Rural round-up

21/02/2020

Drought, coronavirus rattle dairy – Sally Rae:

Westpac has cut its farmgate milk price forecast from $7.40 to $7.20 and ASB has trimmed its forecast by 10c to $7.40, as economists keep watch on the effects of coronavirus and drought.

At this week’s GlobalDairyTrade auction the headline index was down 2.9% and most products fell. Key export product whole milk powder fell 2.6%.

The result was unsurprising given the continuing uncertainty surrounding the coronavirus outbreak, Westpac market strategist Imre Speizer said in a note.

The steps China had taken to contain the outbreak, such as limiting the population’s movement, had kept many factories closed. . . 

Fonterra ramps up emergency water deliveries to parched Northland– Andrea Fox:

Dairy heavyweight Fonterra is trucking, free of charge, hundreds of thousands of litres of emergency water supplies daily to the drought-stricken Far North.

The drought relief effort will see tankers carrying 90,000 litres of water a day each to Kaikohe and Kaitaia, and new water deliveries just started to Dargaville and Rawene, a spokesperson said.

Sixty tankers a week have been delivering water to emergency holding tanks in Kaikohe and Kaitaia, while Dargaville will get 10 tankerloads or 300,000 litres every two days and Rawene one tankerful or 30,000 litres daily. . .

Rain lifts river levels in Marlborough but region not out of the woods yet – Maia Hart:

A drop of February rain has given water irrigators in Marlborough an extended grace period. 

Several rivers in Marlborough were days away from being “shut off” from irrigators on February 6. 

Marlborough District Council hydrologist Val Wadsworth said Rai Valley irrigation had been shut off for a week but the river had “quite a good lift” earlier this week, which meant it had been turned back on. 

“In some places there was quite a bit of rain, in the Rai Valley there was 50mm,” Wadsworth said.  . . 

Balclutha hens rule the roost on Country Calendar – Melenie Parkes:

In Balclutha, there’s a family rearing some of the happiest hens you’re likely to find.

These merry cluckers are ‘pasture free range’, meaning they have the run of the land.

“There’s 1200 acres that we’re roaming around on here and there’s 6300 chooks, so there’s a lot of space,” says Michelle Pringle who, along with husband Tony, sells their eggs under the Agreeable Nature label.  . . 

Fresh producers must yell loudly – Richard Rennie:

Fresh fruit and produce companies around the world risk having their long-held and proven health claims stolen by the new arrivals on supermarket shelves, plant-based food products.

One of the biggest emerging trends in consumer behaviour in six regions surveyed globally is healthy living, Cathy Burns, chief executive of giant United States trade organisation Produce Marketing Association, told Zespri’s Momentum conference.

“This includes a desire to shed things from the diet that are not good for me and it has become a proxy term for intelligence and social acceptance. . . 

Stratford breaks SI drought -:

Invercargill shearer Nathan Stratford won the Southern Shears open final in Gore at the weekend, his first in the event after 24 years of trying.

The result brought him 70 open final victories as he became the first South Island shearer to win the event since 1994 when Edsel Forde, from Winton, won the final for a fifth time . . 


Rural round-up

26/01/2020

New policy might limit farming – Neal Wallace:

Farmers fear new biodiversity policy could force councils to make them restore areas of indigenous flora and fauna on their land.

The Government has released its proposed draft National Policy Statement for Indigenous Biodiversity, which leans heavily on councils to identify, monitor and manage areas with significant indigenous biodiversity.

Within five years councils will have to identify and map significant natural areas using standard national criteria, manage any adverse effects on those areas and survey native wildlife in and outside the areas to determine if they are threatened or affected by land use activities. . .

Sarah’s Country: Are we fit for a better world? – Sarah Perriam:

Sarah’s Country’s debut episode focuses on the key elements of this vision for New Zealand that includes a swing towards regenerative agriculture, capturing the value of the billion-dollar plant protein trend and offsetting our carbon emissions with environmental integrity, not ‘thin air fake’ credits.

Sarah Perriam, the host of Sarah’s Country, is this week joined by guest co-host Kate Scott. Kate is a director of LandPro and a 2018 Nuffield Scholar living in Central Otago. . .

Farm sales start to look up:

Farm sales were down 21.6% for the three months ended December 2019 versus the year prior ­— but sales look to be lifting.

Data released today by the Real Estate Institute of New Zealand (REINZ) shows that farm sales increased by 22.3% in the three months ended December 2019 compared to the three months ended November 2019, with 345 and 282 sales respectively. . .

$8 payout possible – Peter Burke:

The guessing game has begun to predict what dairy farmers will get for their milk this season.

The consensus in the sector is that the price will be positive: numbers ranging from $7.15/kgMS to $7.50/kgMS, although ASB rural economist Nathan Penny is sticking his neck out and suggesting it could reach $8/kgMS.

Fonterra says its forecast is in the range of $7.00 to $7.60 with the midpoint being $7.30.

Dr. Mitloehner issues warning on increasing herd sizes – Charles O’Donnell:

While there is not necessarily a need to cut herd sizes for the purpose of climate change mitigation, increasing numbers is also not the way to go, according to Dr. Frank Mitloehner.

Dr. Mitloehner, a well-known professor and air quality specialist, was speaking at an event called ‘Climate Action in Agriculture: A Balanced Approach’ in Dublin today, Tuesday, January 21, which was organised by the Irish Farmers’ Association (IFA).

The German-born Californian-based professor spoke out against the perceived necessity to cut herd sizes. However, when asked about the growing numbers of animals in the dairy industry, he warned that going in the opposite direction by increasing numbers would pose a climate issue. . . 

Government urged to block high carbon food imports :

Britain cannot risk importing food with a higher carbon footprint than food which has been produced in the UK, a new report says.

Released by the Committee on Climate Change (CCC), it says British farming produces some of the most sustainable food in the world and that emissions from UK beef is half that of the global average.

Land Use: Policies for a Net Zero UK presents a detailed range of options to drive emissions reductions in England, Scotland, Wales and Northern Ireland. . . 

 


Fonterra forecast drops 25c

31/08/2018

Fonterra has dropped its forecast payout for the current season by 25 cents.

Fonterra Co-operative Group Limited today revised its 2018/19 forecast Farmgate Milk Price from $7.00 per kgMS to $6.75 per kgMS.

