Andrew's blog

Although this morning's gDT result was down - two auctions in a row now - the numbers still suggest a very good milk price for 2013/14.

At MyFarm we particularly follow the WMP or Whole Milk Powder pricing which is shown below.

At the prices for September through November (the peak of the NZ season), assuming the Kiwi dollar that Fonterra trades at is approximately 84 cents, we can expect a milk price of circa $7.50/kg milksolids.

Investors want good quality dairy farms in investable chunks.  That is the inevitable conclusion after MyFarm has closed its latest farm syndicate investment, "Kauana Limited Partnership', oversubscribed.

Kauana is a 250 Ha, 700 cow dairy farm in Southland.  A good size, good farm and good address.  MyFarm has combined these attributes with quality management (employing the existing South African Managers) and strong governance support.  The business will be funded by less than 30% debt.

The average 7.3% drop in prices at Fonterra's global Dairy Trade this week was a correction many of us expected. In my opinion average prices are now a lot more sustainable and therefore likely to last longer.  Whole Milk Powder is currently fetching $4700/tonne average but with forward contracts at a fairly stable $4500/tonne through the coming spring.  This price of $4500/tonne equates to a milk price of $7.76/kg milk solids at an exchange rate of $US0.84, a nice sustainable position to be in with the 2013/14 season around the corner.

The latest gDT result - a 0.6% increase in trade weighted prices - has consolidated the bull run in dairy commodities of the past two months.

Yesterday Westpac released a report (read here) which said that NZ (Fonterra) has real market power - even going so far as to compare New Zealand dairy to Saudi Arabia and oil

Westpac Institutional Bank have published an astonishing piece of research titled 'Drought, Chinese Mums, and the price of milk".

Some memorable comments include;

A good perspective from Dominic Stevens, Westpac Economist who believes dairy price increases will more than make up the effect of the drought.

 http://www.youtube.com/watch?v=2smmcn0TM6U&sns=em

Of course, it is all positive (unfortunately for others) in Southland where summers are normally wet (and summer rainfall has been reasonable this season).

No wonder that Southland is the place to be?

Some of the coverage of this week's phenomenal jump in global dairy prices:

Higher payout to dairy farmers predicted 

Radio New Zealand - 4April

Dairy commodity prices increased overnight - there have now been increases for eight auctions in a row.  This was again a double digit increase averaging 14.2% across all products as non-whole milk powder products 'caught up'.  As shown in the following graphic, whole milk powder is now over US$5100 per tonne and in uncharted territory.

Fonterra's decision to increase its forecast farmgate milk price from $5.50 to $5.80/kg MS brings welcome relief to drought stricken farmers. See NZ Herald's coverage here.

Agriculture’s effect on the NZ economy is continually underestimated, at least in my opinion.  Perhaps the evidence base for most economists and their view of how the economy works is the mid-2000’s (2002 – 2006) when both dairy and sheep and beef bumped along and were neither spectacular nor disastrous. The drivers of growth during this time were house price inflation (read Auckland housing) and consumer spending (read flat screen TVs).