Farming business not bet

November 13, 2014

Dairy farming is ‘no bet’:

Federated Farmers says it’s not the government betting on the farm, but instead farmers making sound market decisions. This comes after Green Party co-leader, Dr Russel Norman, said the government has ‘bet on the farm’ with dairying being a ‘one trick pony,’ which is producing a lower tax take and jeopardising a budget surplus.

“Dr Norman is ill-advisedly attacking New Zealand’s most successful export industry,” says Andrew Hoggard, Federated Farmers Dairy chairperson.

“Primary exports are an increasingly large share of our merchandise export returns and dairy an increasingly large share of farm production.

“The signals from the market are that growing middle classes, especially in South Asia, are developing a sustained taste for dairy products, and New Zealand is a respected source of those dairy products.

“Our dairy farmers are rationally taking these market signals on board and not being diverted by the inevitable short term fluctuations, or in Dr Norman’s terms, ‘a bet’

“The reasons for the present market slippage are clear.

“We didn’t cause Ebola in West Africa and our dairy farmers didn’t invade Eastern Ukraine either, but these two disparate events have cost us hundreds of millions of dollars. That same risk would exist if we exported mobile phones or software.

“Yes, the world produced seven billion litres more milk last season in an exceptional run the world-over. While that put a lid on dairy price growth, sanctions following events in the Eastern Ukraine released some three billion more litres and now you’ve got Ebola too.

“No question this season is a poor one. It ranks down there with 2005/6 but that also means the many seasons around them weren’t too shabby. Seasons that have helped to make this country the third most prosperous on earth according to Legatum.

“Unlike the past, our guys have been saving the gains while investing into productivity and environmental improvements. The ASB reckons, according to NZ Farmer, that agricultural bank deposits over the year to the end of September totalled $7.2 billion.

“Within the past few weeks RadioLive’s Duncan Garner has been on-farm and said this after visiting one; “So a bit of a message to the Greens, this guy wanted to pass on a message to the Green Party that they spend hundreds of thousands of dollars on what they do with their waste, and I thought it was quite brilliant, actually”.

Andrew Hoggard however doesn’t take too much issue with Russel Norman that the dairy industry might to likened to a pony.

“If he insists that it is a pony he should acknowledge that it is a very strong pony, it’s a stayer and it can perform economic miracles for our nation that Dr Norman would do well to get acquainted with,” Mr Hoggard concluded.

Season Average Dairy Company total payout ($/kg milksolids) Dairy Company payout (inflation adjusted)a
2003/04 $ 4.25 $ 5.34
2004/05 $ 4.58 $ 5.60
2005/06 $ 4.10 $ 4.83
2006/07 $ 4.46 $ 5.14
2007/08 $ 7.67 $ 8.51
2008/09 $ 5.14 $ 5.59
2009/10b $ 6.37 $ 6.82
2010/11b $ 7.89 $ 8.02
2011/12b $ 6.40 $ 6.44
2012/13b $ 6.18 $ 6.18

Fonterra’s milk price payout for the immediate past (2013/14) season is $8.40 kg/MS.
Source: DairyNZ Dairy Statistics for 2012/13
a Weighted to give real dollar values using the Consumers Price Index for the end of the June quarter. Sourced from Statistics New Zealand; Excludes dairy company retentions and deduction for DairyNZ Levy.
b Average dairy co-operative payout (Fonterra, Tatua, Westland)

 The Green Party doesn’t like dairying and it doesn’t like the government.

But neither farmers nor the government are betting on the industry.

Since National came to power in 2008 it’s introduced several measures to help business, foster trade and lower the burden of government.

Meanwhile farmers have got on with farming, accepting the reality that markets, the weather and various other factors beyond their control will affect the payout.

Last season we got a record high payout, this season will be much more modest but the medium to longer term outlook is still bright for dairying and the export income it earns for New Zealand.

 


Westland Dairy cuts forecast payout

July 7, 2012

Westland Dairy has dropped its forecast payout by 20 cents per kilo to a range of $6.00 to $6.20.