Fonterra Chairman, John Monaghan, said the change was in response to stronger milk supply signals coming from some of the world’s key dairy producing regions.

“Over the past quarter, we have seen increased milk supply out of markets including Europe, the US and Argentina. These regions have a big influence on the supply and demand balance and therefore global prices. For example, the one per cent increase in US milk production represents just under 100 million litres of extra milk.

“At the same time, demand for whole milk powder and dairy fats is showing signs of slowing in some parts of Asia, Africa and the Middle East,” added Monaghan.

Fonterra CEO, Miles Hurrell, said the weakening NZD/USD exchange rate had only partially offset the decline in global dairy prices, and it was important to give farmers a realistic assessment of the market.

“It’s still very early in the season and a lot can change over the coming months. A drop in the new season Milk Price forecast will be frustrating to our farmers, but it’s important we give them the facts so they can make informed decisions in their farming businesses,” said Hurrell.

The timing of today’s update is in line with DIRA requirements for Fonterra to review the Milk Price every three months. The Co-operative last considered the Milk Price in May.

This isn’t unexpected and $6.75 is still a reasonable amount, though no-one should bank on that not being revised down again.


Rural round-up

25/05/2017

Top dairy woman says industry must ponder its future – Pam Tipa:

A major issue facing the dairy industry is “how much to grow,” says the 2017 Fonterra Dairy Woman of the Year, Jessie Chan-Dorman.

“What is a sustainable growth aspiration for our industry? [We need to] actually put a stake in the ground about what sustainable growth looks like,” Chan-Dorman told Rural News.

“That conversation [is needed] not just among ourselves but – like it or not – with all the wider parties, the New Zealand public, who have an interest in where the dairy industry is heading. . .

Event manager carves out dairy career niche – Sudesh Kissun:

The first solo woman winner of the Dairy Manager of the Year title, Hayley Hoogendyk, hopes to be a role model for others switching to a career in farming.

Hoogendyk (28) left her job as an events manager and took up dairy farming five years ago.

In March she won the Manawatu Dairy Manager of the Year competition; earlier this month she was crowned the national winner at the Dairy Industry Awards final in Auckland.

Hoogendyk told Rural News she had not expected to win. . .

Milk price great news:

Today’s Fonterra milk price forecast of $6.50 for the 2017-18 season, coupled with the revised price of $6.15 for the current season, is great news for dairy farmers, says DairyNZ.

It is great news too for the country as it will boost the regional and national economies.

While welcoming the forecast increase, DairyNZ’s chief executive Dr Tim Mackle says he needs to challenge farmers to ‘make hay while the sun shines’.

“By this I mean that farmers need to take advantage of the milk price increases to pay down debt, and carry out the likes of deferred maintenance,” he says. . .

Fonterra forecast signals dairy industry revival:

The revival in fortunes of dairy farmers has been highlighted today by Fonterra’s announcement that they are increasing the milk price for the current season-lifting its payout from $6.00 to $6.15/kg milksolids for the year ending 30 May 2017.

Fonterra’s favourable forecast wasn’t unexpected and reflects the recent trend of increasing global dairy prices, which has fostered more confidence amongst the markets.

“Many dairy farmers throughout the country will be enjoying their lunch today. This is great news and comes after a turbulent few years where the industry has been under the pump,” says Andrew Hoggard, Federated Farmers Dairy Industry Chair. . .

Higher milk pay-out puts $3.5bn into farmers’ pockets – Fonterra – Alexa Cook:

A milk pay-out of $6.15 a kilogram of milk solids this season will give farmers an extra $3.5 billion compared to last season, says Fonterra.

The co-operative has lifted its pay-out for the season by 15 cents and announced an opening forecast for next season of $6.50 kg/ms.

Milk prices have come a long way from last season’s pay-out of $3.90, and the dairy index is now at its highest in about three years. . .

Ways to keep nutrients out of waterways – Nicole Sharp:

How can we reduce sediment, phosphorus and E. coli getting in to waterways?

AgResearch scientist Tom Orchiston put the question to farmers along with giving advice on good management practices onfarm at Dairy NZ’s Farmers Forum on May 4.

Sediment in waterways reduced the habitat and disrupted the eco-system in streams, he said. . . 

Lewis shows her class – Alan Williams:

Vivienne Lewis is responsible for the results of one of the biggest shearing jobs in New Zealand and the work has won her the NZ Wool Classers Association crossbred wool merit award.

Her team handled the shearing of the 30,000 ewes, 10,000 two-tooths, 12,000 lambs and 700 rams on the sprawling Ngamatea Station near Taihape in the central North Island.

It was a very big clip and the Canterbury Wool Scour-sponsored award was won for the manner of its preparation and classing and presented at the association’s annual meeting in Christchurch in mid-May. . . .

Beef + Lamb New Zealand confirms board positions:

The Directors of Beef + Lamb New Zealand have re-elected Northland farmer James Parsons as the Chairman for another year.

Parsons has been the Chairman of Beef + Lamb New Zealand since 2014 and has represented the Northern North Island as its Farmer Director since 2009.

The Board has also elected Gore farmer, and Southern South Island Farmer Director Andrew Morrison, as the Deputy Chairman, when it met for its May meeting. . .


From $4.25 to $6.15

25/05/2017

A year ago Fonterra announced an opening forecast milk payout of $.425 for the 2016-17 season.

The forecast has gradually crept up as world prices increased and yesterday the co-operative announced a forecast payout of $6.15.

Chairman John Wilson said the increase reflects the strong fundamentals supporting global dairy markets. “World dairy prices have risen in recent months and as we near the end of the season we have more visibility and certainty which makes us confident of our $6.15 position,” Mr Wilson said.

Fonterra also confirmed its forecast earnings per share range of 45 to 55 cents for the 2017 financial year, as it continues to target a full year dividend of 40 cents per share. “Some of the challenges we faced in the third quarter could continue, but the business is committed to a strong fourth quarter particularly in Ingredients sales. This means we have been able to confirm the earnings per share range.” Mr Wilson said.

“The higher forecast Farmgate Milk Price of $6.15 per kgMS and the target dividend of 40 cents per share gives a forecast cash payout of $6.55 for a 100% shared-up farmer which is good news for our farmers and their communities,” he said.

In a further signal of confidence in the market outlook for dairy, the Co-operative is forecasting an improved Farmgate Milk Price of $6.50 per kgMS for the 2018 season. The forecast earnings range for the 2018 financial year will be announced around the beginning of August.

