Two big announcements awaited from Fonterra – one deals with dairy payout, the other with the co-op’s capital structure

So what  are  the  chances Fonterra’s  payout  to its farmer-suppliers  could  top  $8kg/MS the  soon-to-end  current  season?

That would give a  timely  boost  to  the  rural economy  and give  farmers  the kind  of  surge  in incomes  which  would encourage them  to  step up the  pace  of  adapting their dairy farming practices as  the  country  moves  to meet its  climate  change goals.

In March, Fonterra raised its forecast milk price for this season to between $7.30 and $7.90kg/MS with a mid-point of $7.60. That was up from $7.14 last season.

But now, after several  good  results  from the fortnightly GDT auctions, and indications from futures contract prices, the  speculation  is that the payout  could go  higher.

While the GDT index slipped 0.7% at the latest auction this week, the price of whole milk powder, which has the most impact on what farmers are paid, gained 0.7% to an average US$4115 (NZ$5756) a tonne while skim milk powder, the second-most important, rose 2% to US$3433/t.

Butter prices slumped 12% to US$5035/t, weighed down by extra volume on offer. Continue reading “Two big announcements awaited from Fonterra – one deals with dairy payout, the other with the co-op’s capital structure”

The world is keen on our dairy products, which is great for our economy – but what happens when we start culling the cows?

Although  global  trading patterns  are still recovering from the  Covid  pandemic, the  positive  outcome   for  New Zealand   is  that  it  has  strengthened  demand for  the  kind of foodstuffs we produce.

In particular  the   dairy  trade is booming  and  though  the current  production season is beginning to tail off, Fonterra’s latest global dairy auction showed  demand, far  from  falling off, is  still  very  strong,  with  prices  for  whole  milk  powder   51%  higher  than at the  level they were at  this time  last  season.

Dairy products are the country’s largest commodity export and Fonterra estimates milk payments to its 10,000 farmer suppliers for this season would contribute about $11.5 billion to the economy.

The  encouraging  factor   for those  producers  is  that  there  is  every sign  the   high prices  being  earned  at  present  will  be  sustained  into  the  next  season.

Last month, Fonterra raised its forecast milk price for this season to between $7.30 and $7.90 kg/MS, with a mid-point of $7.60.  Some  analysts  are   forecasting $7.70 for this season, ahead of Fonterra’s mid-point.For next season, the  forecasts  range between $7.30   and  $7.50.

While the global dairy trade price index slipped 0.1% from the previous auction a fortnight ago, prices for whole milk powder, which has the most impact on what farmers are paid, gained 0.4% to an average US$4097 (NZ$5713) a tonne.

What  may  be  an irritant  for  the  industry, currency  movements  are  taking  some  of the  gloss  off the  prices  being earned.

With the rising Kiwi currency, the latest auction brought overall prices -2.0% lower in NZ dollars. The key WMP and SMP prices were virtually unchanged in US dollars. The best performer was cheddar cheese, up +1.2% in US dollars but even that was not enough to record a gain in NZD.

The   strong  market  is largely driven by China where a wealthier population and an increased focus on health and wellbeing after the Covid-19 pandemic is stoking demand for better nutrition.

North Asian buyers were back in force, taking up their usual positions as the major buyer.

At the latest auction, 99% of the whole milk powder on offer was sold. There were slight  downward movements  with both of the cream group products. That was  attributed  in part to  the extra volume of butter on offer.

Fonterra  indicated previously it is producing more butter to take  advantage of the  high return for it. That was  sensible,  with butter topping $US5,100  a  tonne.

Given the  outstanding  work  of  the  dairy  industry,  how    will  the  government  react  when  it   comes to   deal  with  the  Climate Change Commission’s  proposal  to  cut  dairy cow  numbers  by  15%?

O’Connor opts for a ban on exports of live beasts (rather than tighter regulations) to demonstrate our high animal-welfare standards

Commodities are leading the global economic recovery. International demand for grains, dairy and forestry products is extremely strong – driven primarily by increased demand from China, ANZ Bank  economists say in their latest NZ Agri Focus.

Dairy markets shot up in March, driven by strong buying from China, among challenging conditions to deliver product to market. Since then prices have stabilised near current levels, encouragingly, despite more product being added to the GlobalDairyTrade sales channel.

The recent strength in global markets, combined with a slight softening in the NZ dollar. has been supportive of farmgate milk prices.

