Andrew's blog

Graphs tell the story

Another big fall for gDT prices today; Whole Milk Powder prices falling by 10% today.  A lot has happened in six months since record breaking prices with the Kiwi dollar now starting to respond.

An analysis of gDT results show previous down-turns in terms of the number of fortnights from the point of price reduction - the data is cumulative.  At present the price reduction is looking similar to the 2008 event.  Recovery in 2008 occurred quite quickly with a very good milk price received in 2009/10.

What $5.30 means

Today Fonterra announced a further revision of the milk price of $5.30 per kilogram of milksolids for the 2014/15 season.  It seems a long time ago since it was $8.40/kg; we are still receiving the final top up payments from that stellar year.  The revision today follows an opening price of $7/kgms and a reduction to $6/kgms in July.

The reductions reflect an overhang of supply, particularly from NZ but also from the EU and US, and stockpiles built up earlier in the year.

A 'Phew moment'

There is always a point where a market in decline rights itself (assuming no fundamental demand issue).  It is too early to say we have reached that point after gDT had a "0% change result" last week.  But there are a number of factors which do suggest some optimism.

Interesting week...

Good to see some positive direction come out of Fonterra this week with the announcement of their investment in, and joint venture with, Beingmate from China and the plant expansions in the Waikato and Southland.  

Where will all the Cheese go?

Russia has announced a ban on food imports from many western nations including the EU and the USA (not NZ).  Russia is a major importer of cheese - most of the exports from the EU and US are cheese as shown in the following graphic from Fresh Logic.

Amusing song - serious message

It pays to see the lighter side of life - every now and then at least.  The link here shows middle aged men singing a contemporary song.  If you can get over this image and can find a quiet spot I suggest that you listen to at least the first two minutes of the >4 minute run time.

Another large gDT fall. Response?

It was headlines in the media this morning.  gDT falling another 8.5% p.a. Now down more than 40% since February.

For a quite rational discussion about the current falls and the impacts I recommend listening to the following interviews :

So what's happening? 

NZ Export growth - animation

An interesting animation via NZTE on NZ export growth from 1983 to 2018. 

The overwhelming conclusion is that the chart shows the growing importance of Asia to NZ.  

Another conclusion is that our geography is now a benefit at two levels; a benign temperate climate and we are relatively close to market. 

Milk Price volatility naturally hedged

 On the face of it, last week’s drop in Fonterra’s milk price forecast for the current season from $7.00/kgms to $6.00/kgms looks pretty dire – especially when compared to last season’s forecast of $8.40/kgms.  The apparent between-season drop in revenue is 29%.

This sort of milk price volatility has been a characteristic of the last few seasons and is likely to continue into the future, albeit that milk prices are generally on a rising plane and the outlook remains positive. 

Environment versus commodity production

In this morning's NZ Herald, Liam Dann in an opinion piece makes the case that dairying's past growth is unsustainable and that: 

"Converting land to dairy is understandable when economics point to it being the most lucrative use of the land.

But where conversions are marginal and predicated on historically high dairy prices, they are risky.