“The increase in the forecast Milk Price for the current season and the improved forecast for 2017/18 will be welcome news for our farmers following two challenging seasons on farm,” Mr Wilson said.

“Stronger production in March and April has partly offset lower peak milk production and collections are now expected to be down 3% for the season, a much better outcome for our farmers than had been anticipated earlier in the year,” Mr Wilson said.

The last few seasons have been very tough, especially for those new to the industry who didn’t have the good payouts the preceded the downturn.

The increased forecast for the current season and an even better one for the coming season is very welcome.

It will be interesting to see if it has an impact on farm sales.

Some farmers, and some banks, have been holding selling farms until the payout increased in the expectation land prices  will too.


Fonterra forecast payout up 75c to $6

18/11/2016

Welcome news:

Fonterra Co-operative Group Limited today increased its 2016/17 forecast Farmgate Milk Price by 75 cents to $6.00 per kgMS.

When combined with the forecast earnings per share range for the 2017 financial year of 50 to 60 cents, the total payout available to farmers in the current season is forecast to be $6.50 to $6.60 before retentions.

Chairman John Wilson said the increase reflects improvements in pricing since September, following the gradual rebalancing of global supply and demand.

“We’ve seen falling production in the major exporting regions, particularly Europe and Australia, and an unprecedented decline in New Zealand milk supply due to wetter than normal spring conditions across most regions. On balance, demand continues to be firm. As a result there has been a steady improvement in global dairy commodity prices and this is reflected in the improved forecast.

“We are very mindful that farm incomes will be affected this year because of lower milk production so we will be doing everything possible to build on our good start to the financial year and deliver the highest possible total payout to our farmers,” said Mr Wilson.

First Quarter Performance Update

Fonterra’s first quarter revenue of $3.8 billion is up six per cent on the same period last year. Sales volumes are up two per cent to 4.9 billion litres liquid milk equivalent (LME), while the gross margin of 22 per cent remains largely unchanged.

Chief Executive Theo Spierings said the first quarter revenue gains reflected broad-based volume and margin growth across the business, and an ongoing focus on cost controls.

“Our operating expenses have reduced by two per cent to $621 million and we continue to keep a close rein on them, in line with the financial discipline shown last year,” he said.

The Co-operative has moved an additional 128 million litres LME into higher-value consumer and foodservice products compared with the same period last year.

“The consumer and foodservice business achieved an improved gross margin of 31 per cent, up from 28 per cent. This reflects the increasing strength of our brands in key markets and our focus on chef-led solutions in foodservice.”

Mr Spierings said while the first quarter performance was pleasing, the Co-operative’s earnings face emerging head-winds for the remainder of the financial year.

“Our current milk collection forecast is 1,460 million kilograms of milk solids (kgMS), down seven per cent on last season, and this is constraining sales.

“In addition there is a potential impact from the price of Milk Price reference products, such as whole milk powder, rising faster than non-reference products.”

Mr Spierings said that, given the Co-operative’s stronger sales performance and lower production volumes, it continues to monitor its inventory and contracted sales position closely.

Chairman John Wilson said the Co-operative has had a strong start to the year.

“The unchanged earnings guidance range of 50 to 60 cents took into account the fact that a higher milk price had the potential to influence margins across the business. However, we do expect this volatility to continue which could impact both milk price and earnings guidance. We will keep our farmers and investors updated as we move through the year,” he said. . .

The wet spring has led to lower production over most of the country but if the forecast is realised, all but the least efficient farms will be safely above break-even.

Debt repayment will be a priority on most farms, but this level of payout will enable more spending on businesses that service and supply farms.


GDT and Fonterra’s forecast payout up

21/09/2016

The GlobalDairyTrade price index increased by 1.7% in this morning’s auction.

That was less than analysts and expected and whole milk was down .2%.

However, Fonterra is obviously confident that the upward trend in prices will continue and has increased its farm gate forecast milk price:

Fonterra Co-operative Group Limited today increased its 2016/17 forecast Farmgate Milk Price by 50 cents to $5.25 per kgMS.

When combined with the forecast earnings per share range for the 2017 financial year of 50 to 60 cents, the total payout available to farmers in the current season is forecast to be $5.75 to $5.85 before retentions.

Chairman John Wilson said that since the Co-operative last reviewed its forecast Milk Price in August, global milk supply has continued to reduce and demand has remained stable.

“Milk production in key dairying regions globally is reducing in response to low milk prices. Milk production in the EU for 2016 is beginning to flatten out and our New Zealand milk collection is currently more than 3 per cent lower than last season.

“While we have seen some improvement in GDT auction prices recently, the high NZD/USD exchange rate is offsetting some of these gains.

“There is still volatility in global dairy markets and we will continue to keep our forecast updated for our farmers over the coming months,” said Mr Wilson.

It’s only a forecast.

Farmers and sharemilkers will still be very cautious but it’s very welcome news for the industry, those who service and supply it and the wider economy.


Fonterra payout steady

01/08/2016

Fonterra has announced the forecast milk payout will remain at $4.25 and the  forecast earnings per share range for this season of 50 to 60 cents.

If the company achieves the higher figure it would make a total payout of $4.75 to $4.85. That’s still below break-even for many but given the continuing gloomy outlook for milk it’s not unexpected.

Chairman John Wilson said the solid forecast earnings per share range reflects performance improvements across the business and would be welcomed by farmers. However, with the Farmgate Milk Price forecast remaining at $4.25 per kgMS, it is another financially challenging season for farmers.

“The Co-operative is aware of how tough the situation on farm remains. We are focused on delivering as much cash as possible to our farmers by bringing payments forward while maintaining a strong balance sheet. This forecast is our best estimate at this early stage of the season. We will continue to update our farmers as we move through the season.”

Mr Wilson said the $4.25 Farmgate Milk Price reflects the continuing global uncertainty and the high NZD/USD exchange rate which continues to impact the competiveness of New Zealand dairy exports.

“The recent weakening of the Euro, combined with the continued strength of the New Zealand dollar, has meant a price advantage for European export dairy products.”

“We expect global milk supply and demand to come into balance over the course of this season. Farmers globally are producing less milk in response to lower prices and we are forecasting a three per cent reduction in our New Zealand milk collection for this season.”

Farmers here have seen the signals and have reacted to them. Farmers overseas, protected by subsidies, have been slower to cut production but they too are beginning to face the market, cut their costs and reduce production.