“We are forecasting $7.70/kg MS for this season and $7.30/kg MS for next season,”  the  report  says.

If cumulatively it has been a remarkably good  season  for the  dairy  industry, results  have   been more  varied for  the processing companies and  for  individual  farmers.

Synlait and A2 Milk, for example, have not found the going easy,  given  the  impact  of  Covid-19  on the  daigou  trade  with  China.

But Fonterra – as the  principal  player – has  got  back its  mojo    as  industry  leader, with its  finances  in  much  better  shape  under  CEO Miles  Hurrell’s  leadership   than  under  the  previous  regime. Continue reading “O’Connor opts for a ban on exports of live beasts (rather than tighter regulations) to demonstrate our high animal-welfare standards”

Why farmers are whooping a hurrah for Hurrell (and why the rest of the country should be cheering too)

New Zealand’s giant dairy co-op, Fonterra, is back in its leadership role  in the  country’s  key  export  industry, feeding  a  revival  of  optimism among its 10,000  farmer-owners  as  it  reports a  “positive”  half year  result  alongside a  strong forecast  farmgate milk price.

Fonterra  CEO  Miles  Hurrell summed  it  up  neatly when he said :

“Despite  the major impact Covid is having around the  world…it’s  during these times you really can see  what makes our co-op special”.

  Hurrell  himself  can take a  fair chunk  of the  credit  for turning  the co-op’s fortunes around,  after the previous  executive regime cost it  billions.

He  said  the  co-op  had a “great” first half. Although revenue was down slightly to under $10 billion, earnings from China rose  by  more than a third. Continue reading “Why farmers are whooping a hurrah for Hurrell (and why the rest of the country should be cheering too)”

Taking stock: Govt should pump more into science to lift farm production as animal numbers are reduced

Here’s  a  conundrum for  New  Zealand: pastoral farming last year produced more  than 40% of  the country’s export income, but  the Climate Change Commission is calling   for  a  15%  fall in the  national headcount of    sheep and  dairy and beef cattle by 2030  and  another 5% by 2035.

Even if the  productivity  of  the animals  can  be  improved, the  commission appears to be  saying that  NZ  will have to adjust  to a  flattening out  of  its export income  from farming, and  therefore to a  slower  rate of  what already is a slow rise in living standards.

So  what is  going to fill  the gap  when the  headcount of dairy  cows  falls?

Or  (a better question, surely) is  there  a  better  way of  meeting  NZ’s  emission reduction  targets  than the  methods  the  commission  recommends?

It’s   a  fact  that  methane  emissions  comprise  49%  of  NZ’s  total  emissions  but methane, although a potent greenhouse  gas, has  a  relatively short-lived impact.

Dairy farmers  who argue that  their work, besides providing  them with their livelihoods, benefits the national economy  through  foreign  exchange earnings, will find  this doesn’t wash  with  the  wider community .

As  Brian  Fallow in the  NZ  Herald put it,  NZ is  internationally accountable for its emissions and  if  those who profit from  them  continue  to escape  any  cost and therefore  receive no price signal to reduce  them, then  that  is a subsidy from the rest of us. The subsidy’s days  are numbered. Continue reading “Taking stock: Govt should pump more into science to lift farm production as animal numbers are reduced”

Dairy price lift will give fillip to regional economies and fortify Fonterra’s confidence in pressing on with capital restructuring

Our  dairy provinces  are  reverberating to  the  news that prices  soared  at the  latest Fonterra GDT auction. The prosperity  this  brings  to the regions  will  provide a  significant counterbalance  to the loss  of earning power  in the tourism sector because of the pandemic.

The average price at the auction climbed 15% to $US4,231 a tonne but,  more  importantly, the price for wholemilk  powder, which is  the  key to the payout  to farmers,rose an astonishing 21% to $US4,364 a tonne. Butter  was  up  sharply to $US5,826 a tonne, or 13.7%.

Overall, the increase compares with a 3% rise at the previous auction two weeks ago.

The main dairy companies have recently narrowed their forecast payouts to farmers for the current season to above $7 per kilo of milk solids. Continue reading “Dairy price lift will give fillip to regional economies and fortify Fonterra’s confidence in pressing on with capital restructuring”

Rising world market prices for our dairy products give all of NZ cause to cheer

Covid-19 has  delivered a body blow to NZ’s international  tourism  industry and bruised university incomes from foreign students — but NZ’s  primary industries  are rising to the  challenge  and yielding impressive returns week  by week.  As  a  consequence, NZ’s  economy  is  not  sustaining  the  kind of Covid damage   which – for example –   lowered  the  United Kingdom’s  GDP  by 9% last year.

