Subsidies blind producers to market signals

November 24, 2015

Dairy producers overseas aren’t getting low price signals which have prompted New Zealand farmers to reduce production:

New Zealand dairy farmers’ pay packets continue to be thin because overseas farmers haven’t yet received the price signal to cut milk production on the back of a market glut and low demand, says Rabobank’s top dairy analyst.

“Current global commodity prices in dairy are easily low enough to shut off taps globally. The problem is those low prices have not been passed onto farmers in many regions of the world,” said Tim Hunt, the global agribank’s head dairy strategist on a visit from his New York base.

“(With) these current (GDT) auction results of low US$2000 a tonne, there is no farmer in Europe or the US or Latin America who can make money on that. The problem is that New Zealand farmers are the only ones who are at the moment getting the farmgate signal that reflects that. . . 

New Zealand producers have had the very strong market signal that supply is outstripping demand. The price we’re getting is low, in response to that we’ve cut costs and production.

Subsidies in other parts of the world are protecting farmers from the low prices and blinding them to market signals.

Rural round-up

September 8, 2015

Passion for irrigation still runs deep – Sally Rae:

Dave Finlay describes himself simply as ”an irrigation man”.

Ingrained in his memory is his time farming a dryland property at Windsor, in North Otago, battling drought and having to sell his sheep in drought sales. It was, he recalls, ”nightmarish stuff”’.

Those challenging times resulted in him later become a driving force behind irrigation development in North Otago.

At 78, Mr Finlay shows no signs of slowing down, as he continues working as a rural sales consultant for PGG Wrightson Real Estate in Oamaru. . . 

Retailers’ revenge could slow dairy recovery:

While wholesale milk prices may be on their way up, we need to be aware of “retailers’ revenge”.

Lincoln University Agribusiness and Food Marketing Programme Director Nic Lees says two things need to happen for the market prices to recover to anywhere near previous levels.

“Retail prices need to fall to stimulate consumer demand and global supply needs to be reduced. Both of these take some time to occur.

“We are starting to see the milk tap being turned off with farmers’ globally selling cull cows and reducing supplement, and plans for future expansion and conversion are being put on hold.” . . 

Farm kids less likely to have asthma:

A new discovery has found that kids who grow up on farms are less likely to develop asthma and have a bigger immunity to allergies than the average city slicker.

It’s the kind of discovery that could completely change how we treat asthma in the future.

Nanotech scientist Michelle Dickinson joined Paul Henry this morning to explain how and why this is.

She says the study shows that farm dust in young children under the age of two can protect them from allergies later in life. . . 


Last few days to vote in 2015 Sheepmeat and Beef Levy Referendum:

There is still a significant number of farmers yet to vote in the 2015 Sheepmeat and Beef Levy Referendum before it closes on Thursday this week (10 September).

Beef + Lamb New Zealand Chairman, James Parsons said as of this morning 5,195 farmers (30 per cent of registered farmers) had cast their vote.

“It’s really important for the organisation that it has a strong mandate from farmers if they want Beef + Lamb New Zealand working for them in the next six years. . . 

Members sought for forest levy board:

Nominations are open for members of the Forest Growers Levy Trust board. There are vacancies for two members representing owners of large forests and one representing owners of smaller forests.

This is the first election since a commodity levy was applied to harvested plantation logs in January 2014. The levy raised $7.96 million in 2014 for activities that benefit all forest owners, including research, forest health, safety and training.

“Half of the six elected board members have retired this year after only one year in office. This sets in motion a rotational retirement policy for directors that will see half their number retiring every second year after a four-year term,” says trust chair Geoff Thompson. . . 

Dairy Graziers proactivity will stave off cost:

As the fallout from the steep decline in global diary prices spreads, Crowe Horwath agribusiness specialist Haylee Preston is advising dairy graziers to be proactive to avoid being out-of-pocket this coming season.

“With budgets under pressure from severely restricted cash flows, dairy farmers are moving to cut costs, with many looking to tweak their farming systems accordingly,” says Preston.