Chief Executive Theo Spierings said the returns from the ingredients, consumer and foodservice businesses continue to grow in-line with Fonterra’s business strategy to convert more milk into higher returning products.

“We are seeing the benefits of our investments in manufacturing over recent years. We now have more flexibility to make the right products at the least cost, delivering better returns for our farmers’ milk.

“Our good progress in continuing to increase value through our consumer and foodservice businesses, particularly in important markets such as China, Malaysia, Indonesia, Sri Lanka, Oceania and Latin America, is reflected in the lift in the earnings per share forecast.

“Constantly improving the performance of our business is an absolute priority and puts us in a strong position to create more value for our farmers. We are generating significant improvements and cash benefits through our ongoing business transformation that contribute to both our Farmgate Milk Price and our earnings,” said Mr Spierings.

Commodity sales are bread and butter, added value is the jam and cream which gives better returns and we need more of that.


Farmers don’t want return to subsidies

14/03/2016

Finance Minister Bill English has ruled out a Government bailout for struggling farmers to prevent widespread foreclosures.

“The Government has in place a system for dealing with hardship because you are going to see, for a small number of dairy farming families, some real distress.”

That is appropriate, a bailout isn’t.

The Government’s role was to provide a stable framework, such as low interest rates and favourable changes to the Resource Management Act (RMA), he said.

The dairy downturn is a short term problem. A stable framework provides a long term foundation which enables businesses to survive and prosper.

“If the opposition want to support the dairy industry they should vote for the TPP (Trans Pacific Partnership) and the changes in the RMA.” . . 

These won’t alleviate the short term pain of the low milk price but they will improve the medium to long term outlook.

Opposition MPs have other ideas:

Labour leader Andrew Little has called for banks to be “stiff armed” into not forcing dairy farmers off their land, warning that could see more farms fall into overseas ownership.

That is the sort of irresponsible and stupid behaviour you might expect in a banana republic.

Banks and farms are private businesses and government has no business meddling in them.

Some farms were subject to forced sales when the milk payout was above $8.

There will be some now it is so low but that is a matter to be sorted out by the banks, the farmers and their advisers.

His call came amid calculations by the Reserve Bank that in a worst case scenario up to 15 per cent of the $40 billion in dairy farm debt – equivalent to more than $5 billion – could be lost to the banks. . . 

That is very much a worst cast scenario.

Predictions in the mid to late 1980s that large numbers of farmers would be forced off their farms were wrong.

Banks knew that a flood of forced sales would depress land and stock values, further eroding equity and making the situation worse for lenders and borrowers.

That hasn’t changed.

A few of the worst cases will end in forced sales and those businesses which haven’t already acted to reduce costs and/or find other income will be on a very tight rein.

But banks will be prepared to let most businesses get through this. When, as it will, the milk price improves they will start addressing structural issues with those businesses which have them.

Something that appears to have escaped Little, is that small businesses which service and supply farms are probably more at risk than farms and no-one is suggesting they be bailed out.


Fonterra drops forecast to $4.15

28/01/2016

Fonterra has dropped its forecast payout from $4.60 a kilo to $4.15.

In a newsletter to shareholders, chair John Wilson says:

  • Today we’ve unfortunately had to announce that the forecast Farmgate Milk Price for the 2015/16 season is being reduced from $4.60 per kgMS to $4.15 per kgMS.
  • When combined with the previously announced earnings per share range of 45-55 cents per share, this amounts to a forecast Cash Payout of $4.50 – $4.55 per kgMS for the current season after retentions.
  • I know the reduction of our milk price forecast will be very tough on your farming businesses. As we get closer to our half year results, we will look at ways we can use the expected improvement in dividend returns and the financial strength of our Co-op to help support your cash flow.
  • Global economic conditions are continuing to impact demand for a range of commodities, including dairy. Despite this, our Co-op is performing well in the areas within our control and is on-track to generate improved dividend returns to farmers.
  • We remain confident in the long-term fundamentals of international dairy demand, but right now, the market remains out of balance.
  • Our previous forecast was based on the consensus view that the market would return to balance over first half of this year. However, the timeline for that correction has been pushed further out.
  • Farmers in other regions, particularly Europe, have not responded to the lower global prices by reducing supply as rapidly as New Zealand farmers have.
  • Last week I met with the leaders of the other major international dairy co-operatives. All have a similar view to ours on the medium term forecast, with one European co-operative introducing incentives to encourage their farmers to reduce supply.
  • Clearly, current prices are unsustainably low for farmers globally and cannot continue in the longer term.
  • Given the uncertainty, there continues to be further price risk. Your Board will continue to update you as the season progresses.
  • The 9.8 per cent drop in the forecast means we have had to reduce the Advance Rate payments. . . 

This isn’t surprising and follows Westland’s announcement of a lower forecast payout.

Few farms would have made a profit on the higher forecast. Today’s announcement will mean the average farm will be earning about $50,000 less than had the earlier forecast been maintained.

Fonterra’s media release is here.


Rural round-up: payout edition

08/08/2015

Fonterra forecasts $3.85:

Fonterra suppliers will get a total possible payout of $4.85/kg of milksolids this season – but there’s a catch.

The farmgate milk price is $3.85/kg MS with a predicted dividend of 40-50 cents then an extra 50 cents for each fully shared kilogram giving a total of $4.85/kg MS.

But the extra 50 cents is a loan, interest-free for up to two years, which farmers will have to apply for. Farmers would have to pay the money back when the Farmgate Milk Price or Advance Rate went above $6/kg MS.

Shareholders’ Council Welcomes Fonterra Shareholder Support Package Announced as Milk Price Plummets:

Fonterra Shareholders’ Council Chairman, Duncan Coull said the Co-operatives unique position has enabled it to provide assistance to its farmers in these tough times. The announced support package in the form of an interest free loan of 50 cents per kgMS for production between June and December will help farmers get through the tough times ahead.

While Fonterra Farmers were expecting a drop in the forecast Milk Price (down $ 1.40 per kg/MS to $ 3.85) it does not make today’s announcement any easier to bear. The dividend forecast of 40 – 50 cents per share lifts the total available for payout to $4.25 – $ 4.35 per kgMs. The retention policy means that the forecast Cash Payout for the season would be in the range of $ 4.15 – $ 4.20 for a fully shared up farmer. . .