“Fluctuations in payouts are normal and certainly not unique to Westland or this season,” chairman Matt O’Regan said in a statement. “The volatility of the New Zealand dollar remains high and the spot (exchange) rate strengthened recently, which results in fewer New Zealand dollars available for pay-out.”

Fonterra, Westland’s major competitor, lowered its forecast by 30 cents to $6.05 a couple of months ago.

Falling milk prices for producers don’t automatically result in lower costs for consumers.

Lower milk prices and a 37% drop in the price of coffee beans since a high in April last year hasn’t resulted in cheaper coffee.

But the beans and milk are probably the smaller part of the overall cost of a cup of coffee. This was discussed by the panel on RadioNZ yesterday .


Rural round-up

October 22, 2011

Contamination claims rubbished – Richard Rennie:

Taranaki farmers and their regional council are demanding critics of an oil and gas drilling method show more science to prove claims about damage to their environment.

“Fracking” or deep rock fracturing for extraction of hydrocarbons in under scrutiny in Taranaki following claims by an environmental group the practice is responsible for ground water contamination, water table loss and even earthquakes . . .

Interested in more than rugby – Jackie Harrigan:

Scoping out opportunities in the New Zealand dairy industry was fitted in around rugby fixtures by a handful of Argentinian farmers in the Manawatu for the Argentina vs Georgia pool match.

Taking the opportunity to network with Kiwi agricultural businesses, the Argentinian farmers were hosted by the NZ Agribusiness Roadshow and shown facets of Kiwi pastoral farming which fitted their individual interests.

One Argentinean who visited was Miguel Rohrer, a beef and cropping farmer who grows soybean, corn, rice, peanuts and beans alongside dairy units running 1200 Holstein cows. Cows are generally run at lower stocking rates than New Zealand at around 1.5cows/ha and fed mainly on alfalfa with grain supplements to produce around 26l/cow/day . . .

Lamb docking a community affair – Jill Galloway:

There used to be 70 million sheep in New Zealand. Now there are around 32 million overwintered each year. So, fewer lambs to dock?

Maybe, but it is still a big job on sheep and beef farms.

Jacquetta Ward is just one of the many farmers docking. And she has nearby farmers, mates and people from the district helping her.

Today, they plan to dock 1200 lambs. A goodly number. But some stations dock 6000 a day. They may have 60,000 lambs to get through . . .

Lorraine hangs up the apron – Jill Galloway:

It is the cafe you can wear your working clothes into, and your gumboots.

The Feilding Saleyards Cafe is synonymous with good mugs of tea, great pies and gravy with chips, and the highly sought-after lamb shanks.

Lorraine Pretious left last Friday after 30 years preparing and serving meals to stock agents, truck drivers and farmers . . .

Women get to grips with using guns – Jill Galloway:

Women In Farming is a non-competitive group, and its members wanted to learn about guns and have a go at shooting on a range.

They get a thorough safety lesson from Marton Smallbore Rifle Club member and mountain safety instructor Peter Lissington. He takes people for their firearms licences, so he knows all about guns, the law and safety.

“I want people to know all about firearms, and feel confident about using them,” he says.

Twelve Women in Farming members find out more about rifles, what types there are and how to safely store and use them . . .

Faster internet offers potential for big gains:

Dairy farmer co-operative Livestock Improvement Corporation (LIC) believes that not enough attention has been given to how the Government’s rural broadband initiative will affect farmers.

Infrastructure for faster broadband to rural areas, including those in Southland, will be invested over the next six years, at a cost of $285 million.

LIC general manager of farm systems Rob Ford said people had heard about how high-speed broadband in rural areas would help schools and hospitals, but not about the connection between farming, the internet, productivity and profit.

Free website helps global sharing – Collette Devlin:

A former Southland researcher has developed an easy-to-use, free website specifically for farmers.

Gary Hutchinson, originally from Taranaki, was the project manager for Topoclimate South, a successful three-year soil and microclimate mapping programme that finished in October 2001, after mapping 830,000 hectares of Southland’s farmlands . . .

Angus burger demand boosts Southland beef sales – Collette Devlin:

Southern angus beef farms are being boosted by the popularity of McDonald’s angus burgers in the region.

