Wool growers, too, have something to cheer about as dairy leads the charge in brightening farmers’ prospects

City dwellers,  preoccupied by  Covid,  may not  have  observed  that the  country’s export  economy is  being  sustained  by   its  primary  industries.  Last  week  came  the  news that  Fonterra had  signalled a  record payout to its suppliers, pumping  $13.2bn into the  regions.

Some analysts think that may be on the conservative side and  the final payout will surpass  $9kg/MS.

In  any  case,  the  ANZ commodity  price index lifted  2.8%  in November,  pushing  it into new  territory.  The  bank’s economists, noting that dairy prices  led the   charge, reported they  were  supported  by strong  gains  in  meat.

Again,  because  of the  preoccupation with the pandemic,  it may have  gone  unnoticed that meat  exporters achieved record returns  in the season ended in September. Total export receipts for beef and sheepmeat  equalled the record returns of 2019–20 and were 17% up on the five-year average.

Beef export volumes reached a record high in 2020–21, up 8% on 2019-20 and 16% up on the five-year average. The high volumes reflected the  numbers of steers and heifers processed.

The higher volumes were easily absorbed by strong consumer demand and tighter global beef supply.

Lamb export volumes in the 2020–21 season were about the same as in the previous season and the five-year average. The average export value was 4% down on the record high of 2019–20, but 8% above the five-year average.

With volume much the same as in 2019-20 and average value down,  total export receipts for lamb were down 4% on 2019–20.

So  what’s  happening  to  woolgrowers  who – if  they produced  anything  but  merino – barely  covered  the  costs   of  shearing  their animals  for  a  couple  of  seasons?  Again   the  news  is  better,  although  still  not  as bright  as  in the other primary industries.

Higher demand for sportswear, rugs and other wool products has resulted in wool prices showing  some resilience.  Prices across all wool types lifted in the year to October, Beef and Lamb’s latest wool export data shows.

Merino was up 28.4% to just over $18,000 a tonne and strong wool, which has been struggling with depressed prices, rose 12.1%.

PGG Wrightson general manager of wool Grant Edwards said prices are lifting due to higher demand.

“A lot of that has been driven in that strong crossbreed space. We are coming off a very very low base but in the same token we are seeing a general increase in demand overseas and we’re certainly seeing a waking-up overseas to that natural, biodegradable, sustainable product.

“With the merino, we’ve seen prices back up to those extreme highs three years ago, which is based largely around that active sportswear market and to a degree the suit market.

“We also believe the world has settled down as best it can around Covid so a lot more countries are up and running now.

“The mills that we deal with in Europe are really busy they’re operating at full capacity.”

Edwards said the market had changed a lot in recent months with Covid-related shipping delays and increased costs causing issues.

“We’ve seen a resurgence with from the Indian markets, and a lot more wool has been exported to India over the last four months than what we’ve seen in previous years. We’ve seen a lot less going into China, though that’s starting to balance itself back out.”

Edwards said the higher strong wool price meant farmers were no longer making a loss for shearing their sheep but prices were still low and could rise further.

The NZ  dollar’s decline in the currency market has strengthened prospects  for the  farming  industries.  It  has  fallen  to  67c  against  the  greenback,  down  from  72USc  in  October.

ANZ  reports,  too,  that global  shipping  costs  have  eased,  although  pricing  remains  elevated.

Other costs are  rising rapidly. This is particularly tough on the sectors where returns are low, like venison, wool and logs. Inflation is evident in many parts of the economy, but a lot of  costs of production in the primary sector  are increasing even more quickly than the general rate of inflation.

Back  to  the  Fonterra story:  the  co-op’s farmer-shareholders could  be  in a  cheerful  mood  as  they move  to  a  critical decision  next week  on  the  capital structure  of  their  co-op.

Certainly  chief executive Miles  Hurrell  sounded  buoyant, when saying the revised  price  forecast is the result of consistent strong demand for dairy at a time of constrained global supply.

“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,” Hurrell said.

However, the higher cost of raw milk has flowed through to higher costs for wholemilk powder, a key ingredient in many products, resulting in higher manufacturing costs.  Accordingly, Fonterra has cut its dividend forecast by five cents to between 25c and 35c a share.

“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,” Hurrell said.

First-quarter trading showed a 5% rise in revenue to $4.4bn, despite a drop in sales volumes, but higher milk prices pushed up its cost of goods by 8% and its margin falling 3 percentage points.

Overall group earnings before interest and tax (EBIT) were down 19% to $190m for the three months ended October.

Hurrell said local milk supply was currently down about 3% on a year ago, and full-season production was expected to be marginally down on last season at 1525 million kg/MS.

US production had stalled because of higher feed prices, and European production was also lower.

Fonterra’s various divisions were feeling the effects of higher prices but steady volumes, while its Chilean business, which is earmarked for sale, was improving.

“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,” Hurrell said.

Clearly  he’s  hoping  for  a  favourable  result on  December  9.

4 thoughts on “Wool growers, too, have something to cheer about as dairy leads the charge in brightening farmers’ prospects

  1. the greens wont like this?? they hate the people who get up in the early mornings hours to milk the cows!! put that in your pipe Jimmy Shaw, and smoke it!! from Trevor.

    Liked by 1 person

  2. Trevor – it’s not only the greens that think like that. I’m dismayed that many, many younger people have no comprehension of the role farmers in general play in the standards of living enjoyed in N.Z.
    Along with those frequently ambivalent about politics in N.Z. but adhere to the woke philosophies of the present administration, them mock former Southlanders such as me.
    They have no idea what’s coming down the pipe that will shock them, and risk leaving them reeling from their ambivalence when they look back and say “how on earth did that happen?”

    Like

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