GDT positive again

08/06/2022

The price index in Fonterra’s GlobalDairyTrade auction increased again after five successive declines.

One auction isn’t a trend but milk swaps are offering $10 a kilo of milk solids which gives cause for optimism that the farmgate price will hold up this season.


What goes up . . .

10/05/2022

Fonterra has revised its forecast farmgate milk price down:

Fonterra Co-operative Group Limited today revised its 2021/22 forecast Farmgate Milk Price range from $9.30 – $9.90 per kgMS to $9.10 – $9.50 per kgMS.

This reduces the midpoint of the range, which farmers are paid off, from $9.60 per kgMS to $9.30 per kgMS.

Fonterra CEO Miles Hurrell says the change in the forecast Farmgate Milk Price is due to a number of recent events which have resulted in short-term impacts on global demand for dairy products – in particular, the lockdowns in China due to COVID-19, the economic crisis in Sri Lanka and the Russia-Ukraine conflict.

“While the long-term outlook for dairy remains positive, and we expect global demand and supply to be more balanced over the rest of the year, we have seen these short-term impacts flow through into pricing on the Global Dairy Trade (GDT) platform. For example, average prices for whole milk powder (WMP), a key driver of the milk price, have decreased by 18% over the past four GDT events.

“As an exporter to 140 countries we deal with these kinds of global events all the time, but right now we’re seeing the impact of multiple events. Coupled with inflationary pressures, it’s not surprising to see buyers being cautious.

“Our scale and ability to move products between different markets and categories remains important, and reinforces our strategic focus on ensuring our milk is going into the highest value products.

“This will be disappointing for our farmers, but the change in global dairy prices is coming off record high levels. At a midpoint of $9.30 per kgMS, this would continue to be the highest forecast Farmgate Milk Price in the Co-op’s history and would see us contribute almost $14 billion into New Zealand’s economy through milk price payments, which supports the wellbeing of our local communities.

“Looking out to the rest of the year, global milk production is expected to remain constrained as high feed, fertiliser and energy costs continue to impact production in the Northern Hemisphere, and we expect demand to recover as the short-term impacts begin to resolve.

“While there is still a high level of uncertainty in global markets, the majority of our milk has been contracted for the season. It’s for this reason that we’ve made the decision to narrow our forecast range to +/- 20 cents.

“As always, there are a number of risks we are continuing to keep a close eye on, including potential impacts on demand from inflationary pressures and rising interest rates, increased volatility as a result of high dairy prices, and further disruptions from COVID-19 and geopolitical events.”

It’s disappointing but not surprising. What goes up eventually comes down, and recently global prices have been going down from the peak reached a few months ago.

Last year some were suggesting this season’s milk price could start with a 10, but China’s Covid lockdown and Russia’s invasion of Ukraine coupled with international and domestic inflation have put paid to that.

However, the low point is still above $9 which is a very good payout.

Uncertainty here and abroad make it unlikely that next season’s forecast will be as high and a rural banker told me that a lot of clients are using the combination of good returns this season and the threat of higher interest rates to pay down debt.

That is prudent. When inflation will boost input prices, reducing the amount borrowed is one way to lower costs without reducing production.

If only the  government understood this prudence and wasn’t so keen on ensuring the only exception to what goes up must come down with tax.


Fonterra forecast milk price up again

03/12/2021

We’ve just got an early Christmas present:

Fonterra Co-operative Group today lifted its 2021/22 forecast Farmgate Milk Price range, reported a solid start to the 2022 financial year and revised its earnings guidance.

The Co-op has lifted and narrowed the forecast Farmgate Milk Price range to NZD $8.40 – $9.00 per kgMS, up from NZD $7.90 – $8.90 per kgMS. This increases the midpoint of the range, which farmers are paid off, to NZD $8.70 per kgMS.  The higher milk price has seen the Co-op revise its earnings guidance to 25-35 cents per share from 25-40 cents per share.

Fonterra CEO Miles Hurrell says the lift in the 2021/22 forecast Farmgate Milk Price range is good news and is an important boost to New Zealand communities. With a midpoint of $8.70 per kgMS, it would contribute more than $13.2 billion to the New Zealand economy.

“It’s the result of consistent strong demand for dairy at a time of constrained global supply.

“We’ve seen the impact of a number of events play out this first quarter. That includes the high price of feed in the US which has seen milk production growth stall and a lower-than-expected supply picture in Europe.

“Fonterra’s New Zealand milk supply is down around 3% on this time last season. While we expect that milk supply will be less than last season’s 1,539 million kgMS, the improving weather conditions and forecast milk collections for the balance of this season that are generally on par with last season support our current season forecast of 1,525 million kgMS.

A lot of wet and warm weather in North Otago has given good grass growth but it’s quantity rather than quality which has impacted on milk production.