“In many farming operations, supplementary feed and grazing are a significant cost when it comes to production,” indicates Preston. “This means they will be some of the most closely scrutinised costs given the current drive to save.” . . 

Farm Environment Competition Pays Off For Young Taranaki Farmers:

Sami and Laura Werder are young and enthusiastic farmers with big plans for improving the sustainability of their new Taranaki sheep and beef farm. So entering the 2015 Taranaki Ballance Farm Environment Awards was a great way to check their plans were on the right track.

The Werders bought their 378ha breeding and finishing property at Huiroa, east of Stratford, two years ago and are currently in the process of developing the farm through subdivision, improved access and a new water system.

“We were both raised on farms and we were lucky to have help from family to get into our own farm,” says Sami, a former rural banker. . . 

Ballance Agri-Nutrients Annual Report 2015:

The Ballance Agri-Nutrients Limited Annual Report for the year ended 31 May 2015 is now available online at

Our interactive report includes video content and links to additional resources, as well as access to our full financial statements. . . 

Farmers can cut nitrogen loss with new N-Protect:

Farmers facing warm and dry conditions and who need to minimise losses of nitrogen into the air, have a new tool in the toolbox thanks to Ravensdown.

The co-operative’s new N-Protect has a urease inhibitor coating around the urea granule to reduce nitrogen loss to the atmosphere, otherwise known as volatilisation. This can lead to more growth-giving nitrogen kept available for the plant enabling production gains in a critical season for farmers facing El Nino conditions.

“Our advice has always been that there are several ways to ‘skin the N-loss cat’. These range from good management practice to urease inhibiting products like new N-Protect,” explained Lloyd Glenny, Fertiliser Product Manager at Ravensdown. . . 

Be careful with cheap grass seed:

Think twice before buying cheap pasture seed this spring – you may well get more (or less) than you bargained for, and not in a good way.

That’s the advice to farmers looking to save money re-sowing paddocks left bare after winter crop.

With poor germination, high weed content and/or minimal endophyte, cheap seed almost always works out to be anything but cheap at the best of times, pasture experts say.

“It’s even more of a false economy when cash is tight, because farmers need all the good grazing they can get,” says Agriseeds’ Graham Kerr. “No-one can afford paddocks to fail this spring.”

His advice? “Concentrate on sowing a smaller area of land, better. Use proprietary pasture seed which has guaranteed purity, germination and endophyte, so you know what you’re really planting, and do the best job possible of getting it into the ground so it establishes well.” . . 

Keep calm and dairy on

August 7, 2015

Fonterra will announce a drop in its forecast payout today.

Whatever it is,  it will be below break-even for all but the very leanest of operations.

However, it is important to keep it in perspective. Most farmers will be facing a cash flow problem not an equity one.

There have been eight big drops in payouts in the last 40 years and only three of them have led to significant falls in land values. Those were during the ag-sag of the 80s, the Asian crisis in the late 90s and the GFC when the rest of the country and most of the world were in trouble too.

Providing farmers keep talking to and working with their bankers they will be willing to help them through the next season or two until the milk price improves.

Only then will they will focus on any structural problems because in spite of the rhetoric from the Chicken-Littles, banks aren’t going to be forcing people off their farms if there are alternatives. That would not only be bad for the banks and the troubled clients it would have a depressing affect on land values which would then start biting the equity in other farms.

There’s no doubt this season will be a test of farmer resilience:

The possible milk payout forecast by DairyNZ CEO Tim Mackle, based on Open Country, of $4 per kilogram of milk solids has the potential to hit the average dairy farm by $250K according to KPMG analysis. . .

This projected price level will sorely test farm system resilience and confidence according to KPMG Farm Enterprise specialist Roger Wilson.
“The Individual impacts will vary depending on farm system and debt.” says Wilson, “The outlook is tough but this is the time to apply some science and really examine the options.”