Interest-free loans soften payout hit – Fran O’Sullivan:

Fonterra’s top brass cooked up a $430 million parachute so that the dairy co-operative could offer farmers a cushion for yesterday’s brutal cut to the forecast milk payment.

Fonterra chief executive Theo Spierings and chief financial officer Lukas Paravicini began work on the deal five to six days ago along with a couple of the co-operative’s farmer directors.

The upshot was that the Fonterra board was able to yesterday tick off a plan to leverage savings from the company’s transformation project and pump them out to farmers in the form of interest free loans. . .

Plan – do more and work longer – Neal Wallace:

Gerald Holmes concedes he will be a grumpy employer this milking season.

The Taieri dairy farmer has been through downturns before and said the biggest change he will make on his 600-cow farm is to become more self-sufficient.

“It is easy to say no to everything regardless of how reasonable the expense is.”

Gone this season are the days of calling in a plumber, mechanic or electrician to repair equipment.  . .

Times just get tougher for dairy industry – Sally Rae:

”If it continues into next year, … it’s going to be ugly for a lot of people. There will be casualties eventually.”

That was the sobering response of Berwick dairy farmer Mark McLennan on a day dubbed ”Black Friday” for the dairy industry, with Fonterra slashing its 2015-16 forecast price to $3.85 per kg of milk solids, the lowest figure since 2002.

DairyNZ’s latest analysis showed an average farmer needed $5.40 per kg to break even. . .

Fonterra revises down milk price to $3.85 – Tao Lin  and Gerald Piddock:

Fonterra’s decision to slash the price it pays its farmers for milk solids will wipe $2.5 billion off the economy, an analyst says.

Fonterra has cut its milk price forecast to $3.85 per kilogram of milk solids, down from $5.25.

Fonterra has also announced it will provide an estimated $430 million in financial support for farmers to help them cope with the low payout. . .

It is tough down on the farm – Regan Schoultz:

Craig Maxwell, his wife Kathy, and their daughter Penelope have been living on their dairy farm in Paparimu just south of Auckland for 25 years.

It is a big part of who they are as people and a lot of time, blood and sweat has been poured into it.

News of Fonterra’s announcement, informing New Zealanders that the farmgate milk price is set at $3.85, is not welcome.

“It is obviously disappointing but not surprising,” he said. “Nobody is going to be shocked by that figure, but no one is going to be happy.” . .

Milk price drop will have big impact on rural communities:

Rural businesses, not just dairy farmers, will feel a big impact from Fonterra’s announcement today that its 2015-16 Forecast Farmgate Milk Price is reducing from $5.25 to $3.85, says industry body DairyNZ.

DairyNZ chief executive Tim Mackle says the drop means a further reduction of $150,000 for the average dairy farm income for this season. “The harsh reality of this announcement is that Fonterra farmers won’t actually receive $4.25-$4.35 because of the way the payment system works. It’s likely to be more like $3.65,” he says. (see graph below for more details)

“The effect on the level of payments over a season will keep farmers’ cash income constrained for at least the next 18 months and it will take some farmers many years to recover from these low milk prices. . .

Massive fluctations in milk price show NZ’s dairy model ‘flawed’, Landcorp boss Carden says – Paul McBeth:

 (BusinessDesk) – A $4.55 swing in the forecast milk price paid to farmers over two seasons shows there’s something wrong with New Zealand’s dairy model, which is centred around farmer-owned Fonterra Cooperative Group, and it needs to change, says Landcorp Farming chief executive Steve Carden.

Fonterra today slashed $1.40 from its forecast payout to farmers to $3.85 per kilogram of milk solids, below the 2015 season’s $4.40/kgMS and less than half the record $8.40/kgMS paid in 2014. A slump in global milk prices through the course of the year had markets primed for a reduced payout, and state-owned Landcorp, the country’s biggest farmer, was pleased to lock in as much as it could at Fonterra’s $5.25/kgMS guaranteed milk price for the current season.

Landcorp’s Carden said the Wellington-based state-owned enterprise had been anticipating a weak revision for a while, so today’s result wasn’t a surprise. . .

Government should fast-track rural infrastructure to assist dairy regions:

Federated Farmers wants the Government to fast-track its infrastructure projects in dairy regions to assist local economies through the downturn in dairy prices.

Fonterra has announced its forecast Farmgate Milk Price for 2015/16 of $3.85 per kilo of milk solids. In late July last year Fonterra’s forecast price was at $6 per kilo for the 2014/15 season.

Federated Farmers Dairy Spokesperson Andrew Hoggard says small scale rural service industries, such as engineering or contracting, in some instances might be hit harder than the dairy farmers they traditionally rely on for work. . .

‘Black Friday’ will mean huge debt for farmers – Emma Jolliff:

Today has been dubbed ‘Black Friday’ not just for dairy farmers, but the whole New Zealand economy.

Fonterra has slashed its forecast payout to farmers to $3.85 per kilogram of milk solids, which is well below the break-even rate of $5.70.

Economists say it could strip $1.5 billion or more out of the New Zealand economy.

Sally Bosch has been sharemilking for eight years.  She knew a drop in the payout was coming, but not one this big. . .

Farmers cashing up assets – Dene Mackenzie:

Otago dairy farmers are selling what they can to generate cash flow as they face up to an immediate prospect of lower milk payout prices for the next 18 months to two years.

Holiday homes, second cars and unneeded plant and equipment have been the first on the block but accountants contacted yesterday by the Otago Daily Times say more, harder decisions will need to be made by some farmers.

Fonterra will this afternoon announce what many expect to be a sharply downgraded milk payout forecast for the current season. . .

 

 

 


Fonterra forecast $3.85 plus 40-50c/share

07/08/2015

Fonterra’s forecast payout has dropped from $5.25 per kilo of milk solids to $3.85 plus 40 to 50 cents a share.

In a newsletter to shareholders chair John Wilson says:

The Farmgate Milk Price forecast has been reduced from $5.25 per kgMS to $3.85 per kgMS due to the continued significant imbalance in the global dairy market between surplus supply in 2014 and current weak demand.

This imbalance and the challenge of lower prices continuing for longer than anticipated is a global issue, and one with which dairy farmers globally are increasingly grappling.

Current prices are unsustainably low and we are seeing them beginning to impact production levels globally.  We have confidence that prices will recover over the course of the season.