“While we’ve seen demand soften slightly in China, global demand remains strong, and we think that will remain the case for the short to medium term.

“A higher forecast Farmgate Milk Price at this level can put pressure on our margins and therefore our earnings, which is why we’ve reduced the top end of our earnings guidance.”

First quarter business update

Fonterra has delivered a Total Group EBIT of $190 million for the three months ending 31 October 2021. This was achieved at a time when input costs are significantly higher than the same period last year. These have been driven by a 30% increase in Whole Milk Powder prices.

Mr Hurrell says there have been a number of factors at play in the first quarter. “We’re seeing stable sales volumes in our Foodservice channel, but a milk price at these high levels has squeezed margins. Our Chilean business continues to improve but tightening margins and weaker local currency in other markets have impacted our Consumer channel overall.

“In our Ingredients channel, we’re seeing margins in our longer-term pricing contracts return to more normal levels, which has helped push Total Group gross margin up from the last quarter last year.

“We continue to see the benefit of our focus on financial discipline with lower interest expense, and operating expenditure down 2% on the same quarter last year.

“Looking at the whole picture, I’m proud of what we’ve achieved. With EBIT of $190 million and a strong Farmgate Milk Price, we are starting to consistently deliver solid commercial outcomes.”

Outlook

While the impacts of COVID-19 continue to be felt around the world, Mr Hurrell says the Co-op is working hard to deliver for farmer owners, unit holders and customers and supporting employees.

“The resilience of our people and our supply chain means we continue to stay on top of the strong demand for our New Zealand milk.”

“However, it is concerning to hear about new variants, which are potentially more resistant to vaccines. There is also the ongoing question of whether economies can rebound from the pandemic and then sustain their financial health.

“That’s why we have a 60-cent range on our forecast Farmgate Milk Price range.”

Supporting our people

Globally, teams are starting to return to the office following extended COVID-19 lockdowns. Mr Hurrell says it’s been a challenging time for employees.

“In some of our regions, our people have spent more than 18 months working from home. We’ve supported them during this time and continue to support their safe return to the office. I want to acknowledge the extra effort from our employees that is helping us deliver good results for the Co-op.

“Here in New Zealand, we recently completed the rollout of our vaccination programme in partnership with the Ministry of Health, which saw more than 8,000 doses administered.”

Path to 2030

Fonterra set out the next phase of its long-term strategy in September, with three key strategic choices guiding the Co-op – a continued focus on New Zealand milk and to lead in sustainability and dairy innovation and science.

Mr Hurrell says the Co-op is confident in its strategy and 2030 targets and is already showing early signs of progress.

“As we continue to focus on New Zealand milk, work is underway on the divestment of our Chilean business and the ownership review of our Australian business, with the appointment of advisors to assist with both processes. Dependent on the outcome of these processes, we intend to return around $1 billion of capital to our shareholders and unit holders by FY24.

Mr Hurrell says the focus on New Zealand milk is paying off with customers. “We recently launched our Mainland cheese range in Dubai’s largest supermarket chain. The range completely sold out, with customers using social media sites to track down the cheese in-store. Our in-region team is now looking at launching the range into other countries.

“We’re also focused on delivering innovative new solutions for our customers. Our new Ingredients ecommerce platform, myNZMPTM, is being embraced by customers across China, Latin America, South East Asia and the Middle East.”

Mr Hurrell says the Co-op is also using innovative technology to make the most of the natural goodness found in our New Zealand dairy.

“A transformative dairy science collaboration with Vitakey will explore how we can further unlock the benefits of our probiotic strains. Our goal is to design dairy products that incorporate targeted and time-controlled release of specific dairy nutrients in a way that locks in the freshness for longer and allows the nutrients to be more active and beneficial in the body.”

New Zealand is already the most carbon-efficient dairy producing nation on the planet and Mr Hurrell says the Co-op is making strides in its intention to retain a significant advantage by being a leader in sustainability.

“By treating water at our Maungatūroto site using a natural wetland, we can reduce water use on site by up to 25%. On-farm, we’ve just introduced Farm Insights Reports, which give farmers a comprehensive picture of their overall farm from an environmental performance and animal health perspective. This enables them to focus on the improvements which will have the biggest impact.

“We’re also working to find a solution to the challenge of on-farm emissions and one of the exciting projects we’ve been working on is Kowbucha™, a probiotic which could switch off the bugs that create methane in cows. Initial results have been promising, showing a reduction of up to 50% in methane, and we’re now at the stage of trialling it on farm.

“This is just some of the great work underway in the Co-op that will enhance our New Zealand sustainable nutrition story.”