A lot of farms are actually adaptable and resilient and the smart farmers can be very responsive even in the short term. With stronger beef prices farmers may look at incorporating an element of dry stock farming, particularly if dairy herd sizes are reduced.

Where there’s crisis there’s also opportunity.

The KPMG Farm Enterprise team are already seeing proactive farmers using a combination of reducing the use of supplements and fertiliser, and lowering stock numbers and the reliance on off-farm grazing.

The big call is stock numbers where a one off cull of 10-20% of cows post calving might be a good option. Critically this has a one off cash flow benefit, and tightens the operating budget without impacting capacity in 24 months.

Roger Wilson says, “Expect this to contribute to a reduction in milk supply for 2015/16 which is forecast to provide Fonterra with a bit more flexibility at its end.”

The reduction in supply should contribute to improved operating performance for dairy companies in 2014/15. Fonterra is already running at full capacity which limits its product optimisation options. With increased capacity and reduced supply Fonterra will have the flexibility to move a much higher proportion of product into high value streams and drive a much better EBIT number.

It shouldn’t be forgotten that returns across the balance of the industry are still in a good place, 60% plus of the primary sector is booming, this shouldn’t be overlooked.

Red meat, pipfruit, kiwifruit and wine are all selling well and in spite of the hit the economy will take from the dairying downturn, it is still growing.

That said, this season will be difficult.

Sharemilkers are at risk if they have a lot of debt. Farmers who want to retain good people in the industry need to work with their sharemilkers and the banks to help them through the downturn.

The low payout will hurt people who service and supply dairy farms, including other farmers who provide supplementary feed or grazing. Some of these will be able to make the most of good beef prices.

The wider economy will also feel the pinch as farmers reduce their costs and cut back on expenditure where they can.

A banker told me one of his dairy clients regularly uses 80 other businesses, most of them smaller ones, and all of those will be hit as their bigger customers stop spending.

Dairying accounts for a bit more than 20% of our exports and around 5% of the economy.

The downturn has already spread off-farm but unlike the downturns in the 80s, 90s and noughties, the root of this one is one is largely confined to dairying.

Dairy farmers, sharemilkers and those who get most of their income from them will have a lean season.

But the sky isn’t falling and what goes down will go up again, sooner or later.



Rural round-up

August 2, 2015

Groser disappointed TPP deal not reached:

Trade Minister Tim Groser is disappointed that the TPP negotiations were unable to reach a conclusion today, but TPP ministers collectively pledged to meet again as soon as possible to finalise the deal.

“Good progress was made this week, but a number of challenging issues remain, including intellectual property and market access for dairy products”, Mr Groser said.

“We will continue to work toward a successful conclusion. This is about getting the best possible deal for New Zealand, not a deal at any cost.” . . .

TPP pressure on Canada, but US is super-star in agriculture subsidies – Lawrence Herman:

Americans provide billions in protectionism to dairy that will have to be given up for trade deal.

We rail against Canada’s supply management system. Rightly so. It’s a Soviet-style regime that is out of step with Canada’s international trade interests and objectives. Every credible Canadian think-tank has said that supply management is a regressive system that distorts the market by guaranteeing dairy, poultry and egg producers a positive return on production, inhibiting competitiveness and, in the long-run, preventing Canada from becoming an exporting agriculture powerhouse. . .

 Groser proves trade credentials by insisting on a good deal:

The Dairy Companies Association of New Zealand (DCANZ) is commending New Zealand Trade Minister, Tim Groser, for standing firm against enormous pressure to concede to a sub-standard deal for dairy. The Minister and his team of expert negotiators have preserved the ability to conclude a good deal in the future.

“What was on the table fell well short of the deal required to deliver the commercially meaningful access that is needed by New Zealand’s dairy industry” says DCANZ Chairman Malcolm Bailey, who has been in Maui, Hawaii, where the negotiations took place over the past week.

Agreeing a bad deal would have consigned New Zealand farmers to many more years under the burden of heavy protectionism. Trade prohibitive tariff levels in Japan, Canada and the United States contribute to a thin global dairy market and exacerbate extreme price volatility. . .

