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 JD.com ,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.


GDT price index down 3.%5

May 6, 2015

Price’s at Fonterra’s GlobalDairyTrade auction dropped again this morning with the price index down 3.5%.

gDt6.5.15

gdt6515

gdt6.5.15

What goes down can fall further but sooner or later prices will go up again.


Rural round-up

March 6, 2015

World dairy prices and New Zealand droughts – Jim Rose:

Here is an image from the recent Westpac Economic Overview. As New Zealand is the world’s largest exporter of dairy products any disruption in the supply from New Zealand can impact on the global dairy prices.

The last few droughts saw world dairy prices increase considerably as milk supply from the rest of the world was unable to adjust to market conditions.

However supply capacity in the US and the EU has increased and with Russia’s import ban there is a much greater supply on the global market. Nevertheless, this doesn’t disprove the possibility that prices rise when supply falls short. The overall signs are that supply and demand are coming into line as Chinese buyers run down stocks.

The drought in New Zealand will further boost prices from current low levels. Westpac expect the milk price to rise to $6.40/kg for the next season. Below is a useful video…

ANZCO’s profit disclosed in Itoham’s statement – Allan Barber:

Japanese food company Itoham Foods announced last week an increase in its shareholding in New Zealand meat processor and exporter ANZCO Foods from 48.28% to 65%. As a result of the transaction it will be able to consolidate ANZCO’s revenues and earnings into its annual accounts.

 $40 million worth of shares are being bought from three entities: another leading Japanese food manufacturer Nippon Suisan Kaisha, chairman Graeme Harrison, and JANZ Investments, owned by Graeme Harrison and ANZCO staff members. The sale will see the minority shareholders reducing their shareholdings on a pro rata basis with Harrison’s effective holding falling from approximately 20% to 14%. . .

BOP Dairy Awards Boosts Careers:

Entering the Bay of Plenty Dairy Industry Awards has helped the region’s 2015 Sharemilker/Equity Farmers of the Year, Grant and Karley Thomson, secure a new position beginning in June.

The couple were the major winners at the 2015 Bay of Plenty Dairy Industry Awards held at the Awakeri Events Centre in Whakatane last night. The other big winners were Jodie Mexted, the Bay of Plenty Farm Manager of the Year, and Jeff White, the region’s Dairy Trainee of the Year.

The Thomsons, who won $10,100 in prizes, are currently 50% sharemilking (with a silent partner) 420 cows for Tom and Tony Trafford at Opotiki. . .

 

New Zealand King Salmon Success to Feature at Queenstown Agribusiness Symposium:

Aquaculture business, New Zealand King Salmon, will feature as one of the success stories at the second Queenstown Agribusiness Symposium this month.

New Zealand King Salmon successfully launched Ōra King premium salmon in 2012 to the international foodservice market.

The farmed salmon is now on fine dining menus around the globe.

The Queenstown Agribusiness Symposium attracts senior staff, managers and leaders from throughout Asia Pacific horticulture, agriculture, seafood and biotech industries to help them develop new ways to problem solve and grow their business. . .

Prime Minister John Key Visits Manuka Health’s New State of the Art Honey Facility:

New Zealand Prime Minister, John Key, has been given a tour of Manuka Health’s brand new multi-million dollar, purpose-built honey processing and distribution centre on a recent visit to Te Awamutu in the Waikato.

Mr Key was shown through the premises by Manuka Health CEO and founder, Kerry Paul. It is now the largest customised honey facility in New Zealand and combines internationally accredited laboratories, honey-drum storage, blending, packing and distribution under one roof.

Mr Paul, says it was a huge honour to have the Rt Hon John Key visit the new centre. . .

Tasman Young Farmers to be put to the test in ANZ Young Farmer Contest Regional Final:

The third ANZ Young Farmer Contest Grand Finalist will be determined next weekend, Saturday 14 March at the Tasman Regional Final held in Kirwee.

“This contest season is shaping up to be very exciting, every year the calibre of contestants continues to improve and impress,” says Terry Copeland, Chief Executive of New Zealand Young Farmers – organisers of the event.

The eight finalists are contending for a spot at the Grand Final in Taupo 2 – 4 July and their share of an impressive prize pack worth over $271,000 in products, services and scholarships from ANZ, FMG, Lincoln University, Silver Fern Farms, AGMARDT, Ravensdown, Honda, Husqvarna and Vodafone. . .

 


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