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In 2012, dairy farmers are looking ahead to a year of lower debt, higher cashflows and much stronger profit margins than ever before. Read my forecast for 2012 and beyond, here.

On 15 December 2010 the globalDairyTrade trade-weighted product price was US$3690 per tonne.  Amazingly. the corresponding period in 2011, December 20th, the average winning price was an almost identical $3688 per tonne.

From this point last year, dairy prices took off.  By 1st of March prices had risen 30%.  And although they feel back from here this was the impetus to lift the milk price to $7.60/kg milksolids last year.

In a news article today, Jamie Gray crowns dairy as the "commodity king" for 2011.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10774780

He notes the industry's strong growth from 19% of exports in 1982 to 27% today.

Today's globalDairyTrade was down by 1.6% on the trade weighted index - individual products were winners and losers.  Whole Milk Powder and Skim Milk Powder were down but AMF (Anhyrous Milk Fat) was up.

Although the pricing was down, gDT did continue with an upward sloping price curve; that is product for sale in June to August 2012 is selling for more than product supplied in February. 

That's a sign that there is some strength with dairy commodity markets.

This comment is a bit 'tongue in cheek' - but it is interesting to note that whole milk powder prices are several hundred dollars a tonne higher this year than last year at the same point.  Does this mean that our milk price will end up in the $7/kg milksolids range rather than the current $6.50/kg price.

Today's announcement of a 20 cent increase in Fonterra's forecast milk price (see copy of Sir Henry van der Heyden's email to suppliers below) has been coming for a while.

In fact commodity prices have been in recovery mode almost from the day that Fonterra revised the payout downwards by 45cents on October 22. Prices for wholemilk powder have firmed almost 10% since early October, so we have been expect this good news from Fonterra, which will add about 0.5% to farm returns. A good start to the festive season!

Hi,

Over the past six weeks whole milk powder prices have been creeping up.  Allthough the data referred to in the following chart is from Agrifax, and not this morning's global dairy trade, they do indicate that with some further price movements the Fonterra milk price might move back up to $6.60 to $6.70 per kilogram of milksolids.  At these prices there are decent profits with dairying! 

The following report was printed in today's Dominion Post and makes interesting reading.  We often relate the growing demand for dairy to population growth and growing middle classes but most commentary doesn't include the additional demand to come from a growing elderly population.  As pointed out in the article, maintaining muscle mass is important to health in the elderly - whilst exercise is important protein intake is also critical.  As people get older their red meat consumption declines; dairy protein is very well placed to pick up the deficit.

This morning Radio New Zealand's Kevin Ikin interviewed me about a group of German investment funds, for whom we manage 12 farms in the Southland region.

Kevin was keen to guage current demand for our dairy invesments and what was attracting investors. My answer is access. If you want to benefit from the long term soft commodities boom, then owning farmland is your best option. You can listen the full interview here.

It's nice to get past the 2011 NZ government elections.  And if I am honest, good to have the same government in place with relatively stable policy settings.