This is going to be a tough season, and we encourage you to make your decisions based on today’s forecast Milk Price.  We will update as the season progresses.

We have adjusted the Advance Rate in accordance with our policy.  We need to balance protecting our Co-operative while we have this volatility, with getting cash to you. . .

Forecast total payout available to farmers

We have announced $4.25 – $4.35 forecast total payout available to farmers for 2015/16.  It is made up of:

  • the revised forecast Farmgate Milk Price of $3.85 per kgMS
  • an earnings per share range of 40 – 50 cents.

We have returned to using a forecast total payout available figure to provide clarity on business performance, consistent with the way we have previously reported to you.

The forecast earnings are expected to be influenced by:

  • the positive impact of the lower Farmgate Milk Price on consumer margins globally for New Zealand-sourced products
  • the contribution from changes being made within the business
  • movements in New Zealand product mix returns.

The final decision on what is paid as a dividend will be based on our policy of paying out 65-75 per cent of adjusted Net Profit after Tax over a period of time, at the Board’s discretion.

At this stage in the season, budget on a forecast Cash Payout for 2015/16 season of $4.15 – $4.20.  This includes an estimated dividend range of 30– 35 cents per share. . .

The company can’t control global supply and demand but shareholders are asking why it set the opening price so high.

That price is what farmers and sharemilkers use to set budgets and make decisions on numbers of staff, amount of supplements, whether or not to buy extra feed and if so at what price, and other factors over which they have some control.

Everyone else appears to have known about factors like Russian boycott, the Chinese stock pile, the end of EU quotas and low feed prices in the USA which would all impact on supply, demand and price.

If the company didn’t know it should have, if it did it should have set a far more conservative opening price.

It is better to be conservative, set a lower opening price and increase it later than to set a higher price and have to reduce it.

Agribusiness professor Jacqueline Rowarth has called for a vote of no-confidence in the board.

I don’t think that’s likely but directors up for re-election should face strong nominees contesting them.

As for the rumour that there would be a second announcement today – nothing confirmed so far.


Keep calm and dairy on

07/08/2015

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.

 

 


Fonterra holds forecast payout drops dividend UPDATE – Synlait increases forecast

25/03/2015

Fonterra is maintaining its forecast milk payout for the current season but is dropping the proposed dividend.

In a newsletter to shareholders, chair John Wilson said:

  • We are holding the forecast Farmgate Milk Price at $4.70 per kgMS.
  • However, we are lowering our forecast dividend to 20-30 cents per share, resulting in a forecast Cash Payout of $4.90 – $5.00.
  • The Board has declared a 10 cent interim dividend to be paid on April 20 (the record date is April 10).
  • The half-year results will be below your expectations, in a period when the Milk Price is low and the forecast dividend range is being reduced.
  • The results are due to tough conditions in dairy globally, with volatility in production and pricing, and further impacts of inventory valuation realities after our record Milk Price last year. . .

 

  • In summary, the results:
    • Forecast Cash Payout for the 2014/15 season, maintained at $4.90 – $5.00
      • Forecast Farmgate Milk Price $4.70 per kgMS
      • Estimated full year dividend of 20-30 cents per share
    • Revenue $9.7 billion, down 14 per cent
    • Normalised EBIT $376 million, down 7 per cent
    • Net profit after tax (NPAT) $183 million, down 16 per cent
    • Interim dividend of 10 cents per share.

Farmers will be relieved the milk payout is not being reduced.

UPDATE:

Synlait has increased its forecast milk price.

Synlait Milk has increased its forecast of the market milk price for the FY2015 season from $4.40 per kgMS to a range of $4.50 – $4.70 per kgMS.

“The market has recovered faster than expected, but recent volatility has shown us it still remains fragile,” said John Penno, Managing Director.

Mr Penno also acknowledged how financially difficult the current season is for suppliers and says this increased forecast market milk price range will be well received.

“Cash flows are incredibly important for our suppliers, particularly as they head into winter. We indicated in February that our next update would be in May, but given current market conditions, I’m pleased we can provide one now”.

Mr Penno added that this update will enable Synlait suppliers to manage their finances with more certainty and a corresponding increase in advance rates will further support this.

“We believe the market will continue to recover in the medium term as consumption expands and production growth slows in response to lower pricing. However, we remain mindful of the additional milk growth likely to come from Europe as milk production quotas are removed on April 1”.

“We will continue to keep an eye on the market and expect to update our forecast market milk price towards the end of May 2015”.

 


Fonterra holds payout

27/02/2015

Fonterra’s announcement that it is holding the season’s forecast payout at $4.70 with an estimated dividend range taking it to $4.95 – $5.05 for the current season will have disappointed many after successive increases in the GlobaDairyTrade auction and  commentators had suggested an increase to $5.

Chairman John Wilson said that although dairy commodity prices had gone up, the increase was not sufficient to raise the forecast Farmgate Milk Price at this time.

“Since December, GDT prices for Whole Milk Powder have increased 45 per cent and Skim Milk Powder prices have increased 13 per cent,” Mr Wilson said.

“There continues to be significant volatility in international commodity prices. New Zealand volumes are down, with continued uncertainty in milk production due to climatic conditions in New Zealand with droughts in Canterbury, Marlborough, Central Otago and North Otago.

“Today’s forecast reflects the Board and management’s best estimates at this time. We are advising farmers to continue to be cautious with budgeting and we will update them as the season progresses.”

Chief Executive Theo Spierings said Fonterra was sticking to its strategy, with confidence in the long-term fundamentals of dairy demand.

“We will provide a full business update when we report our Interim Result on 25 March,” Mr Spierings said.

Fonterra is required to consider its forecast Farmgate Milk Price every quarter as a condition of the Dairy Industry Restructuring Act (DIRA). . .

 

But maintaining the payout will give farmers confidence.

Fonterra Shareholders’ Council Chairman, Ian Brown said the Co-operative’s announcement to maintain the 2014/15 forecast Farmgate Milk Price at $4.70 per kg/MS will be a relief for Farmers.

Mr Brown: “On-farm conditions have been really tough throughout the country and Farmers will be pleased that the recent downward trend has stopped.

“It has also been encouraging to see GlobalDairyTrade, and in particular Whole Milk Powder prices, increase significantly recently and given what took place late last year it will go some way to building confidence on farm.”

Mr Brown said that Farmers will be looking with great interest when the forecast dividend is announced at the interim results in late March.