This isn’t just good news for farmers, it’s good news for the economy, especially when tourism, which was one of the country’s biggest foreign exchange earners, has been hit so hard by closed borders.


Rural round-up

27/10/2021

Fonterra increases 2021/22 forecast farmgate milk price :

Fonterra Co-operative Group Limited today increased and narrowed its forecast Farmgate Milk Price range to NZD $7.90 – $8.90 per kgMS, from NZD $7.25 – $8.75 per kgMS.

The midpoint of the range, which farmers are paid off, has increased to NZD $8.40 per kgMS, from NZD $8.00 per kgMS.

Fonterra CEO Miles Hurrell says the lift in the 2021/22 forecast Farmgate Milk Price range is a result of continued demand for New Zealand dairy relative to supply.

“At a $8.40 midpoint, this would equal the highest Farmgate Milk Price paid by the Co-op, and would see almost $13 billion flow into regional New Zealand through milk price payments this season. . .

New research highlights NZ beef’s differences :

Pasture-raised beef is a cornerstone of the New Zealand meat industry.

However, it is not clear if it is understood the benefits consumers get from the meat when it is raised this way.

New research from the Riddet Institute indicates there are differences in meat quality relating to health and digestion, depending on how the animal is raised.

A Massey University research team led by Dr Lovedeep Kaur and Dr Mike Boland compared the digestion differences between pasture-raised New Zealand beef to grain finished beef and a plant-based alternative. . .

Game deer donated to Kai Rescue charity in Nelson – Samantha Gee:

A  call to manage a population of deer on private land in Nelson has led to a donation of venison to a food rescue programme.

New Zealand Deerstalkers Association Nelson branch committee member David Haynes said a managed hunt was undertaken in order to sustainably manage the number of animals on a recreational property at the request of the landowners.

“They came to the Nelson Deerstalkers to say they’re having problems with some pigs rooting up the ground and damaging some tracks there along with other animals and asked us if we could come in and try and sort of manage those two more sustainable levels.”

Branch president Greg Couper and committee member Carina Jackson culled the deer along with goats and pigs. . . 

New Zealand agritech companies attracting millions of dollars :

New Zealand agritech companies are attracting millions of dollars of investment, proving that Covid is not stopping significant business activity, AgriTechNZ chief executive Brendan O’Connell says.

Aotearoa agritech is seeing remarkable progress in new global partnerships, collaborations, investments and team growth.

A surge of company announcements from around the country support the sector focus exemplified in New Zealand’s agritech industry transformation plan. It feels like fertile ground for a burst of growth in 2022 and beyond, he says.

“Dunedin’s AbacusBio has just announced their deepening relationship with Bayer Crop Science, in the area of predictive plant breeding. . . 

NZ canned win exports set for multimillion dollar growth:

One of New Zealand’s largest exporters of canned wine has launched a multimillion-dollar expansion into North America as its share of the global small format wine market grows.

The move by the Wairarapa winemaker into the lucrative US market, follows an approach from $16bn retail chain Wholefoods after a win in a major canned wine competition.

The international market for canned wines is growing at a rate of 13% per annum and is projected to reach over $807m by 2028. In contrast, the bottled wine category remains stagnant with a growth rate of 4%.

The wine industry has struggled to attract millennials and small format options are increasingly being seen as a mechanism to deliver a more portable, environmentally friendly and portion-controlled product for this health-conscious segment. . . 

Could our national fungus become the blue food dye of the future? – Olivia Sisson :

Aotearoa’s very own werewere kōkako could be the secret to all-natural Powerade, blue jelly beans and even the elusive blue Froot Loop. Olivia Sisson speaks to a scientist trying to make it happen.

Blue food is having an absolute moment.

From the rise of blue spirulina smoothie bowls and blue rice to the resurgence of Blue Hawaii cocktails –  eating aqua is in.

A few months ago @shityoushouldcareabout brought a blue food inequity to the fore: New Zealanders are missing out on blue Froot Loops. The American version of the cereal contains orange, green, purple and blue loops.  . . 

 

Cow manure makes DRINKABLE water after scientists turn the animal feces into a filter that removes salt from seawater – Stacy Libertore:

Cow manure may be used largely for fertilizing, but some researchers are using it to turn seawater into freshwater.

Scientists at Northeastern University developed a process that turns the bovine feces into a filter that purifies otherwise undrinkable water – an innovation the team hopes can address the global water crisis.

By blasting the manure with intense heat, scientists broke it down to a carbon powder that was made into a foam. 

The foam floats on the seawater’s surface and when sunlight hits the area, water beneath the black material turns to steam and passes through it as drinkable liquid. . . 


Rural round-up

25/10/2021

Focus on discerning consumers – Neal Wallace & Colin Williscroft:

An increasing number of meat and dairy exporters are targeting discerning consumers with products that meet their environmental and animal welfare expectations. 