Taramoa angus beef breeder David Marshall said the high sales of angus burgers at the fast-food restaurant has had a direct influence on the market, which has led to a record sales of Southland angus beef and it looked as if they were set to rise further.

Mr Marshall’s family have been breeding angus since the 1940s and his herd can be traced back to the 1860s when the first angus cattle arrived in New Zealand.

The only show in town – Shelley Bridgeman:

A & P Shows – with their prize-winning heifers, farm machinery, highland dancing, wood-chopping, sheep dog trials and carnival atmosphere – are as Kiwi as No. 8 wire and gumboots.

Last season I attended eleven, from as far north as Whangarei right down to Hawke’s Bay . . .

Focus farm is the real thing – Sue O’Dowd:

DairyNZ’s focus farm in Taranaki is being promoted as a real-life farm with challenges ordinary farmers can understand.

The first field day, with a focus on mating, attracted more than 80 people.

Chris and Kathy Prankerd’s Tariki farm was chosen earlier this year as the focus farm after 20 farmers expressed interest in the project . . .

Beef lull then bonanza tipped:

Rabobank is picking United States beef prices to soar to record highs later next year.

But first, the bank says in a new report, New Zealand will have to weather a supply “bulge”.

Escalating exchange rates, global economic uncertainty and climate risks are short-term obstacles for global beef markets, but the longer outlook remains positive, report co-author Rebecca Redmond says.

Breaking lactose down in fresh milk – Collette Devlin:

Diary giant Fonterra is now producing a lactose-free fresh milk, which means it is now in direct competition with a small Southland organic dairy company.

Early last month, Retro Organics released the first lactose-free fresh milk and yoghurt in New Zealand, which company owner Robin Greer said was the solution to a growing need.

Until now, an Australian company, Liddells, dominated the lactose-free milk market here . . .

Druming upsupport for drum use:

Avoiding accidents with agrichemicals is high on the agenda with a new drum recovery programme launched by Agrecovery Rural Recycling.  

The Agrecovery Drum programme offers farmers and growers around the country free on property collection for plastic or steel drums from 61 – 1000L in size. Drums must be empty and triple rinsed . . .

Paediatrict product move at Westland:

WESTLAND SUPPLIERS can look forward to their processor moving more of their milk up the value chain from next season. The Hokitika-based cooperative last week announced a multi-million dollar investment in a state-of-the-art paediatric nutritional product plant.  

“It’s principally about adding more value,” chief executive Rod Quin told Rural News . . .

Havard reports good return form NZ forest investments – Pam Graham:

Harvard Management, the manager of Harvard University’s US$32 billion endowment, made an 18.8 percent annual return on its natural resource portfolio, which includes majority ownership of the cutting rights to the Kaingaroa forest.

Harvard, the oldest and most richly endowed university in the US, has put 10 percent of its portfolio into natural resources, which it says is mostly timberland, and agricultural and other resource-bearing properties on five continents . . .

Ballance dinners demonstrate path to profitability:

Ballance Agri-Nutrients has pulled together a raft of experts to present at its Business Development Dinner series over the next few months.

Ballance Sales and Marketing General Manager Graeme Smith says the business development dinners are held every year as part of the co-operative’s programme to provide more information and tools to farmers.

“We want to be able to seed new ideas and new ways of thinking with our customers as part of our commitment to help them farm more profitability and more sustainably,” Mr Smith says . . .

Claim wool is losing ground to nylon carpets:

A textile industry representative says resurrecting the fortunes of strong wool is going to take more than the wool sector has come up with so far.

Carpet makers say there has been a significant drop in carpet sales, which have been blamed on unsettled world economic conditions and the rapid rise in wool prices over the past year . . .


Tatua tops payout

October 16, 2009

Tatua topped the dairy payout for the 08/09 season with a final figure of $5.38  and no retentions.

Fonterra’s final payout was $5.21 with a one cent retention and Westland paid out $4.50.

In an email to shareholders, Henry Van der Heyden said that international milk prices are holding up.

They need to be with the dollar high and climbing.


And the Fonterra payout will be?

January 27, 2009

Fonterra’s board is meeting today and one of the major items on the agenda will be a decrease in the payout which has already been dropped from $6.60 at the start of the season to $6.