“Our Farmers will want to see the strategy, which is key to adding value long term, deliver a return relative to the significant investment they have made and continue to make in their Co-op.

“In the interim, as always, the Council urges Farmers to be prudent in their financial planning to ensure they place their businesses in the best possible shape for next season.”

 

There is time for an increase but any is likely to be modest.

Most of this season’s milk has already been sold and while the outlook is more optimistic it is still volatile.


Rural round-up

11/12/2014

Wellington decision makers get the facts on irrigation:

“Highlighting New Zealand’s international excellence in irrigation practice to urban audiences and dispelling myths is key to getting greater acceptance of water storage and irrigation throughout the country,” said Andrew Curtis, CEO of IrrigationNZ at a breakfast of over 70 politicians, industry and business representatives and NGOs in Wellington this morning.

The breakfast meeting was arranged by the national body representing irrigators and the irrigation industry, IrrigationNZ, as part of its efforts to educate New Zealanders about water storage and irrigation and to emphasise the link to food production.

In his opening remarks, Minister for Primary Industries Hon Nathan Guy congratulated IrrigationNZ for bringing together the capital city’s key decision-makers to learn about the irrigation industry. . .

 

Reduced milk payout challenge to farmers, but recovery likely to commence in 2015-16 – Rabobank:

While the reduced milk price forecast means New Zealand dairy farmers will face significant challenges in the coming 12 to 18 months, the medium to longer-term outlook for dairy remains sound, agribusiness banking specialist Rabobank said today.

Commenting on today’s announcement that Fonterra has further cut its farmgate milk price forecast for 2014/15, Rabobank New Zealand CEO Ben Russell said while the challenges New Zealand dairy farmers would have to deal with in the immediate term were “acute”, farmers should have confidence in the medium and longer-term outlook for dairy, with Rabobank expecting a price recovery to commence during the 2015-16 season. . .

 

Small towns face dairy payout pain:

Small towns which service the dairy sector will be the first to feel the impact of the lower milk payout, Fonterra warns.

The payout has fallen below $5 to $4.70 per kilogram of milksolids – down from $5.30/kg.

It’s the third time Fonterra has lowered its farmgate milk price since the opening forecast for the 2014/15 season of $7, announced in June.

The federation’s chairman, Andrew Hoggard, said it would be midway through next year before farmers felt the impact of the reduced payout. . .

Small dairy farms can still be profitable – Keith Woodford:

Last week I wrote about the changing scale of dairying. Farms are getting bigger and they will continue to do so, driven by the combined power of scale and financial leverage.

Unfortunately the title I supplied for that article (‘The changing scale of dairy’) was changed in the Sunday Star Times to ‘Dairy is all about scale’. This title implied that there was no future for small dairy farms. However, those of us working with farmers know that small farms can indeed be profitable, and there are many factors other than scale that influence that profitability.

The false impression in last week’s Sunday Star Times article was further compounded by a headline sentence, inserted by editorial staff, that there were 1900 farms with 4.8 million cows. The correct number for 2013, as stated in the article itself, is 11,900 farms. . .

Asian markets fuelling growth for NZ mussel industry:

New Zealand’s iconic Greenshell mussels are proving a hit with consumers in emerging Asian economies and fuelling export growth for the sector according to peak governing body Aquaculture New Zealand (AQNZ).

“Asia can’t get enough New Zealand Greenshell mussels,” AQNZ Chief Executive Gary Hooper said.
“The popularity is driven by the quality, purity, taste, health properties and the reputation of the product. Consumers deliberately seek out premium New Zealand farmed mussels because they know they come from pristine waters, are handled with integrity and are guaranteed safe products they can trust.” . .

 

Forest safety brain trainer for Tree fallers – Switchback’s Steven Falk joins International Safety Conference:

The Forest Industry Engineering Association (FIEA) is pleased to announce that forestry teamwork expert Steven Falk from British Columbia, Canada has been confirmed as a keynote speaker for it’s flagship forest safety conference series March 2015. The summit runs at Rotorua’s Distinction Hotel on 3-4th March and Bayview Eden Hotel in Melbourne on 10-11th March.

Steven Falk’s team of trainers at Switchback has worked with manual tree fallers in British Columbia for many years. He reports, “Our feedback shows that 96% of participants thank us for the training/coaching and express a desire for their families to be able to participate in further Switchback training.” . .


Fonterra forecast payout to fall?

10/12/2014

Fonterra is expected to announce a further fall in its forecast payout today.

No-one was expecting this season’s payout to equal or surpass last season’s record but few would have thought it would be less than $5.

That will be less than break-even for most.

That shouldn’t be a disaster for one season especially for farmers and sharemilkers with a few seasons’ income behind them.

Even those who have just got into dairying should be able to get through one bad season when the medium to long term outlook is good.

However, most will make a loss this season and be spending far less. That will impact businesses which service and supply them, the wider economy and of course the tax-take.

It is important to keep it in perspective, though.

New Zealand doesn’t live on milk alone. Dairying  is our biggest primary export but this season sheep and beef prices are getting a welcome boost which will help compensate for the dip in dairy income.


Fonterra drops payout, ups dividend

24/09/2014

Fonterra has dropped its forecast payout for this season but increased the forecast dividend:

Fonterra Co-operative Group Limited today reduced its forecast Farmgate Milk Price for the 2014/15 season from $6.00 to $5.30 per kgMS, and increased and widened the estimated dividend range from 20-25 cents per share to 25-35 cents – amounting to a forecast Cash Payout of $5.55-$5.65 for the current season.

Chairman John Wilson said the lower forecast Farmgate Milk Price reflected continuing volatility, with the GlobalDairyTrade price index declining 6 per cent in the past two trading events.

“The market is currently influenced by strong milk production globally, the impact of Russia’s ban on the importation of dairy products, and the levels of inventory in China. Some relief has been provided by exchange rates, with the NZ dollar recently showing some signs of falling against the US dollar.

“Under the current market conditions, there is further downside risk.  However, the forecast reflects expectations that prices will increase in the medium term,” Mr Wilson said.

Chief Executive Theo Spierings said the estimated dividend range reflected the positive impact of a lower forecast Farmgate Milk Price on product margins but also significant volatility in commodity prices.

“A lower forecast Farmgate Milk Price reduces input costs in our consumer and foodservice businesses. In turn, we do expect to deliver increased returns as a result of a recovery in margins on our products.