First Light managing director Gerard Hickey says suppliers of its beef and venison have to meet certain provenance, welfare and market standards that consumers are prepared to pay a premium for.

Silver Fern Farms’ Plate to Pasture brand underpins its production values, but will this year launch net carbon zero beef into the US and is seeking suppliers to commit to regenerative agriculture, all of which will pay premium prices.

Chief executive Simon Limmer says it has 3500 suppliers certified to NZ Farm Assurance Plan (NZFAP) programme, representing 94% of sheepmeat and 58% of beef supply. . .

Condition major profit driver – Russell Priest:

Ewe body condition is the most powerful profit driver in a sheep production system and unlike many objective measurements taken on sheep is cheap to assess, requiring only a farmer’s valuable time.

That’s the message delivered by former BakerAg consultant and now full-time farmer Sully Alsop at a Beef + Lamb NZ Farming for Profit seminar held in Manawatu recently.

It influences the three main profit drivers – kilograms of lamb weaned/ha, weaning weight/lamb and number of lambs weaned/ ha.

“If there is one thing that drives sheep production more than anything else it is ewe condition,” Sully said. . .

What is wool’s future in New Zealand? – Dorian Garrick:

Dorian Garrick scopes the range of options for wool off the typical New Zealand sheep farm.

Early in my career, a typical family sheep and beef farm in New Zealand earnt roughly one-third of its income from wool, roughly one-third from sheep meat, and the rest from cattle. 

The woolshed was a stimulating workplace at shearing time, with the hard-working team, the competitive environment, and the high value of the product being harvested. At that time, those few individuals that had knowledge and experience with wool classing were held in high regard. 

The approaches used to improve reproductive performance and lamb growth rates by selection were based on considerable scientific efforts. They were in concert with the onfarm activities of the enlightened ram breeders and the interest of industry to support activities such as Sheep Improvement Limited (SIL) and its predecessors. . .

Dr Ron Beatson wins the Morton Coutts Award

Plant & Food Research scientist Dr Ron Beatson has been awarded the Morton Coutts Trophy.

The award was presented at the Brewers Guild of New Zealand 2021 New Zealand Beer Awards in recognition of his outstanding contribution to the New Zealand hops industry.

Beatson has led the research and development of hop breeding and genetics for 38 years at Plant & Food Research.

Based at the Motueka Research Centre, he recently celebrated his 50th anniversary as a Plant & Food Research scientist. . . 

ASB bets Fonterra will pay farmers a record milk price this season – Desire Juarez:

ASB hiked its expectations for Fonterra’s milk price to farmers to the top of the co-operative’s range, saying declining milk production will push payments to a record high this season.

ASB economist Nat Keall lifted his forecast for Fonterra’s farmgate milk price this season by 55 cents to $8.75 per kilogram of milk solids. That’s at the top of Fonterra’s forecast for between $7.25 per kgMS and $8.75 per kgMS, and would surpass the previous record of $8.40 per kgMS paid in the 2013/14 season.

Keall took heart from the latest global dairy trade (GDT) auction which showed whole milk powder, which has the most impact on what farmers are paid, continued to be in demand, with prices for future contracts lifting as production looks set to fall this season.

“GDT events over the first half of spring have shown no sign of demand softening and, with supply continuing to look tight, we’re comfortable making a sizeable upward revision,” Keall said in a note. “A record farmgate milk price for the season is very much live.” . . 

 

Productivity and lifestyle in a superb coastal setting :

A picturesque coastal sheep and beef farm has gone up for sale in North Canterbury offering an enticing blend of productivity and lifestyle plus options to further grow production.

Located on Gore Bay Road, about four kilometres south of Cheviot in rural Hurunui, the approximately 590-hectare hill country farm is well subdivided for ease of management, with productivity underpinned by good access and infrastructure.

The land offers a favourable balance of aspect and is well-regarded, healthy stock country particularly suitable for fine wool production. . .


Rural round-up

24/09/2021

The ETS is both a gold mine and a minefield – Keith Woodford:

The Government never foresaw the land-use forces they were unleashing with the ETS

In recent weeks I have written multiple articles on the Emission Trading Scheme (ETS) with a particular focus on forestry. This week I also had an extended interview with Kathryn Ryan on RNZ ‘Nine to Noon’.  However, there is still lots more that needs to be said.

The bottom line is that carbon forestry is now far more profitable than sheep and beef farming on nearly all classes of land. We are indeed on the cusp of the greatest rural land-use changes that New Zealand has seen in the last 100 years.

For many sheep and beef farmers, carbon farming can now be a gold mine. The key requirement is pastoral land that will grow an exotic forest that will not be destroyed by storm, fire or disease.  . . 

