade auction yesterday.  Food is no longer a plentiful low cost good but is now starting to reflect the real cost of production and its scarcity.

Feds is warning there could be volatility ahead and advises farmers to bank the gains and budget conservatively.

If the grapevine in our area can be taken seriously, that is what most are doing. Memories of the crash from peak prices in 2006 are too fresh for anyone sensible to think what comes up can’t go down.

McKenzie also points out that higher prices are only part of the story.

“Farmers don’t get the retail shelf price. We have to meet the full cost of production and input costs are up. Last year dairy famers had on average only 70 cents profit out of the $6.10 milk price left over for debt, taxes and in dividends.

“It’s the compliance costs we have the least control over.  In the past year we’ve had increases in local authority rates, ACC levies and particularly the impact of the Emissions Trading Scheme (ETS) on fuel and electricity.

“Dairy farmers in particular have greater environmental expectations upon them and we have to be in the black to be green,” Mr McKenzie concluded.

Many of those costs are fixed ones which we face regardless of whether prices for our produce are going up or down. We must make hay while the financial sun is shining and this time it isn’t just food that is receiving better prices, fibre is too.

We got $4.80 a kilo for crossbred lambs’ wool last week, sold some more this week and received an extra 20 cents.

My farmer thinks it’s at least 20 years since wool was earning that sort of money.

That’s a very welcome turn around from the last few years when we were lucky if the price paid for wool did anything more than cover the cost of shearing it.

Timber too is finally worth more than the cost of felling the trees.

We’ve got a plantation of pines planted about 30 years ago. Any time we’ve looked at selling the timber in recent years we’ve been told the only market would be fire wood. But now the price has gone up we’re cutting them down, cover the costs of that and replanting and still have a bit left over.

As an investment over 30 years the return wouldn’t be particularly good, but the trees were planted on a steep hillside which wouldn’t have been good for much else anyway.

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