Farmers are back in the frame as the backbone of NZ’s export economy, after the Covid-induced collapse of the foreign exchange earning capacity of the tourist and international education industries. But it is not only the rural industries themselves which are scrutinising bulletins on the prices being earned abroad for commodities. Those data have become a vital item for New Zealanders eager to monitor the recovery of an economy battered by a one-in -100 year event.
This week the ANZ reported its world commodity price index had eased 0.2% in September as lower dairy and meat prices were largely offset by stronger prices for logs and fruit.
In local currency terms the index fell 1.3% as the NZ$ strengthened by 0.6% on a trade weighted index basis during the month.
Hard on the heels of those figures came the results of the latest Fonterra global dairy trade auction where the average price strengthened to $US3143 a tonne and wholemilk powder (which plays a significant role on Fonterra’s payout to suppliers) rose 1.7% to $3041 a tonne.
Volumes sold were about the highest offered in 2020 and the most bidders of the year showed up for the auction. Butter, up 8.4% to $US3561, rebounded from the previous auction.
Over the two last auctions prices are up 5.8% in US dollar terms and 7.7% in NZ dollar terms.
This signals a positive start to the new season and some commentators contend the outcome underlines the international market for milk products has shaken off the impact of the Covid-19 pandemic.
Westpac’s senior agri-economist, Nathan Penny, says WMP prices topped the key psychological barrier of $US3,000/MT for the first time since August, indicating a degree of confidence in the market. Moreover, prices have firmed as NZ production hits its seasonal peak.
This is despite recent data suggesting a strong start to the season. August production is running 4.7% ahead of August 2019.
“All up, we remain cautiously optimistic on the dairy price outlook. The result overnight reinforces our $6.50/kg milk price forecast for 2020/21. If anything, the result introduces some upside risk to our forecast. In the short-term, strong New Zealand spring production still has the potential to put pressure on prices, although for now firm global (Chinese) demand is dominating”.
Meanwhile Tatua Dairy Co-op, which manufactures specialised dairy products, again out-shone Fonterra with its financial performance in the season just past. Its group earnings of $151m equated to $9.96 per kilogram of milksolids, before retentions for reinvestment and taxation. This was an improvement on $9.66 the previous year.
The company confirmed a cash payout to supplying shareholders of $8.70 per kilogram of milksolids.
It retained earnings, for reinvestment of $1.26 per kilogram of milksolids, equivalent to $19.1m before tax.
Tatua achieved group revenue of $381m, and earnings of $151m, in its financial results for 2019-20.
CEO Brendan Greaney said the earnings the company held back for reinvestment would keep its debt levels in check but also go towards ensuring the business remained sustainable.
Plans include building a new wastewater treatment plant and an engineering workshop for staff.
“The big investment of those two is the new wastewater treatment plant which is $15m.
“It will ensure the water returned to the land, is as close as possible, to being as clean as what it was when we took it out of the ground.”
The new plant would be completed early in 2021.
Greaney said the company had a “weighty programme for the year ahead” to increase capacity to grow the business.
“To be clear, that’s not about processing more milk but adding value to the milk we have.”
The company had about 100 staff working from home shortly after the pandemic hit, in NZ, China, Tokyo and the US.
“I was really impressed with the way staff looked after each other and how they looked after the company. They showed exceptional commitment in the most challenging times.”
There is a lesson in that for those who denigrate the achievements of the dairy industry as a mainstay of the NZ economy.