A new visa scheme offering 3 years in Australia to agricultural workers threatens to crush NZ’s primary sector – Aaron Martin:

Australians must be laughing at our immigration woes.

The Australian government has announced a new visa aimed at enticing agricultural workers by offering them three years of residency to live in rural areas. New Zealand, however, has no official pathway or plan for migrant worker residency.

Why is the Ardern government consistently the loser?

We have very proud history of sporting success against Australia. We love nothing better than to beat them at anything. We’ve had success on multiple fronts but, sadly, our government seems to come up the loser against theirs. . . 

The human cost of no response :

The Prime Minister’s ‘Be Kind’ message is obviously struggling to get past Wellington’s 50k boundary and out to Rural New Zealand.

You can tell because, if there was any response from her or her ministers to the concerns Rural NZ has, I’d know. To date, the tally is 0.

As both a farmer and National’s Agriculture spokesperson I find it deplorable.

The heavy-handed approach the Government has adopted in trying to reach unrealistic, impractical targets for water, climate change, zero carbon, emissions and land use, to name but a few, has placed enormous pressure on the farming sector. . .  

Fonterra completes reset, announces annual results and long-term growth plan out to 2030:

Fonterra Co-operative Group Limited today announced a strong set of results for the 2021 financial year, reflected in a final Farmgate Milk Price of $7.54, normalised earnings per share of 34 cents and a final dividend of 15 cents, taking the total dividend for the year to 20 cents per share. The results come as Fonterra moves through its business reset and into a new phase of growing the value of its business.

CEO Miles Hurrell says the last three years have been about resetting the business. “We’ve stuck to our strategy of maximising the value of our New Zealand milk, moved to a customer-led operating model and strengthened our balance sheet.

“The results and total pay-out we’ve announced today show what we can achieve when we focus on quality execution and an aligned Co-op.

“I want to thank our farmer owners and employees for their hard work and commitment over the last few years that has got us to this position. Together, we’ve shored up foundations and done this despite the challenges of operating in a COVID-19 world.

“Although the higher milk price and tightening margins put pressure on earnings in the final quarter, this is a strong overall business performance, allowing us to deliver $11.6 billion to the New Zealand economy through the total pay-out to farmers. . . 

Hawke’s Bay A&P show cancelled over Delta risk fears – Maja Burry:

The Hawke’s Bay A&P Show, due to be held late next month, has been cancelled due to the uncertainty and risks associated with the Covid-19 Delta outbreak.

Organisers said the executive committee of the Hawke’s Bay A&P Society met last night to review the risks and after significant consideration, made the hard decision to cancel.

The show was scheduled to run from October 20th-22nd. It’s one of the largest in the country and usually attracts 30,000 people to the Tomoana Showgrounds.

Society president Simon Collin said whilst the country was in differing levels of restrictions, and with Covid-19 cases still appearing the country, the event couldn’t go ahead. . . 

Scientists aiming to enhance the `human-ness’ of infant formula

AgResearch scientists think they have identified a unique new way to make infant formula more like breast milk and better for babies, using ingredients that could enhance brain development and overall health.

Research into this next generation infant formula could create new opportunities for New Zealand’s primary industries in a global market worth tens of billions of dollars annually.

With funding over three years recently announced from the government’s 2021 Endeavour Fund, AgResearch scientists Simon Loveday and Caroline Thum, along with collaborators from Massey and Monash Universities, are aiming to enhance the “human-ness” of infant formula produced from New Zealand ingredients.

“We’ve recently discovered a new natural source of nutritional oil that is surprisingly similar to the fat in breast milk,” Dr Thum says. . . 

Demand for NZ apples in India continues to grow – Sally Murphy:

An apple exporter says efforts to grow demand in India are proving fruitful with orders skyrocketing.

Although they only make up a small proportion of total numbers, exports of pip fruit to India have been growing.

Ministry for Primary Industries figures show last year 5.5 percent of apple and pear exports went there, but to July this year exports to India made up 8.2 per cent.

Golden Bay Fruit in Motueka has been exporting apples there for over 20 years. . . 

 


Dairy delivers again

05/03/2021

Good news from Fonterra:

Fonterra Co-operative Group Limited today lifted its 2020/21 forecast Farmgate Milk Price range to NZD $7.30 – $7.90 per kgMS, up from NZD $6.90 – $7.50 per kgMS.

The midpoint of the range, which farmers are paid off, has increased to NZD $7.60 per kgMS.

Fonterra CEO Miles Hurrell says the lift in the 2020/21 forecast Farmgate Milk Price range is a result of consistent strong demand for New Zealand dairy.

“We’ve seen Global Dairy Trade (GDT) prices continuing to increase since February when we last updated on our forecast Farmgate Milk Price and then this week there was the 15% increase in GDT prices.

