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.”

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.

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.

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”.

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.

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.

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.

Why NZ should get behind Miles Hurrell as he aims to broaden Fonterra’s product range

As  New Zealand moves  towards  reconnecting with the world,  62%  of  the   business  leaders  surveyed  in the  NZ  Herald’s “Mood  of the  Boardroom”  say  they are not  satisfied with the government’s  plan  for  reopening the country.  International business is  being  lost due to border difficulties.

So  the  NZ economy  again looks likely to be propped  up by the primary  sector. On  that  front, the  news  is  positive.  International markets  are  exhibiting  strong  demand  for our products,  with the  result  that export  prices  are even more  buoyant  than  seemed  likely   just  three  months ago.

Lamb is  fetching   record  prices   and  dairy,  despite  some  earlier predictions that global production  would  push  down prices, has  moved  in  the  other  direction,  to  the  extent   that Westpac senior  agri-economist  Nathan  Penny   this  week  raised  his  forecast  for  Fonterra’s farmgate  milk price this  season  by  75c  to $8.50kg/MS.  That would surpass the co-operative’s previous record high of $8.40kg/MS paid in the 2013/14 season.

Fonterra’s own forecast is for a  payout  between  $7.25 and $8.75kg/MS,  with  a  mid-point of  $8. That’s ahead of its $7.54  last season.

Latest lift in auction prices is an encouraging sign for the fortunes of dairy farmers

The good  news   was  running  in  favour  of  New Zealand’s  meat  producers early this week.  Today it is running in  favour  of our  dairy  farmers.

The  first  Fonterra  global  dairy  trade  auction in  three weeks  had  the  most  bidders  in  a  year and  charted  prices  on   a  rising  trend,  confirming  the  firm  tone  at the  previous  event   was  not  a  one-off.

The global dairy trade price index posted its biggest increase since early March, when it jumped 15%.

The key WMP product rose 3.3%, SMP was up 7.3% and both butter and cheese each rose almost 4%. Prices rose 4% overall in USD terms, although they were only up 1.2% in NZD terms, held back by a firming currency.

The average price for WMP was  US$3691 (NZ$5200) a tonne, with gains across all contract periods. The average price is sitting 24%  higher than at the same time last year.

Dairy auction prices deliver a pick-me-up for farmers – and a tonic for the economy, too

New Zealand is back in lockdown and hopes of an early border   reopening  have been dashed, but  the   cows  still  have to  be  milked.  And  injecting  a  cheerful  note  into  an otherwise  downcast  country  this  week,  prices  at   the  latest  Fonterra global  auction  broke  a  losing run of  eight  consecutive  falls,  banishing  fears  that  the  opening  price  for  the  season  might  have to be trimmed.

The co-operative has set the opener  for the 2021/22 season at between $7.25kg/MS to $8.75  with a mid-point of $8. Its previous highest-ever opening price was $7kg/MS.

At  this  auction,  the price  index  lifted  0.3% from the previous auction a fortnight ago,  with the average  price   at US$3,827.  Prices for skim milk powder, butter and anhydrous milk fat rose, while whole milk powder declined. The average price is sitting 21% higher than at the same time last year.

“The cream group and skim milk powder did the heavy lifting, while whole milk powder lost further ground,” said NZX dairy analyst Stuart Davison. “Cheddar prices gained also, while lactose prices finished the auction unchanged.”

The average price for WMP, which has the most impact on what farmers are paid, fell 1.5% to an average US$3552 (NZ$5040) a tonne, after a 3.8%  decline at the previous auction.

“WMP prices continue to let the team down, but it seems that the momentum of the WMP price slide has slowed, and prices might start to find some support in the near future,” Davison said.

North Asia was the largest buyer of WMP, although the region bought less than at the previous auction and significantly lower than at the equivalent event last year, he said. Buyers from the European Union, the Middle East, Africa and South and Central America all purchased more whole milk powder at the latest auction.

“This trend in buying highlights the current level of global demand for dairy products,” he said.

The  very  firm  prices   at  the   auction  confirm that  the  country’s primary   industries  are  still underpinning the export  economy, which  suffered  the loss  of  earnings  from  international tourism  and education when Covid-19  hit.

The ANZ World Commodity Price Index came off its record level  last  month when it eased 1.4%. In local currency terms,  though,  the index barely changed, lifting just 0.1% m/m, as lower commodity prices were offset by a softening in the NZD trade weighted index.