I’m picking it could go down to $5.

Westland’s payout projection  has already dropped from $5.20 to $5.60 a kilo of milk solids to $4.10 to $4.50, partly because of foreign exchange dealings. We don’t know what Fonterra’s exposure to foreign exchange is nor do we know if milk prices will continue to fall and even if they have bottomed out growing stock piles  of milk powder and EU subsidies will hamper any rapid improvement.

Dairy farms are starting to look for staff for next season so if the payout does drop by $1 it will have an impact on pay negotiations. When contracts were being negotiated this time a year ago it was on the expectation of a good payout which might get better. Now falling commodity prices and global uncertainty are painting a far less rosey picture.


White gold tarnished

January 8, 2009

At the start of last year sheep and beef farmers looked enviously at the returns dairy farmers were enjoying and aimed to get prices for meat, wool and other by-products which matched those from milk.

The gap between sheep and beef returns is closing on those from dairying but that owes more to the fall in the price of milk than improved prices from cattle and sheep.

Fonterra has already announced a drop from its opening forecast of $6.60 a kilo of milk solids for the season to $6 and is expected to announce a further fall at the end of the month.

The average price the company got at its internet auction  on Tuesday was $US2017 ($NZ3420) per tonne which was 9.3% less than the average in December.

The only glimmer of hope is a small rise in spot prices which might indicate prices are reaching the bottom of the cycle but that’s small comfort when the global price for milk, which peaked at the end of 2007, has fallen sharply  since September last year. 

dairy-11

dairy-10001

The state of global commodity markets isn’t the only problem facing Fonterra which just 12 months ago was being held up as the example the sheep industry should follow as the benefits from the white gold flowed through rural communities and into the wider economy.

The on-going fallout from its investment in Sanlu, one of the company’s hardest hit by China’s poisoned milk scandal continues. Sanlu was declared bankrupt  by a Chinese court on December 24th and the way the company has handled the issue doesn’t give me any confidence that it has learnt enough to ensure success in any future investment in China.

However, the financial losses from the Sanlu investment have already been taken into account and disappointing as Fonterra’s payout is expected to be it’s unlikely to fall as far as that of Westland Dairy Co-operative. It’s  reduced its forecast payout   for the season from the $5.20 to $5.60 a kilo of milk solids announced in November to $4.10 to $4.50.

Making matters worse is Westland’s decision to backdate the forecast meaning suppliers have to pay back money already received.

The reduced payout will mean suppliers will receive $180 million less than expected.

To bring that down to an individual farm: the owner of a 350-cow herd received $90,000 for his milk from Westland last month and had budgeted on getting $120,000 for January but is now expecting just $30,000.

Lincoln University professor Keith Woodford  said that given Westland’s position that Fonterra is unlikely to to achieve a payout of more than $5.

Westpac economist Doug Steel has a more positve view and thinks Fonterra could still achieve a $6 payout.

However, the company could do well to follow the advice given to politicians to under promise and over deliver because a lower forecast might help to stabilise or even reduce some of the production costs which rose further and faster than last season’s record payout.

The whitegold has tarnished but most commentators are still confident that the longterm outlook for dairying is positive for those who are able to farm there way through the current lower returns.

Established farmers with good equity will be disappointed by the drop in income and may have to tighten their belts but it shouldn’t threaten their businesses and they’ll be helped by the fall in interest rates and the cost of fertiliser and fuel.

Those most at risk are the ones who have just converted or are in the process of converting for next season who bought land and stock at peak prices; and sharemilkers who bought cows in the middle of last year when values were highest.

However, while the payout obviously has a big impact on financial performance it’s not the only factor to affect profitability.

A speaker at a SIDE (South Island Dairy Event) conference a couple of years ago said he’d had a better result for the year when the payout fell to $3.60 than he had the previous season when it was above $5 because he’d kept a tighter rein on costs when the payout was lower.

P.S. – Cactus Kate, Macdoctor  and Inquiring Mind have posts on Fonterra and Sanlu; and Fran O”Sullivan  is not impressed by the way the company has handled the issue.


%d bloggers like this: