Dairy prices lift the gloom for farmers but their future meanwhile is being plotted by Beehive planners with a vision

Fonterra’s  boss  might have been  ultra-cautious   but  out on  the country’s dairy farms there  was a  subdued  cheer  at the  news  that the wholemilk powder price had leapt  14%  at  the  latest  GDT  auction..

The  GDT  index  rose  8.3%,  the biggest  rise   since  November  2016,  and the fourth   successive gain.   Fonterra’s  CEO   Miles  Hurrell  says  it’s  “really  surprising—no-one  saw a number of  this  magnitude”.

It dispels  some of the   gloom generated  by the  Covid-19 pandemic.  And it generates  the  hope  that  Fonterra pitched  its  forecast  for  the season too  low,  in  the  broad range  from $5.40kg/MS  to $US6.90.

Hurrell  suggested   suppliers    should not  get “too excited” by the WMP  result. Fonterra had put out excess product for immediate shipment, which resulted in “a bit of a flurry in that first event” ..

“[This] suggests to me that some of our customers out there had caught themselves short – had seen Covid having an impact on their business – but things had bounced back faster than what they’d realised I think”. Continue reading “Dairy prices lift the gloom for farmers but their future meanwhile is being plotted by Beehive planners with a vision”

Dairy farmers will be in the vanguard of NZ’s economic recovery – but it looks like they shouldn’t count on much govt help

NZ’s  dairy  industry  has  a   clear  role  to  play  as  one  of  the   country’s saviours in the  battle to recover  from the global impact of the  Covid-19 pandemic — even if there is  little evidence  that ministers  in the coalition government recognise  its  importance.

The industry, as  it has  done so  often  before,  will  just have to  do  it on  its own.

Luckily, the giant co-op,  Fonterra,   has  stabilised,  after racking up a  massive  $600m  loss  last year and there’s  a refreshed sense  of  where the  dairy industry  stands  in the  economy’s  hierarchy,  as  other pillars (tourism, international  education, air transport, construction)  tumble  over the  pandemic precipice.  Morale  at  the   grassroots  level  is  rising  again.

So  what’s  the  message    for  dairy  farmers as  the  2019-20 season  ends  and  they look ahead to  the next?   Batten  down  the  hatches  or  seek to  expand  production?

It’s  not  an  easy  one  for  many  Fonterra  suppliers, as  they move out  of a debilitating drought. But they have the  encouragement from  the  co-op  – the  payout  for the  season  just ending, though  at  the lower  end  of the range  earlier  signalled,  will  still be between  $7.10 and $7.30kg/MS.  That’s  above the  break-even point,  said  to be  around  $5.90.   Continue reading “Dairy farmers will be in the vanguard of NZ’s economic recovery – but it looks like they shouldn’t count on much govt help”

Dairy industry profits are a bright spot in an economy headed for recession

NZ’s  dairy  industry, under constant  fire from critics for its methane emissions,  pollution of  waterways  and  intensive farming practices in recent years, almost  overnight  is shaping up   to be one of the  country’s  saviours  as the economy dives into  recession.

While  other   key export sectors — tourism, forestry, education — are jack-knifed by the  coronavirus  pandemic,  the dairy industry’s earnings  more than ever before are proving it to be  what the  critics  have scorned:  “ the backbone of the economy”.

The  much  maligned Fonterra Co-op  this week  reported total group sales revenue in  the  six months to  January 31 increased by 7% or $678m to $10.4bn, mainly due to improved pricing and the product mix  sold.  That  compared with  $9,745bn  in the  January  2019  half.

And  Fonterra  is  keeping its  farmgate  milkprice  forecast   in the $7-$7.60 /kg  range.  That  means  more than $11bn  being paid to  its suppliers. Continue reading “Dairy industry profits are a bright spot in an economy headed for recession”

Xmas cheer from Fonterra as the bosses at the dairy co-op get back to basics

Dairy   farmers  had  some   Xmas cheer  this   week,  as  dairy  giant  Fonterra told them  the  forecast  payout  would  be the fourth-highest-ever,  at the mid-point of its farmgate milk price range.

The  $7.30kg/ms means   the cash payout  for the season  will  reach $11.2bn, a rise of about $400m from the earlier  forecast.

There  could  even  be  a  clap  from the cowsheds for the  new bosses of   Fonterra  who are  turning around the co-op’s  financial  performance, as they apply  a back-to-basics  approach  to  recovering from last year’s  horrendous  $605m  loss.  The first  quarter of the  new financial  year has  gone  well. Continue reading “Xmas cheer from Fonterra as the bosses at the dairy co-op get back to basics”

Fraser Whineray: a results-oriented business leader with a track record on decarbonisation

Fonterra’s  board,  under   heavy  fire   for the losses racked up  in  the last two years,  may at last   be getting something  right.  Its recruitment of  Mercury’s  CEO Fraser Whineray to the newly created  post of  chief operating  officer   puts him in pole position to drive innovation,  efficiency, and  sustainability  in the co-op.

When he joins  Fonterra  next year  he will bring with him the credentials of having transformed Mercury,  simplifying the business  through the divestment of overseas interests and developing a  compelling strategy for  sustainable growth.