“In addition, stream returns for Non-Reference Commodity Products such as cheese and casein are currently making a positive earnings contribution, but it is still very early in the financial year.

“With volatility in commodity prices, a wide range of outcomes are possible in relation to stream returns. The wider dividend range reflects this volatility, and at this stage of the financial year, it is not realistic to be able to accurately forecast the final result for the year within a narrower range.”

Mr Wilson said that the forecast Farmgate Milk Price remained reliant on increasing dairy prices in the medium term.

“The forecast Farmgate Milk Price is reduced based on current estimates of future pricing. There remains significant volatility in international dairy commodity prices and given this, this forecast is our best judgment at this time.

“As always, we recommend caution with regards to on-farm budgets in this environment of continuing uncertainty.”

The news wasn’t all bad. Fonterra confirmed a record payout for last season:

Fonterra Co-operative Group announced today a final Cash Payout of $8.50 for the 2014 year for a 100 percent share-backed farmer, comprising a Farmgate Milk Price of $8.40 per kgMS and a dividend of 10 cents per share.

Chairman John Wilson said that the Cash Payout to the Co-operative’s 10,500 farmer shareholders was the highest ever made since Fonterra’s formation in 2001.

“The Farmgate Milk Price on its own represents an injection of more than $13.3 billion to the New Zealand economy for the season.

“It is a strong result, reflecting the determination of our farmer shareholders to lift on-farm performance, matched within the business by a focus on driving revenue.

“Our farmers took advantage of good conditions to produce 1,584 million kgMS, eight percent more than last season, to make the most of the good prevailing prices early in the season.

“North Island volumes were up nine percent at 969 million kgMS, while the South Island delivered a seven per cent rise in volumes to 615 million kgMS.

“A very good spring saw our farmer shareholders achieve record milk production through an extended peak, stretching our production capacity for powders. This led to early impacts on stream returns from the less valuable products we were forced to make.”

Fonterra CEO Theo Spierings said the Co-operative had come through a very demanding year.

“We have continued to stay on track with our strategy, focusing on securing the best returns to our farmer shareholders.

“We achieved record revenue of $22.3 billion for the year, a direct result of the focus on achieving the highest possible revenue line that is good for the Farmgate Milk Price.

“Constrained margins in our foodservice and consumer businesses and on non-milk powder products were the knock-on effect, contributing to a 27 per cent rise to $19.8 billion in the cost of goods sold. However, we maintained our focus on efficiency and achieved a two per cent reduction of $46 million in our operating costs.

“Our higher cost of goods sold, along with higher interest and taxation, saw our net profit after tax decline by 76 per cent to $179 million.” . . .

The cut in this season’s forecast was expected and last season’s record payout will be some compensation.

However, the reduced payout will impact not just on farmers but the people and businesses who service and supply them and the wider economy.

When the price goes up there’s always calls from the left for farmers to subsidise consumers.

There won’t be a call to subsidise farmers now the price has gone down, nor would we want it.


Fonterra drops payout to $6

29/07/2014

Fonterra has announced its forecast payout for this season has dropped by a dollar:

Fonterra Co-operative Group Limited today reduced its forecast Farmgate Milk Price for the 2014/15 season from $7.00 to $6.00 per kgMS and announced an estimated dividend range of 20-25 cents per share – amounting to a Forecast Cash Payout of $6.20-$6.25 for the current season.

Chairman John Wilson said the lower forecast Farmgate Milk Price reflected continuing volatility, with the GlobalDairyTrade price index declining 16 per cent since the start of the season on June 1.

“We have seen strong production globally, a build-up of inventory in China, and falling demand in some emerging markets in response to high dairy commodity prices.  In addition, the New Zealand dollar has remained strong. Our milk collection across New Zealand last season ending 31 May 2014 reached 1,584 million kgMs, 8.3 per cent higher than the previous season.

“This drop in the forecast Farmgate Milk Price will have an impact on our farmers’ cash flows.We continue to urge caution with on-farm budgets in light of the continuing volatility in international dairy markets,” said Mr Wilson.

Chief Executive Theo Spierings said the increase reflects the Co-operative’s expectations for improved returns on its value-add and branded products, given volume increases and lower input costs.

“As we continue to drive for growth in our consumer and foodservice businesses, during the first half of the current financial year we expect reduced cost of goods arising from lower dairy commodity prices to have a positive impact on returns.

“It is important to note that in light of the significant volatility, our dividend estimate is based on zero ingredients stream returns at this early stage in the season.

“We continued driving our V3 strategy throughout the previous season and that is why we can support an increased estimated dividend range for the 2014/15 financial year.

“Our forecasting anticipates some recovery in global dairy prices but it is too early to predict how strong this recovery will be or when it will kick in. . .

This drop was expected after successive drops in price in GlobalDairyTrade auctions and volatility in world markets.

It certainly isn’t welcome but it shouldn’t be regarded as cause for panic either.

 

 


Where will milk price go?

22/05/2014

Fonterra will announce its forecast payout for the 2014/15 season next week.

This graph showing the relationship between GlobalDairyTrade auction prices and the payout give a good indication of where it’s likely to go:

milkgdt

 

 

 

 

 

 

 

The milk price has shadowed the GDT price index until the last few months when the index has fallen but the payout has remained higher.

Even the most optimistic forecasts for the coming season indicate a fall from the 2013/14 record payout.

This graph reinforces that and there’s speculation the new season’s inaugural forecast could be down by more than $1.50, to $7 per kilogram of milk solids (kg ms).  

. . . BNZ economist Doug Steel said a lower payout forecast was unlikely to surprise farmers, given highly visible declines in world prices to date.

Given current price and currency conditions, a milk price forecast somewhere around the $7 kg ms mark seemed plausible, Mr Steel said.

”This [latest decline] fits within our view that dairy prices would be lower this year,” he said in a statement.

Westpac chief economist Dominick Stephens also believed the new season payout forecast next week would be well down, at around $7.10kg ms, while also picking the present season forecast would be downgraded, from $8.65 to $8.50kg ms.

Because the dairy sector carried the majority, or about 65% of all agricultural debt, and half the dairy debt was held by about 10% of all farmers, the Reserve Bank was watching the sector closely, he said. . .

Wise farmers have used this season’s record payout to reduce debt and have been budgeting on a lower payout for the coming season.

 


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