Record payout for dairy farmers is in the offing – but climate change policy pressure sours the outlook

Behind   all  the  Covid headlines  lurked a  positive  story this week.

Prices at the Fonterra Global Dairy Auction leapt 4.6% to hit an eight-year-high, as tight milk supply stokes demand for NZ’s biggest export commodity.

Almost  certainly Fonterra’s  farmer-shareholders  will receive a  record  payout this  season, and, with  a bit  of  luck, this  could  be  high enough  to end up  ahead  of  rising  costs.

And  even  though  local  consumers  may find themselves paying more  for  their milk, butter  and  cheese, the  country  benefits  from dairy  products boosting  export returns.  Some   economists  are  predicting   Fonterra’s total  payout to  its producers  will  top  $14bn   this  season.

At the  auction,the average price for whole milk powder, which has the most impact on what farmers are paid, posted the biggest gain, up 5.6%  cent to US$4082 (NZ$6041) a tonne, and is now 21% higher than at the same time last year.

Among  other products:

  • SMP up +5% to US$3,963 or NZ$5778
  • Butter up +5% to US$6,158 or NZ$8,978
  • Cheddar up +1.1% to US$5,546 or NZ$8,086 (all per metric tonne)

Continue reading “Record payout for dairy farmers is in the offing – but climate change policy pressure sours the outlook”

Primary producers overcome big challenges (including govt regulations) to lift export revenue in latest forecasts

New Zealand’s  primary  producers  deserve   a  Christmas bouquet – or a big hamper stuffed with goodies – as food  and  fibre  export revenue is projected  to top $50 billion for the  first  time   next  year.  They are achieving this despite  the challenges of regulatory compliance, increasing costs for inputs such as feed and fertiliser, Covid impacts on freight movements and constraints around labour availability.

Total export value is expected to rise 6% to $50.8bn in the year to June 30 2022, according to the Ministry for Primary Industries’ Situation and Outlook for Primary Industries report released today.

Ministers were quick to hop on the bandwagon, despite framing many of the  new regulatory constraints.

Agriculture Minister Damien O’Connor said the healthy growth forecast across the majority of the primary industries showed the future of the food and fibre sector is bright.

“This is the first time NZ’s annual food and fibre export revenue will crack $50bn – a result we should all be very proud of, particularly as we navigate the  challenges of Covid-19”. Continue reading “Primary producers overcome big challenges (including govt regulations) to lift export revenue in latest forecasts”

O’Connor is confident the DIRA can be tweaked to give effect to farmer vote in favour of Fonterra’s capital restructuring

Farmers    have  voted overwhelmingly  in  favour  of  a  capital  restructure  for Fonterra—- and Agriculture Minister Damien O’Connor,   who   previously  raised   concerns about the  plan,  now  says  he  is  confident the  government can  work   with the  board   to  get  the change   across the  line.

Fonterra chair Peter McBride last  week  told  Fonterra’s  meeting:

“Either we’re a corporate or we’re a co-operative. The current model, where we’re trying to have a foot in each camp, is not sustainable”.

Farmer-shareholders  made  it  plain  they  wanted  the  “pure”  co-op rather  than the corporate model

Now  it is  over  to  the  board   to  negotiate  the  “tweaks”  which O’Connor  says  he  believes  are  necessary in amending the Dairy Industry Restructuring Act.

O’Connor  accepts the  vote last week is  “a very clear result”.

“I’m pleased for Fonterra. It was really important that they get a clear mandate for change and there’s an indication that the farmers are behind the board.There’s been a shift in focus for both the board and management over the last couple of years. This is an endorsement of the direction of travel.” Continue reading “O’Connor is confident the DIRA can be tweaked to give effect to farmer vote in favour of Fonterra’s capital restructuring”

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. Continue reading “Wool growers, too, have something to cheer about as dairy leads the charge in brightening farmers’ prospects”

Milk price forecasts are being lifted ahead of critical vote on Fonterra’s capital structure

As dairy farmers prepare for the critical decision  they have to make  on the capital shape of the big co-operative Fonterra,  they  will   be  buoyed  by  the  strong markets across the  globe  for  dairy products — so  strong  that economists are  revising   their forecasts  for  this  season’s  payout.

Fonterra  itself  has  already revised  upwards  its  original forecast range from $7.90 – $8.90kgMS, from  $7.25 – $8.75  kgMS.

The Advance Rate which Fonterra pays its farmer owners will be set off the mid-point of the range. This has increased from $8kgMS to $8.40kgMS.

ANZ  Bank  economists have  raised   their  forecast  to  $8.80  while others,  citing  the  futures  market, see  it  breaking  $9. Continue reading “Milk price forecasts are being lifted ahead of critical vote on Fonterra’s capital structure”

Greenie groups are grouching about the govt as well as the agriculture sector over greenhouse gases

New Zealand’s  agricultural   industries  on   which  the  country   depends  for the  bulk of  its  export  income are  facing  a  renewed onslaught  from environmental  lobby   groups  which are  challenging the  country’s failure  to place what  they see as an effective  charge  on  agricultural  emissions.  But this  time  Jacinda  Ardern  and James  Shaw are  being bayoneted  alongside  the  farmers.

Greenpeace spokesperson  Christine  Rose  says:

“Jacinda Ardern and James Shaw need to show some mettle, stand up to the dairy industry and include 100% of agricultural emissions immediately”.

