Andrew's blog

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.

It's a slog - long term adjustments needed

There is plenty written about dairy markets these days.  I remember when Agrifax were about the only one in the market with commodity prices and price forecasts some 10 years ago - today most of the commodity trading houses and banks have a detailed analysis.  This means we are not short of information - we can pretty accurately guess Fonterra's next move with the milk price.  What we are still short of is the analysis of what this means for dairy farmers.

Bobby calf expose not good

Tonight's TV1 programme Sunday showed disturbing images of the handling of bobby calves.

We can't get away from it; to have a dairy industry we need to take calves away from their mothers at an early age.  I thought the animal psychologist on the program was over the top - calves and mums show distress when parted even when the calves are 100 kgs and properly weaned.  But there is a proper way to do it and the images of calves being picked up showed some sloppy practice.

NZX dairy futures over correcting?

If dairy commodity prices were a plane ride we'd all be sick by now.  Clearly the market is finely balanced with the following graph showing the movement in futures prices.

There is still too much milk being produced but I am expecting both Australian and NZ milk production to fall during the summer and autumn - Australia due to the current dry in Victoria and in NZ due to normal summer dry conditions and farmers responding to a low milk price environment.

Rabo picks milk price rebound

Interesting story in today's Global Dairy from Rabobank:

Even though milk prices are at or just above break-even cost of production levels this fall, global supply-demand conditions will likely improve by next summer. See the full story here

Dairy finely balanced

Today's gDT auction followed the trends forecast from the daily derivatives market - futures for WMP and other products had fallen steadily over the past two or three weeks since the last auction.  There is still a bit much milk being produced around the world and NZ's encouraging start (-7% in September) has been unwound somewhat with the peak only being 3% behind last year.

I would expect a few more auctions to be equivocal (which incudes trending down) before a strong bias is established in the December/post December period.

Same dairy chart - Chinese author

We like to keep our 'tabs' on the international market - most often reports come out from banks such as Rabobank, Goldman Sachs etcetera.  It is good though to come across some Chinese work and to see dairy through their own eyes.

The study is the China agricultural outlook for 2015–2024 based on China Agricultural Monitoring and Early-warning System (CAMES).  The authour is a Mr XU, Shi-wei.