 Concerns over strong El Niño:

NIWA fears this year’s El Nino may be as bad as 18 years ago, when widespread drought cost the country a billion dollars in lost exports.

International guidelines indicated a 97 percent chance of El Niño continuing over the next three months and a 90 per cent chance it will continue over summer.

El Niño typically sees the west of New Zealand wet, and the east very dry.

Niwa forecaster Chris Brandolino said it was looking like it could be as significant as the El Nino in the nineties. . .

Where every day is a good day – Kate Taylor:

Discussion groups, monitor farm programmes, running a Gisborne hill country station and his house burning down couldn’t prepare farmer Ken Shaw for being given a 15 per cent chance of surviving the cancer attacking his body. But survive he did.

“Every day’s a good day,” he says, driving his bike in driving, freezing cold rain on his Matawai farm the day before a big snow storm hits the region and dumps a metre of snow on tops of his hills.

Ken and Kirsty Shaw farm the 709ha hectare Elmore Station (680ha effective) on Rakauroa Road at Matawai near the highest point of the highway between Gisborne and Opotiki. . .

Cut unprofitable production – DairyNZ CEO:

With the continued decline in milk price, DairyNZ chief executive Tim Mackle is calling on farmers to cut unprofitable production from their systems.

“These are extraordinary times. Open Country Dairy’s milk price forecast is under $4 per kilogram of milksolids (kg MS) and all indicators show Fonterra will be forced to lower their forecast on August 7. This price dip is lower and longer than anything we’ve seen in the last decade,” says Tim.

“Assuming a milk price of $4.00 for the average Open Country Dairy supplier, that means a potential deficit of around $250,000 for the year ahead.” . . .

Rural Women as relevant today:

In 90 years, Rural Women New Zealand has grown to a 2700-strong organisation but many of the issues it works on have remained the same.

In July 1925, Florence Polson became the first head of the women’s division of the forerunner of Federated Farmers.

Women’s Division Farmers Union was driven by concerns about health and the effects of isolation for women living on farms. . .


Rural round-up

May 31, 2015

Red meat prices forty years ago – Allan Barber:

We could be forgiven for thinking nothing has changed in the last forty years with regard to meat schedule setting, if not actual price levels. But an address to the Ruakura Farmers Conference in 1975 by then chairman of the New Zealand meat Producers Board, Charles Hilgendorff, gives an interesting perspective on the industry at that time.

The Board’s overriding concern was price stabilisation whereby it sought to avoid excessive short term highs and lows, but it was not in favour of absolute stability because this would provide a misleading impression to producers. The Meat Board had been involved in price support for the past 20 years and, funded as it was by farmer levies, it saw the need to use levy funds to smooth prices within a range. When prices exceeded a certain trigger, the surplus would be withheld from producers to provide a buffer when prices dropped. . .

 Managing the dairy downturn – Keith Woodford:

It is still far from clear whether we have reached the bottom of the dairy price cycle. The Chinese seem to be coming back into the market but no one much else is. But even if prices do start to rise in the next few months, down on the farms things will be tight at least until Christmas.

There are considerable lags in the system between prices at the Global Dairy Trade auction, and the milk cheques that farmers receive. Hence the financial crunch is just coming on. . .

Scanning and tracking stock is key for Gypsy Day moves:

The key risk for farmers during this year’s June 1st Gypsy Day is ensuring that stock are accurately identified and tracked, says Michael Lee, Principal with Crowe Horwath in Invercargill.

One of the biggest days in the dairying calendar, Gypsy Day marks the start of the new season when farms are bought and sold, stock is transferred to new owners and new sharemilking contracts are signed. This year it will again fall on a Monday public holiday.

“Stock is the second-biggest investment for farmers after the farm itself,” said Mr Lee. . .