“It’s very much a China demand led story but there is also good demand for New Zealand dairy across South East Asia and the Middle East.

“China’s strong economic recovery, following the initial impact of COVID-19, is flowing through to strong demand for dairy and we’ve seen this through sales during the Chinese New Year.

“China’s local milk supply is being used in fresh dairy products and they are looking to us to provide longer-life dairy products – in particular, whole milk powder which has a big influence on the forecast Farmgate Milk Price.

“Customers know we are continuing to get products to market, despite the challenges in the global supply chain and they are looking to us for this reliability. We’re also seeing customers want to buy more of our products than usual to help mitigate the risk of global supply chain delays.”

Hurrell says today’s lift in the Co-op’s forecast Farmgate Milk Price is good news for New Zealand farmers and the wellbeing of rural communities. It would see the Co-op contribute more than $11.5 billion to the New Zealand economy through milk price payments this year.

But before we get too excited:

Fonterra has decided to maintain its plus or minus 30 cent range on its forecast Farmgate Milk Price, reflecting the continued uncertainties in the global dairy market.

Hurrell says it is important that farmers recognise there are a number of downside risks to the mid-point of the range. For example, the EU and US are heading into their season and their milk supply will start increasing, the impacts of COVID-19 on key markets and market volatility.

“A $7.60 per kgMS forecast Farmgate Milk Price also increases our input costs putting further pressure on our earnings in the second half of the 2020/21 financial year. More details on our earnings will provided at our half year results on 17 March.”

 


Fonterra opening forecast $6.25 – $7.25 per kgMS

23/05/2019

Fonterra has announced an opening forecast price of $6.25 – $7.25 per kgMS:

Key third-quarter financial performance numbers:

    • Sales volumes: 16.6 billion LME, up 4%
    • Revenue: $15 billion, up 1%
    • Gross margin: $2.2 billion, down 3%
    • Normalised operating expenses: $1.8 billion, down $73 million
    • Normalised EBIT: $522 million, down 9%
    • Capital expenditure: $419 million, down 28%
  • Revised forecast earnings per share range: 10-15 cents from 15-25 cents per share
  • 2018/19 forecast Farmgate Milk Price range: $6.30 – $6.40 per kgMS
  • Opening 2019/20 forecast Farmgate Milk Price range: $6.25 – $7.25 per kgMS
  • 2019/20 Advance Rate Schedule has been set off $6.75 per kgMS

A dollar range in the forecast is a wide one but its an uncertain world and it’s better to be clear about that.

Fonterra Chief Executive Miles Hurrell said that good progress is being made on the strategy review and reiterated that the benefits from those changes will take time to flow through into the Co-op’s financial performance. . .

Farmers and unit holders can expect to see some fluctuation in our earnings over the next couple of years and there will be one-off transactions and adjustments (some positive, some negative) as we reset the business and deliver on our new strategy.

“We are committed to keeping people updated as we make progress. Today’s update is:

    • We are commencing a strategic review of our two wholly-owned farm-hubs in China
    • We have agreed with our partner Nestle to review options for the future ownership of our Dairy Partners Americas (DPA) Brazil joint venture, including a potential sale of respective stakes
    • We are closing our Dennington site in Australia.

“These decisions relate to our new strategic direction – in particular, prioritising our New Zealand milk supply and simplifying our global portfolio, which, as we have said previously, requires us to review every part of business to ensure it meets the needs of the Co-op today.”

Changes had to be made and the new board and management are making them.


Fonterra drops forecast payout

10/10/2018

Fonterra has dropped its forecast farmgate milk payout for the current season:

Fonterra Co-operative Group Limited today revised its 2018/19 forecast Farmgate Milk Price from $6.75 per kgMS to a range of $6.25-$6.50 per kgMS and increased its forecast New Zealand milk collection volumes by 1.3 per cent to 1,550 million kgMS.

While no-one will be celebrating this, it’s not unexpected and it’s still not a bad price.

Although it’s very early in the season and it could well change again.

Fonterra Chief Executive, Miles Hurrell, says the change in the forecast Farmgate Milk Price was due to a stronger global milk supply relative to demand at this time.

“I know how hard it is for farmers when the forecast Farmgate Milk Price drops, but it’s important they have the most up to date picture so they can make the best decisions for their farming businesses.

“We are still seeing strong production coming from Europe, US and Argentina. While the hot weather in Europe has slowed down the region’s production growth, it is still tracking ahead of last year. US milk production is up slightly and Argentina’s is up 6.8%.

“Here in New Zealand, the season has got off to a positive start, mainly thanks to good weather and early calving in the South Island. As a result, we have increased our forecast milk collections for the year to 1,550 million kgMS – up from 1,525 million kgMS.”