Forest  and  Bird is  on a  slightly  more  elevated plane: it  says   it  is calling on He Waka Eke Noa to put their plan to price agricultural greenhouse gas emissions in the bin because even He Waka Eke Noa says it wont actually cut emissions”.

He Waka Eke Noa is the name adopted by a Primary Sector Climate Action Partnership which aims to support farmers and growers to protect, restore and sustain the environment and to enhance the country’s well-being and that of future generations.

According to the discussion document He Waka Eke Noa –

Initial modelling suggests these prices would lead to reductions in total agricultural emissions of less than 1% reduction in both CH4 and N2O below 2017 levels, additional to reductions as a result of other environmental policies.” Continue reading “Greenie groups are grouching about the govt as well as the agriculture sector over greenhouse gases”

Capital restructuring is one big issue for Fonterra farmers – but they must respond to environmental challenges, too

Just  as  the  dairy  season  hits its  peak, Fonterra   farmer-shareholders   are  confronted with a  key decision on the  capital  structure  of the  big co-op. The board is  asking  them to  vote on the  proposal  at the annual meeting next month.

Consultation on the proposal with farmer-owners has been ongoing throughout the year, with some tweaks announced in September before a second round of discussions.  But Fonterra leaders have been clear they wouldn’t put the reform forward for voting if they believed the support wasn’t there

Farmers have  had  little  time to  enjoy  the  news  that  the  co-op  has  raised  its  forecast  payout  for  the current  season  to  a  record level.  Nor  is the  capital structure the  only  issue triggering  worry in the  cowshed.

The  government’s  focus  on climate  change, particularly methane  emissions, is  another matter weighing on the  industry, exacerbated by outfits like  Greenpeace shouting  the  odds  about “industrial  farming’’  and  “dirty dairying”. Continue reading “Capital restructuring is one big issue for Fonterra farmers – but they must respond to environmental challenges, too”

Farmers are making good money from milk – but they should brace to meet commitments to trim the methane

A surge in  prices  at the latest  Fonterra global  dairy  auction once  again underlines  how  New Zealand’s dairy  industry  is the  backbone of  the  country’s export economy.  At  the level they  have  reached, dairy farmers  can  look  to  a  record  payout    this  season  from  Fonterra.

Overall,  prices rose 4.3% in  US dollars, and, better  still, 5.1% in NZ$. Star  of the  show  was  the  cheddar  cheese  price, which shot up  14%,  with other  foodservice products also  strong.

The average price for whole milk powder, which has the most impact on what farmers are paid, lifted 2.7% to US$3921 (NZ$5408) a tonne, prompting speculation it will push through US$4000/t.

A  record  payout  is  already  mooted  by  some some  economists  in  the agricultural  sector. Above  $8.80kg/MS, it might  dispel  the  gloom  being  cast across the industry  by Cop26, where the  focus has  shifted to the  need  to  cut methane  emissions.

NZ  is  reported   to be  joining more than 100 countries  in pledging to reduce methane over the next decade.

Collectively, signatories to the pledge – officially launched on Tuesday (Wednesday NZ time) – are aiming to reduce the greenhouse gas 30% by the end of the decade. Continue reading “Farmers are making good money from milk – but they should brace to meet commitments to trim the methane”

A fillip for farmers from Fonterra’s milk-payment forecast

In    a  timely   boost  to  the  rural regions,  Fonterra has raised its forecast milk payment to farmers for this season to match its previous record high  of  8.45kg/MS, as demand for dairy holds up while supply tightens.

The giant co-operative lifted and narrowed its forecast farmgate milk price range for the 2021/22 season to between $7.90 and $8.90kg/MS from the  initial $7.25 to $8.75  kgMS.

The midpoint of the range on which farmers are paid increased to $8.40 kg/MS, from $8 last  season.  That would match the previous record, paid in the 2013/14 season, and would result in almost $13bn flowing into regional New Zealand.

The  country is heading into its peak milk production period in late spring and output so far is below last season, constrained by poor weather and limits on expansion. Milk production is also soft elsewhere, because  of  poor weather and high feed costs. Continue reading “A fillip for farmers from Fonterra’s milk-payment forecast”

Global dairy prices rise, hurrah – but so did the Kiwi dollar, and farm costs are climbing, too

At    first  blush,  there  might have been  some  cheering   in  the  cowsheds  at results  from the  latest Fonterra Global Dairy Trade  auction, with  prices up by  an  average 2.2%.  But the ebullience would have  become  more subdued as  the  reality  sank in  that the  rise in the  NZ   dollar  against the  greenback  meant the price slipped  by  0.5%  in  local  currency  terms. Moreover,  with  costs rising  on  the  farm,  maybe  there  wasn’t  anything  to  cheer  about.

Perhaps   the  only  ray  of  light  has been  Fonterra’s  decision to  offer  smaller  amounts  of  WMP on the  auction  platform  because of  strong  contract demand   in  conjunction with the  expectation  this  season  of  flat  milk supply.

And  the    auction   showed demand is highest for food-service commodities, with butter up 4.7%, cheese up 2.9%, and SMP up 2.5%.

Still,  the average price for WMP  in  lifting 1.5% to an average US$3803 (NZ$5305) a tonne is now 25% higher than at the same time last year. Continue reading “Global dairy prices rise, hurrah – but so did the Kiwi dollar, and farm costs are climbing, too”