Farmers wanted to help NIWA:

NIWA is looking for farmers to help fine tune its latest development.
The National Institute of Water and Atmospheric Research has developed new tools that can help farmers decide when to irrigate or fertilise. But it needs farmers to test out the tools to ensure they are as practical and easy to use as possible.

The first new tool is called NIWA IrriMet and will be demonstrated at the NIWA stand in the main pavilion at this year’s National Agricultural Fieldays. IrriMet follows the successful launch of FarmMet at last year’s Fieldays.

FarmMet is a tailored weather forecasting tool that provides accurate up-to-date forecasts specific to individual properties. It works by capturing data from climate stations closest to an individual farm and using that to tailor a forecast to farmers delivered straight to their computer. . .

Ballance farewells Warwick de Vere after 45 years:

Fertiliser industry stalwart, Warwick de Vere will leave Ballance Agri-Nutrients Mount Maunganui site for the last time on today [29 May], closing the door on a 45-year career with the co-operative.

Known by colleagues as a legend who “lives, breathes and eats fertiliser”, he joined the industry as a laboratory technician in 1970 at New Zealand Farmers Fertiliser, Te Papapa, one of Ballance’s legacy companies. That was the start of a career which spanned a number of technical and management roles spanning manufacturing, safety, distribution, sales, human resources and IT, culminating in various General Manager roles with the co-operative in the last 15 years. . .

Vet Club Merger Confirmed:

A merger between two of North Island’s Veterinary Clubs has been confirmed. Effective 1st of June, Anexa Animal Health and Farmers Vet Club (FVC Veterinary Services) will operate as one practice called Anexa FVC.

Chairman Brian Gordon said, “This merger provides a sustainable Vet Club model in the Waikato-Hauraki region for the future. Farmers Vet Club (t/a FVC Veterinary Services) was established in Ngatea in 1923 and the Morrinsville Vet Club (t/a Anexa Animal Health) was established in Morrinsville in 1939. These clubs were established by farmers, for farmers and the Boards of both clubs wish to ensure strong competition remains in the market for local farmers.” . . .

Rural Business Network Hub launches in Northland:

Rural business professionals in Northland will have an opportunity to develop their businesses and strengthen their networks with the launch of the Northland Rural Business Network Hub on June 16. Whangarei will host the inaugural event on Tuesday June 16 at the Whangarei Barge Showgrounds Events Centre.

The Rural Business Network provides an opportunity for rural-based business people to participate in events that will help them grow their business through networking and learning from others. RBN aims to connect innovative, motivated people from across the range of primary industry sectors with successful, experienced businessmen and women creating opportunities to share ideas, be inspired and learn by example. . .

Seeking new Holstein Friesian Genetic Leaders:

Holstein Friesian New Zealand and CRV Ambreed will team up again this year to select New Zealand’s next generation of top Holstein Friesian bulls for their joint sire proving programme, ‘Holstein Friesian Genetic Leaders’.

Recently celebrating 20 years, the joint venture was set up to source, prove and sell high merit genetics within New Zealand’s Holstein Friesian population and has helped to advance and develop the breed ever since. . .

Rural round-up

May 8, 2015

Moving on at Silver Fern Farms – Keith Woodford:

In recent weeks I have been analysing [here and here]  the GHD data that underpin the MIE recommendations for the meat industry. Those analyses confirm to me that MIE has missed the big picture.

The key MIE recommendation has been that companies must amalgamate, with the most important merger being between the two big co-operatives Silver Fern Farms and Alliance. However, Alliance has been consistent in their position, both before and since the MIE report, that the numbers needed to support an amalgamation do not stack up.

Alliance has taken considerable criticism from parts of the farming community for their lack of interest in joining Silver Fern Farms. Chairman Murray Taggart has been the front man and has had to bear the brunt of this. There are many sheep farmers who are struggling, and it is human nature to blame everyone else, even when financial logic says otherwise. . .

Slow rebalancing in global dairy markets weighs on prices, but turnaround beginning – Rabobank:

Recent decreases in international dairy prices and the 2014/15 milk price payout projection reflect the slow pace of the rebalancing that is taking place in global dairy markets, agribusiness banking specialist Rabobank said today.