Defying predictions, the dairy sector has started  the  year   strongly.  Moreover,  lamb markets did not move down as  expected but have  marginally improved  while  demand  for beef  from China has been  strong.  Log   returns are  trending up.

On the  other  hand, in horticulture, the  results  so far  have been variable:  for  example  cherry orchardists’  crops  were devastated by  the weather.

For  primary  exporters  the  problems have come  from different quarters,  first  in logistical challenges and second   from the  currency  which  has  moved up  to 72USc.  Nevertheless,  the  basic  message  is  that  the  rural  economy   has helped to fill  the  gaps  left  by the  destruction  caused by  the  Covid-19 pandemic. Continue reading “Rising world market prices for our dairy products give all of NZ cause to cheer”

Why our dairy farmers should take their own climate-change initiatives rather than wait for govt regulations

Is the  Climate Change Commission’s draft proposals to meet  NZ’s emissions targets  as  radical  as right-wing commentator  Matthew Hooton contends, or entirely “doable”  as  leftie Simon Wilson  suggests?

The  draft budgets call on  the government to ensure  the  country emits on average 5.6% less than it did  in 2018 every year  between 2022 and 2025, 14.7% less for every year between 2026 and 2030  and 20.9% less  for every year between 2031 and 2035.  This is designed to get NZ to  zero net carbon emissions  by 2050 to avoid catastrophic climate change.

Prime Minister  Jacinda  Ardern, who has said dealing with climate change  is her government’s “nuclear  free moment”,  says she will introduce new policies  and a  new international climate target to meet the shrinking carbon budgets set out by the CCC.

For  the  dairy industry the challenge looks daunting:  herd numbers  will have to be  cut by 15% by 2030, assuming selective breeding reduces biogenic methane emissions  by 1.5%  by the same year.  From  2025, 2000 hectares of  dairy land  would be converted to horticulture annually. Continue reading “Why our dairy farmers should take their own climate-change initiatives rather than wait for govt regulations”

Stronger business investment – by farmers, too – is essential for NZ’s post-Covid recovery

In  its Thursday editorial  the NZ  Herald  speaks an important truth:  “Investment important to  stay  on  track”.  This  won’t  have  startled  its  more literate  readers but  in  its text  it notes  the  strong result  in the latest  Global Dairy Trade auction, which  prompted Westpac  to raise  its  forecast  for  dairy giant Fonterra’s payout  to its farmers to $7.50kg/MS  this season.

“If  this turns  out to be correct,  it will represent the highest  payout in  seven years for  a  sector of  the economy that is arguably still  NZ’s  most  important, even before international  tourism was effectively suspended by Covid-19”.

The  Herald editorial  goes on to make the case that despite the buoyant mood,  the  only  realistic  way for  NZ to remain   in such  solid shape in the  post-Covid era  is  through stronger  business  investment.

This  is  the theme  which  Point  of  Order  set  out  earlier  this  week when it  contended  Fonterra  should go hard  with this  seasons’s payout  to  encourage  investment  by its farmer-shareholders  in expanding  production. Continue reading “Stronger business investment – by farmers, too – is essential for NZ’s post-Covid recovery”

Here’s the chance for Fonterra to play a leadership role and spur the others with its milk price

Dairy prices increased by 3.9% across the board at the latest Fonterra global auction. The lift followed rises of 1.3% and 4.3% in the December auctions which took dairy prices to their highest level in 11 months, defying those analysts who believed Covid-19 had disrupted dairy markets.

In the latest auction WMP rose 3.1% to $US3,300 a tonne, its highest level in 12 months. Other significant movements included a 7.2% lift in the price for butter to $US4,452 a tonne.

ANZ agricultural economist Susan Kilsby said the auction results came as a great surprise and as a very positive start to the new year. She contends it strengthens the likelihood Fonterra’s milk price payout this season will be closer to the higher end of the range Fonterra is currently forecasting.

The big co-op in December narrowed the range to $6.70/7.30kg/MS.

So what are the chances, if the trend evident in recent GDT auctions continues, of the payout going even higher? Continue reading “Here’s the chance for Fonterra to play a leadership role and spur the others with its milk price”