Harbour  Asset Management’s Shane Solly  said Whineray adds  “a  bit of grunt to the front row at Fonterra”.

In that  context, Point of Order  notes, Whineray  would be following the example of  his  renowned uncle,  the late Sir Wilson Whinerary,  who not only  captained the All  Blacks from the front row, but subsequently  had a  successful career as a businessman and  company director. Continue reading “Fraser Whineray: a results-oriented business leader with a track record on decarbonisation”

Farmers are getting more milk from each cow – they deserve a much better performance from Fonterra

This   is the second  chapter  in the  woes  of  Fonterra, and  behind  it   the  dairy industry,  on  which the  New Zealand  economy is  so  dependent.

Point of Order   listed  some of those  woes    last  week.  Now, in the  wake  of  the latest  revelation,  Fonterra  will  have to absorb a loss of between $590m and $675m for the current financial year.

Critics   of the industry have  sprung  to the attack:  Minister of Regional Economic Development Shane Jones is calling Fonterra’s management “corporate eunuchs” and labels Fonterra’s board as “grossly inept”.

Greenpeace    has  a  simple solution:  halve  the   dairy herd, a move that would cost the country $8.3bn in lost exports, and lower the standard of living  of every  New Zealander.

Jones’ ideas  to resolve  Fonterra’s financial  difficulties  are hardly  more  realistic.

Sacking the board  won’t   solve anything:  nor  trying to  recruit  a new  executive team  (though it might be worth  asking Chris Luxon  if he’d take a look). Continue reading “Farmers are getting more milk from each cow – they deserve a much better performance from Fonterra”

Comforting news for dairy farmers as companies report results and the world price rises again

Encouraging signs emerged this week that key elements in the structure of NZ’s largest export industry are whipping themselves back into the shape they should be.

The giant  co-op  Fonterra  has  gone back  into the  black  with a net profit of $80 million in the  first half,  after previously recording  a  net  loss of  $186m.

Meanwhile Westland Milk Products, NZ’s second biggest dairy co-op, is in line to be  sold  to China’s biggest  dairy company,  Yili,  in  a $588m  transaction that would inject nearly half a million  dollars into the operations of  each  of its  suppliers.

Alongside these co-ops, the Canterbury-based Synlait has underlined its strength in the  industry with a  solid result in  its half-year after  achieving   higher sales  volumes.  It reported a half-year net profit of $37.3m,  9.6%  lower  than   the  $41.3m  in the previous first   half,  but  with the  focus  on investing for  growth,  with a  second processing  plant due  to come on stream for  the  2019-20 season. Continue reading “Comforting news for dairy farmers as companies report results and the world price rises again”

Something festive for Fonterra farmers? A hint of solace would be a start…

Fonterra’s  suppliers will be choking on their  Xmas  rations, as they  digest the  price  blows  the co-op  has delivered.  First,  the dairy giant has  revised down  its  forecast milk payout  range  for the season to $6-$6.30 from the  earlier  $6.25-$6.50, and, second,  it is clawing back  some of the $4.15/kg  advance payment  rate.

Farmers  in  January will be paid  $4/kg for the  milk they supplied in  December plus the  co-op  is  clawing  back  15c/kg for all the  milk  supplied   between  June and November.

It  is  not   surprising that farmers   with  costs of  production  running   at  or above  $6/kg  are  reported to  be  “shocked”  and  “angry”.   Even those  efficient  operators   who have  lower  operating costs  won’t be happy  with   Fonterra  saying it  “appreciates”  the budgeting impact  the updated $4 advance rate will have on farmers in  January.     Continue reading “Something festive for Fonterra farmers? A hint of solace would be a start…”

Fonterra must learn to be driven by  profitability, not  volume 

Fonterra  chairman  John Monaghan  sought to   cheer  up  the  co-op’s farmer-shareholders  by telling them  at what was reported to be a “packed” annual  meeting  that  “For a time this year, NZ farmers were paid this highest milk prices in the world.”

He  insisted there has been a structural change in  the co-op’s milk prices since Fonterra was formed.

We’ve gone from being paid about half as much as our global peers to the point now where we are consistently paid the same or thereabouts.It sounds arrogant to say it, but the fact is that simply never would have happened without a strong Fonterra”. Continue reading “Fonterra must learn to be driven by  profitability, not  volume “

The grass on the far side of the fence will look much greener for Fonterra farmers

It  must have felt  like  salt being rubbed into  their  financial wounds   for Fonterra’s farmer-shareholders, when Synlait  Milk this week  reported  its  net profit  soared  89%  to  $74.6m.   Fonterra’s  mob   saw  their  co-op  notch  up  a  loss of  $196m, and  with prices  at GDT auctions trending down,  they may also have to accept a trim  to the forecast milk price.

Where  Fonterra  talks of   slimming its  portfolio,  Synlait  is still investing  in expansion.

In the latest year Synlait has been working on new and expanded plants in Dunsandel, Auckland and Pokeno as well as a research and development centre in Palmerston North. Continue reading “The grass on the far side of the fence will look much greener for Fonterra farmers”