Mr Hurrell says that global demand is simply not matching current increases in supply.

“At recent Global Dairy Trade (GDT) events, prices for all products that make up the milk price have fallen. Demand for WMP, in particular, continues to grow in China, and it remains strong across South East Asia, but it simply isn’t matching current levels of supply.”

Talking about the new move to provide a range for the forecast Farmgate Milk Price, Mr Hurrell says it was part of the Co-op’s intention to provide the best possible signals.

“We operate in a hugely volatile global market place, so it is very difficult to pinpoint an exact forecast Farmgate Milk Price this early in the season. For example, weather conditions can change suddenly and this can have a significant impact on the global milk supply.

“As a result, we have chosen to give a range of $6.25-$6.50 per kgMS and be clear that the Advance Rate is based on $6.25 per kgMS and the final price could be outside this range as we are still early in the season and up against considerable volatility. We therefore recommend farmers budget with ongoing caution.”

The timing of today’s update is driven by available market information and is not a DIRA requirement. Fonterra is required to give a forecast for DIRA purposes by 15 December 2018.

Supply and demand – the former is higher than the latter which depresses the price.

It’s as simple as that.

 


Fonterra’s forecast milk payout falls

08/12/2017

Fonterra has revised its forecast farmgate milk payout price from $6.75 to $6.40:

Chairman John Wilson says the lower forecast Farmgate Milk Price reflects a prudent approach to ongoing volatility in the global dairy market. The GlobalDairyTrade price for Whole Milk Powder is a big influencer of the Farmgate Milk Price and it has declined by almost 10 percent since 1 August 2017.  

“While the result of the arbitration with Danone has impacted our earnings guidance for the season, it has no influence on our forecast Farmgate Milk Price,” says Mr Wilson.

“What is driving this forecast is that despite demand for dairy remaining strong, particularly in China, other parts of Asia and Latin America, we are seeing strong production out of Europe and continued high levels of EU intervention stockpiles of Skim Milk Powder.

“This downward pressure on global prices is being partly offset by the lower NZ-US dollar exchange rate,” says Mr Wilson.

“Our strong financial position, customer order book at this point in the year, and confidence in demand means that the Board is able to increase the payments made in January by 10 cents per kgMS and will hold the Advance Rate through to the payments in May.

“In effect, our farmers will receive equal or higher payments for their milk over this period than were scheduled under the previous $6.75 milk price.

Fonterra has also updated its full season New Zealand milk collection forecast due to ongoing challenging weather conditions. The Co-operative has reduced its forecast by 1 per cent to 1,525 million kgMS – the same volume as last season. 

Given drops in GlobalDairyTrade price index in successive auctions, relieved by a very small lift this week, the drop in the forecast payout isn’t surprising.

It’s not the early Christmas present dairy farmers, sharemilkers, their staff and those who service and supply them were wanting, but it wasn’t unexpected and it’s still a reasonable return.

Of more concern is the dry weather.

A wet spring enable a late start to irrigation in North Otago but everyone’s watering as much as they can now.

At least here we have reliable water supplies.

Farmers in other areas where there is no irrigation, or where they face restrictions in dry weather, will be hoping forecasts for continuing hot weather and little or no rain are wrong.


Fonterra opening forecast $4.25

26/05/2016

Fonterra has announced an opening forecast farm gate milk price of $4.25 per kilo of milk solids for next season.

Prices are expected to increase during the season but no one should be banking on that.


Rural round-up

28/01/2016

Rural to benefit:

Rural fire chief Mike Grant hopes the intentions outlined in Fire Service reform documents become reality.  

Grant, the principal rural fire officer for the Southern Rural Fire Authority, said much of the detail was unknown because it had still to be discussed by Cabinet but there was a consistent message on how the new management entity should operate in the review document, submissions and analysis. . . 

Dairy farming best choice for Dairy Woman Network local co-convenor

Matamata sharemilker Suzie van Heuven could not imagine going back to working in town.

The Dairy Woman Network (DWN) co-convenor for the East Waikato group is hooked on dairy farming.

That might not be surprising seeing she grew up on a farm in Waitoa except for the fact that her high school career ambition was to be a vet or a cop.

But while waiting to be old enough to apply for the police force she dabbled in the dairy industry and by 2011, had progressed to farm manager. During that time she was involved in the Ngarua Young Farmers club, where she met her future husband, Alex. . . 

Despite Expected Milk Price Correction, 45 Cent Drop is a Sobering Blow to Farmers:

Fonterra Shareholders’ Council Chairman, Duncan Coull, said that today’s announcement of a 45 cent drop in the 2015/16 forecast F from $4.60 kg/MS to $4.15 kg/MS, is one that will further amplify the effects of the current low milk price environment on Farmers and their businesses.

