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”

Payout perplexity – more money for farmers would impede Fonterra’s financial recovery

Synlait  Milk’s  updated forecast  milk price— now  $7.25kg/MS,  up  from $7kg/MS —renews pressure  on   Fonterra  to  hit the  upper limit of  its own  forecast.

For the industry  as a  whole,  the  higher milk payouts  underline  the strong  global demand for  NZ  dairy products.  And  they  provide  some welcome sunshine   into   many of the  county’s  dairy sheds.

When  Fonterra  in  December   flagged   it  was  aiming  for  the midpoint of  its  $7  to $7.60 forecast range, it  said that  a  $7.30 milk price  would be  the  fourth  highest   in its  nearly  two  decades  of  operation.

That  $7.30kg/MS  is  comfortably ahead  of  Dairy  NZ’s  estimate  of break-even  for Fonterra’s suppliers  of  $5.95.

But  now  Synlait is  saying  is it has  raised  its  forecast  payout on the back of  higher than expected commodity prices at the end of 2019.  It believes those will hold in the medium term as supply and demand continue to be evenly matched.  Continue reading “Payout perplexity – more money for farmers would impede Fonterra’s financial recovery”

A tale of two milk companies – one of them is being suckled by taxpayers

The contrasting fortunes of Synlait Milk and Westland Milk Products were thrown into sharp relief last week. On the one hand Synlait won applause at its annual meeting from shareholders, impressed by its performance in virtually doubling profit ($74.6m against $39.4m) in its tenth year of operations. On the other hand Westland had the begging bowl out for a Provincial Growth Fund loan of $9.9m which will help the co-op in funding a $22m manufacturing plant aimed at converting milk to higher-value products.

The Westland dairy exporter, discussing a capital restructure in its 2018 annual report, said it had relatively high debt and limited financial flexibility.

Commenting on the PGF loan, chief financial officer Dorian Devers is reported as saying the co-op could have financed the project in other ways “but the terms we have been given from the PGF are more favourable. It’s a longer-term loan than we can get from a bank which is nice”.

The NZ Herald quoted economic consultant and former ANZ Bank chief economist Cameron Bagrie as saying the loan sets a “dangerous precedent”. He reckons it appears to be corporate welfare. Continue reading “A tale of two milk companies – one of them is being suckled by taxpayers”