Nearly 1 in 10 want to quit dairy


Almost 1 in 10 dairy farmers are considering getting out of the industry:

According to DairyCo’s Farmer Intentions Survey, milk producers have lost confidence in the industry over the past year, with 9% planning to quit within the next two years.

This is in Britain, not New Zealand.

Only 32% of 1,230 UK respondents planned to increase production over the next couple of years, compared to 36% at the same time last year. “There was a noticeable increase in the proportion of farmers who were undecided on production levels two years hence, up from 5% in 2012 to 13% this year,” said the report. “This is likely to be a response to the difficulties faced during the 2012-13 milk year and the continued uncertainty on operating conditions for the upcoming year.” . . .

The high level of uncertainty meant 36% of farmers were undecided on investment plans for the next five years, up from 12% in last year’s survey. The number planning to invest nothing over the next five years increased from 12% to 29% over the same period. . . .

The forecast payout for the current season here is uncomfortably close to break-even for most farmers here.

But in spite of that the industry is in a much healthier state than it is in the UK and the medium to long term outlook is good.

Fonterra’s 8th birthday not as happy as 7th


It was eight years ago yesterday that farmers voted to form Fonterra, New Zealand’s biggest dairy company.

If the company has a cake it will be more modest than the one it might have had a year ago when the milk payout was at its peak.

The new season’s forecast is a much more modest $4.55 per kilo of milk solids.

The freezing of executives’ pay  may be a symbolic gesture but it does send a signal to the industry that the white gold has lost some of its lustre.

Adding to concerns is the Reserve Bank’s warning in its May Financial Stability report that agricultural lending has increased steeply and may not be sustainable.

The reintroduction of subsidies in the USA and EU hasn’t helped matters and will slow the recovery. However, even with subsidies dairying in Britain isn’t healthy.

Phil Clarke notes a DairyCo survey conducted in February and March which showed:

The sharp decline in dairy commodity prices in 2008, which has now filtered through to farmers milk cheques, combined with rising input costs, has led to a radical reversal in this year’s Farmer Intentions Survey.

The latest document shows that just 18% of producers now plan to increase output, while the number looking to quit the industry has shot up to 13%……

According to DairyCo, the quitters will outweigh the expanders considerably in volume terms, leading to another 5% drop in UK milk output by 2010/11.

The situation gets even worse if further price falls are factored in. If prices drop another 2p/litre, then the percent who would leave the industry doubles again to over 30%, while only 6% would increase production.

The implications for the future of British milk production are frightening. Even at current prices we are going to see another significant fall in milk output and a sharp rise in our import dependency.

That bad news for British dairying may provide an opportunity for New Zealand because if Britain can’t produce enough to satisfy domestic demand for dairy produce we’d be ready and willing to fill any gaps on their shelves with ours.

Glimmers of hope for dairy industry


Fonterra may not be flavour of the month but that hasn’t put investors off.

The company has raised $800 million in less than a week with a bond offer that was oversubscribed by 267%.

This is a sign that investors have more faith in Fonterra and the dairy industry than the doomsayers who’ve been prophesying disaster by focussing on the difference in this year’s payout compared with last years without pointing out that $5.10 is still the third best payout the company has made.

Those whose glasses are perpetually half empty also don’t take into account that while the figures in the income column are smaller, so are those in the expenditure one thanks to big drops in interest rates and the price of fuel and fertiliser.

We may not be rolling in clover, but we’re still growing grass and converting it to protein and while the world may not be paying as much as it was a few months ago there’s still a market for milk.

Rabobank’s senior analyst Hayley Moynihan  says the medium to long term outlook is still good and that global supply is contracting in Europe and the USA  while falling prices are making dairy products more competive which will increase demand.

There’s another glimmer of hope for us from DairyCo which reports that the British  milk supply is declining.

It’s too soon to break out the champagne again, but there’s enough hope there to postpone the order for hair shirts.

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