Rabobank New Zealand CEO Ben Russell said the current market price forecast will negatively impact New Zealand dairy farmer cash flow and profitability across this season and next, but a turnaround in global dairy markets was beginning, with Rabobank maintaining its expectation of a price recovery to commence during the 2015-2016 season. . .

Synlait’s Akarola – Keith Woodford:

Synlait’s Akarola is about to transform China’s infant formula market. Fonterra’s new partner Beingmate, and all the other marketers of infant formula, are in for a huge shakeup.

On 25 March of this year I foreshadowed that infant formula prices in China were about to become much more competitive [here]. I based my report on information from dairy industry sources within China that New Hope Nutritionals – owned 75% by China’s New Hope and 25% by New Zealand’s Synlait – was about to launch a new brand of New Zealand- made infant formula called Akarola. I reported that the new brand would be sold exclusively online, at prices much less than half of normal prices in China.

A few days later New Hope Nutritionals launched their online campaign on ,and the foreshadowed price of 99 RMB for a 900 g per can was confirmed. In New Zealand dollars, this is about $21, or $16 in American dollars. . .

Scholarship, showing and study for Braydon – Kate Taylor:

BRAYDON SCHRODER was so tired from a week of working at the New Zealand Dairy Event he barely remembers his answers at the interview for Ravensdown’s annual Hugh Williams Memorial Scholarship.

He had left Feilding, flown to Christchurch for the meeting and then back to Feilding in time to show one of the family’s cows in the afternoon. But he was stoked to get the call the next day from Williams’ widow Adrienne to say he had been successful.

All in all, it was a successful week for Braydon – taking home the Youth Young Handlers title (16-19 years) and winning the youth team challenge at the Black and White Youth event. This is open to junior Holstein Friesian Association members.  . .

Ambassador brings new focus to threatened species:

New Zealand’s vulnerable native species will now have another strong voice for their protection with the announcement of the country’s first Threatened Species Ambassador.

Conservation Minister Maggie Barry says the high-profile new role will be pivotal in educating New Zealanders and raising awareness of our threatened species.

“We all need to know about the unique birds, animals and plants which are our taonga and understand the efforts needed to conserve them,” Ms Barry says. . .

New technology makes predator control easy – Gerard Hutching:

Conservationists might soon be able to know if a predator has been caught in a trap by simply checking their computer or smartphone.

Auckland civil engineer Simon Croft has developed wireless technology that attaches to traps and sends a signal to let people know if a predator has been caught.

The innovative traps will be first rolled out on farms in Hawke’s Bay, saving landowners from the time-consuming task of checking out individual traps.

Auckland civil engineer Croft said he had developed the technology “to make a difference”. . . .

Dairy price fall affects everyone

May 7, 2015

The fall-out from falling dairy prices isn’t confined to farmers:

. . .there are 7 billion reasons it will affect all of us. Seven billion dollars is the amount that is set to be wiped from the New Zealand economy this year.

Fonterra is forecasting a total payout to farmers this season of $4.70 to $4.80 per kilogram of milk solids ($4.50 forecast payout plus a likely dividend of 20 to 30 cents per share). That compares to last year’s record payout of $8.50 ($8.40 payout plus a cash dividend of 10 cents per share).

The average break-even point for farmers this year is $5.40, after you factor in both the cost of running the farm and the debt interest payments.

It is the reason farmers are cutting costs. That will be felt in towns and cities across New Zealand, from shops in rural towns to cities where manufacturers make equipment used on farms (like irrigation systems).

That will flow through to the taxes that the Government collects, making it even harder to put together this month’s Budget. . .

Although most New Zealanders live in towns and cities, what happens on farms and to the goods they produce still has a very big influence on the wider economy.

When produce prices fall, farmers tighten their belts which affects what they’re willing, and able to buy. That affects everyone who services and supplies them which flows into the wider economy and the tax take.


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