Andrew's blog

Segmenting NZ dairy farmers

I have written a series of posts about NZ dairy wearing a ‘gloomy hat’. Unfortunately, nothing that has happened over the past few months has changed much. Global milk supply growth appears to be moderating, but it is still growth. Meanwhile the outlook for the world economy has deteriorated (EU growth, the latest concerns re: China, more QE from Japan etc) and the NZD looks to be stubbornly strong, despite recent RBNZ action.

Dairy cashflow challenges

I’m thinking (and perhaps hoping) that this is my last bad news post on the NZ dairy industry.  My following writing will be about the positive ways that farmers are responding to this recession, about the opportunities to restructure businesses to be viable at lower prices, and about new ideas that could take the industry forward.

Dairy re-set # 3

At the recent Dairy Summit held at Massey University we were treated to presentations from the Netherlands, Ireland, we had several speakers from the USA and finally talked to a gentleman based in China.  The discussion point was dairy products supply and demand; most of the discussion was about the supply side and farmer behaviour in the face of falling prices (they don’t necessarily look to farm out of cashflow tightness by reducing production).

Where to set the bar # 2

In March 2014 global Dairy Trade started falling.  From the giddy heights of over US$5000/tonne WMP is now trading (June 16) in a relatively tight range of $2200 - $2400 per tonne.  That's translated to a dramatic re-pricing of milk at the farm gate.  In New Zealand we're approaching our third year of losses; in other countries farming for a loss is relatively more recent - many US dairy farmers were profitable until the end of 2015 for example.

New MyFarm service - Farm 20//20

MyFarm is in the process of launching a new service offering, Farm 20//20, to help farmers achieve stronger financial performance during these years of low milk prices, so that farm businesses might prosper when recovery occurs.  We take a view that there is no room for complacency; milk prices will recover but when they do, we expect pressure on all of us as farmers to reduce our debt.

Dairy re-set. 20//20 vision

It is a while since this writer has blogged.  The big gap of several months has allowed some thinking to take place - hopefully thinking that stands at least the next few months.

Good Fonterra Profit number essential

It's an important week coming up for Fonterra and the industry.  Fonterra's profitability and dividend in a low commodity price year makes a critical impact on-farm and is important for the co-op's well-being overall.

Season horribilis

I'm a half cup full sort of person, but its hard to take many positives from last night's gDT auction with the overall index down by around 7% and WMP down by 10%.  Albeit the falls were well forecast by derivatives pricing.  At this stage a low price is locked in for 2015/16; now concern shifts to 2016/17.  One would expect that next years price will be better based on a lower exchange rate, but we need some form of supply shock to fix market oversupply.

Strategy delivering lower milk price

Received some comparative milk prices from our friends at High Ground Dairy^ which shows how our lack of a domestic market/consumer focus is costing NZ farmers.

"For Kiwi farmers, with a NZ$4.15 milk price, $.55 dividend and a $.66 exchange rate, they are being paid approx $10.27/cwt using 4.7 fat and 3.3 protein.   If those were reduced to US standards (3.5 fat, 3.0 protein), the payout would be $9.15/cwt.   That’s for the year… 

Tough get going?

This morning's Fonterra milk price adjustment to $4.15/kgms (from $4.60) was expected in terms of direction; the size of the adjustment was slightly more than expected but reflects continuing weakness in global commodity prices.  This confirms two very low milk price seasons for NZ dairy farmers; prospects for 2016/17 are better (a lower effective exchange rate will probably help by 40 - 50 cents/kgms) but hopes for a solid bounce are fading.