Dairy giant Fonterra lowers forecast for its payout, again, in what is proving a tough season for its farmer-suppliers

The  big  co-op Fonterra  today lowered its 2022/23 season forecast farmgate milk price range from $8.20 – $8.80kg/MS to $8.00 – $8.60kg/MS.

This news will  be  a blow  to its  suppliers, coming as it  does after Dairy NZ  has said  the cost  of  production has risen to $9kg/MS this season.

Fonterra has  reduced its  forecast payout   at  least  three times  over the  season.

The  midpoint of the range is  now $8.30kg/MS, down 20c. So what  started off  with what looked like a strong forecast for  its farmer-suppliers  now looks barely break-even  for  many.

Greenpeace attacks government on tardiness to cut farm emissions—but doesn’t NZ need all the income it can get?

At a  time  when the nation is reeling from the impact of Cyclone Gabrielle, climate change campaigner  Greenpeace  is demanding answers on why the government has yet to come up with an effective plan to cut emissions from the country’s biggest polluter.

Where’s the long-awaited plan to cut agricultural emissions? Greenpeace climate campaigner Christine Rose demands.

Prime Minister  Christopher Hipkins has been working round the clock, helping New Zealanders get back into their flood-wrecked homes. So he  might be muttering “Give me a  break”.

Another record payout for Tatua’s 101 farmer-shareholders

It  is  only  a star on the  horizon for  the  bulk  of  dairy  farmers — but  this is  what  they  may  aspire  to.  How  about  a  payout of  $11.30kg/MS?

That’s what the 101 farmer-shareholders in  the Waikato  specialist-product-co-op  Tatua  will receive — a  record — for the 2021-22 year.  Tatua will still retain close to $20m  to reinvest in the business.

Tatua  has reported group earnings equivalent to $12.65kg before retentions for the year ended July 31. This was up on the previous year’s earnings of  $10.43kg and was achieved in spite of Covid-related disruption and shipping issues.

The company said group income was $444m ($395m the  previous year), with earnings available for payout of $186m. Retentions were equivalent to $1.35/kg.

The 108-year-old company traditionally leads milk payout in the NZ dairy industry.  Fonterra’s final cash payout for 2021-22 was $9.50kg/MS.

Tatua chairman Stephen Allen and CEO  Brendhan Greaney said that in deciding the payout, the company was very conscious of sharp increases in farmer costs, as well as the need for continued reinvestment in the business. Tatua had a number of significant capital projects and business improvement initiatives under way during the year.

Milk supply was impacted by a long dry spell in the autumn months, resulting in a 6% fall in collection to 14.7mkg/MS on the previous year.

The  company had  anticipated  a  good financial  year,  telling its  farmers that  demand and pricing for its dairy ingredients were favourable and it was well contracted.  It  said  it was  focussed on the development and commercialisation of  specialist product opportunities.

Scheme to encourage “green” investment is launched while O’Connor hails importance of Bill dealing with Fonterra’s funding

Two statements with implications for investors and the health of our economy have emerged from the Beehive, along with announcements on publicly funded overseas travel plans and a report on the outcome of a recent ministerial journey to Geneva.

It was not immediately apparent that the announcements affecting financial investment were compatible.  One was the launch of New Zealand’s Sovereign Green Bond Programme, providing the opportunity to invest in projects that contribute to climate and environmental objectives. The other deals with the capital restructuring of Fonterra, the giant cooperative which operates in a sector which environmentalists want to handicap with more regulations.

Agriculture Minister Damien O’Connor announced an Amendment Bill has been introduced to Parliament, assuring us it

“… will provide greater economic security for New Zealanders by supporting Fonterra’s move to a new capital structure which will reduce long-term risks to New Zealand’s $22.1 billion dairy sector”.

In other words, this is big deal.

“Milked” (the movie) presents a sour view of our biggest export industry – but dairy farmers can learn from it it anyway

A documentary titled Milked,  shown  at the  International Film  Festival in Dunedin, seeks  to  “expose”  the  New Zealand  dairy industry   and  calls  on  New  Zealanders  “to  heal the  land”.

Milked is available globally via the streaming platform Waterbear and on Youtube via Plant Based News. The documentary is made by indigenous activist Chris Huriwai and local director Amy Taylor.

Its crowd-funding campaign surpassed an ambitious $100,000 target in just 12 days, with much international support confirming its global relevance. Huriwai  told  one  news  outlet:

“My wish for this film is that it empowers people to look at the problems we’re facing more holistically. If you’re looking for a solution, it has to encompass everyone within the system and their diverse perspectives. This film is about sparking that conversation”.

But is  NZ  looking  for  a  “solution?”

The   dairy industry is  a world leader not  just  in its  products,  but  in  its systems.

In a  review for Newshub, Daniel  Rutledge says:

Rabobank’s performance points to our farm sector being in good shape

Reflecting  the  surging prosperity in NZ’s  rural  heartlands, Rabobank  has  reported  an  after-tax   profit  of  $209m,  up $88m or  73%.

Rabobank NZ,  which is  owned in  the  Netherlands,  has  gained  ground  in  the  banking industry since  it  arrived  here in the  1990s by specialising in  lending to farmers  and  businesses in the food  and  agribusiness supply chain.

CEO  Todd  Charteris  says the strong commodity pricing over the course of 2021 enabled a number of clients to pay down debt which improved the risk profile of the portfolio and enabled the  bank to unwind loan impairments from the previous year.

“We remain positive about the long-term prospects for the [rural] sector and our intention is to further expand our agri-lending portfolio through new lending to farmers and other businesses across NZ’s food and agribusiness supply chain,” Charteris says.

Global dairy auction prices rise again but farmers are warned against premature celebrations

The  dairy industry’s  stellar  run  this  season is  moving  to a  new  level, just  when  the  national  economy  faces  fresh  pressures  from the  Covid  pandemic  and  rising  inflation.

The average price at the fortnightly global dairy auction rose 4.1% to US$4630 (NZ$6974) a tonne.  It was the second auction in a row with a rise of more than 4%.

Better  still, the average price for whole milk powder, which has the most impact on what farmers are paid, gained 5.8% to US$4324 (NZ$6394) a tonne, and is sitting 25% cent higher than at the same time last year. WMP rose 5.6% at the previous auction.

Fonterra, the world’s largest dairy exporter, last week lifted its  forecast payout this season to a record level as tight milk supply in NZ and overseas underpins demand. The latest strong auction result has prompted some to speculate that milk payments could move higher still.

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”.

Dairy industry emissions depend on who does the measuring but Greenpeace presses for a culling of the herd regardless

Greenhouse  gas  emissions  from dairy farming  have  reached  an all-time  high – but emissions from the dairy cows themselves have dropped year-on-year.

Confused?

Well  you  might be.  And  to  many  it  might not matter  much, but  for  NZ’s  most important  export  industry, it looms  as  a  vital issue.

The  calculation depends – apparently – on who collects the  statistics. The first  is from Statistics NZ, the  second  from the Ministry  for the Environment.

Inevitably, the industry says the  second is the better measure because statistics which show dairy farming emissions have increased capture too many irrelevant categories.

Radio  NZ  reports  Stats NZ figures show dairy cattle farming emissions rose 3.18% (up 546.2 kt CO2-e to 17,719.4 kt CO2-e) between 2018 and 2019, the most recently reported year. This is the highest figure on record, dating back to at least 2007.

The Stats NZ figures count all emissions produced on dairy farms, regardless of what the emissions stem from.

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%?