Duncan Coull: “Farmers are very aware that this is a global story which is now having a significant local effect. Strong supply out of Europe coupled with flat demand is driving market sentiment as evidenced by the GDT results. . .

More moo woo – Alison Campbell:

Once I started paying attention to the woo around milk I realised how much of it there is. And how ready people are to accept it.

I’ve written about the notoriously non-scientific Food Babe before. Someone with a high pain threshold could probably manage a daily blog post on this young woman and the way she manipulates opinion, and sometimes sells the very things she inveighs against… But I digress!

Today I noticed she’s shared a link about how drinking milk encourages the development of osteoporosis. I was mildly suspicious about the source (‘healthy-holistic-living.com) but before taking a look, I skimmed the comments. Oh dear. . . 

New Science Challenge to boost land productivity and the environment:

Science and Innovation Minister Steven Joyce today launched the Our Land and Water National Science Challenge, which aims to enhance primary sector production and productivity while maintaining and improving land and water quality.

The National Science Challenges are dedicated to breaking new ground in areas of science that are crucial to New Zealand’s future.

“From an economic standpoint they don’t come much more important than this,” Mr Joyce says.  “There is increasing confidence that new agricultural tools will be able achieve both these crucial objectives for New Zealand.  The job of this challenge is to use science to accelerate the development of these tools.” . . 

Welfare of horses and donkeys the focus of a new code:

New minimum standards and best practice guidelines for the management of domestic horses and donkeys have been developed in a new code of welfare.

The new code comes into effect on Thursday (28 January 2016) and includes standards for equine management, food and water requirements, handling, training and equipment, husbandry practices and equine health.

The code has been developed by the National Animal Welfare Advisory Committee (NAWAC) and applies to horses, ponies and donkeys and their hybrids kept for any purpose including those kept as companions (pets), for breeding, sport, entertainment or as working animals. The code also applies to foals and any horse captured from the wild. . . .

Retiring Farmers Urged to Consider All Options Before Selling Up:

With succession front of mind for New Zealand agriculture, a North Island sheep and beef farmer turned agribusiness advisor is encouraging farm owners to explore all of the options before settling on a succession plan.

Sean Bennett, a veteran of 20 years on the land prior to becoming an agribusiness advisor for Crowe Horwath, suggests that succession is one of the industry’s biggest challenges over the next decade.

“When you consider the average age of a New Zealand farm owner is marching steadily towards 60, and the forecast capital required to replace their exit has been estimated at over NZ$60 billion, it’s easy to see why there are widely held concerns,” says Bennett. . . 

Soaring Start to Karaka Select Sale:

After just one day of trade at the three-day Karaka 2016 Select Sale the aggregate is already over half of the final aggregate of last year’s Sale, thanks to spirited competition at all levels of the market.

The momentum from the prosperous Premier Sale flowed through to the first day of the Select Sale with the aggregate, average, median and clearance rate tracking higher than Day One of the Sale last year, with two days of the Sale remaining. . . 

 

American Cattlemen's photo.


Fonterra drops 2014-15 forecast, 2015-16 forecast better

28/05/2015

An email from Fonterra chair John Wilson brings more bad news:

  • Today we reduced the current forecast Farmgate Milk Price for the 2014/15 season to $4.40 per kgMS. Along with the previously announced dividend range of 20-30 cents per share, the change amounts to a forecast Cash Payout of $4.60 – $4.70 for a fully shared-up farmer.
  • Today’s revision means there will also be a reduction to Advance Rate payments for August and September.  . .
  • The 10 cent reduction to the forecast reflects the reality that global commodity prices have not increased as expected.
  • World markets are over-supplied with dairy commodities after farmers globally increased production in response to the very good prices paid 12-18 months ago.  This supply imbalance has heightened due to continuing good growing conditions in most dairy producing regions. . .

This is unexpected and unwelcome but there is better news for next season:

  • We have also announced today our opening forecast Farmgate Milk Price of $5.25 per kgMS for the 2015/16 season.
  • The forecast Cash Payout will be available after we determine forecast earnings for the 2016 financial year, in July.
  • The Advance Rate will begin at 70 per cent of the forecast Farmgate Milk Price, with an opening rate of $3.66 per kgMS. . .
  • Our forecast takes into account factors including global milk production forecasts, the economic outlook of major dairy importers, current inventory levels and geopolitical events.
  • Prices are expected to recover going forward, with a rebalancing of supply and demand over the season.
  • However it is more difficult to say exactly when this recovery will lead to a sustained price improvement, and we recommend caution with your on-farm budgets at this early stage in the season.

Contractors are already finding farm work has dried up.

They and others who service and supply farmers will be sharing the pain until the payout picks up.


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