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Andrew's blog

Too soon for doom and gloom

 There has been a lot of negative commentary around the prospect of a Milk Price this season that is significantly below Fonterra’s current forecast of $7.00/kg milk solids.  Despite the doom merchants and the recent drop in GDT auction prices (which have admittedly been significant), the Milk Price outlook for this season and out into the medium term is still very good.

Spectacular falls for gDT and what it means

The size and rapidity of gDT auction price falls since February 2014 has surprised most commentators including this blogger.  Since February 18 wholemilk powder has fallen in price by 38%, with the overall trade weighted index (including non WMP products) has fallen by 34%.  This is after record pricing and demand - principally from China.

Milk and Ice-cream

MyFarm have been at two investment seminars in Hong Kong and Singapore this week.  It has been a good chance to catch up with our current investment base; we have quite a few, mainly ex-pat investors in this part of the world.  The overseas investors that we do have in our syndicates generally have strong links or interest in New Zealand.  They love the image of NZ, the exposure to a protein based investment and the strength of the NZ dairy industry.

Second day - exploring the Chinese red meat market

Today we visited Shenzhen, a city of approximately 10.5 million people (2010) in China’s Guangdong province of South China – just across the border from Hong Kong.  We visited a range of supermarkets from mid-level quality, upper class quality and wholesale.

Despite the flood of NZ product onto the market, it appears that Australia dominate the red meat foodservice in China with some lamb and a lot of beef. 

Taking a breather

Wholemilk powder prices have now fallen 30% since their peak in early February.  It does appear that buyers stocked up early and are now drawing on inventories - with the result of a falling market.

It is no surprise that this is all about supply and demand.  At the moment the sentiment is for falling prices and buyers are clearly playing a cautious role in the market; drawing down inventories and buying smaller volumes.  On the supply side, there has also been more product, particularly from NZ with very strong autumn milk production levels.

MyFarm Sheep and Beef visit China....

MyFarm Sheep and Beef is a joint venture between MyFarm and the Duncan and Marshall families.  The team are, as i write, in the process of visiting China to better understand the Chinese market for red-meat, and its potential for the future.

Whereas the UK and EU have been our traditional lamb market (as was the case with dairy), the NZ meat industry has never managed to broaden its base as has occurred with dairy over the past 10 to 15 years.

gDT rises again despite more milk from China

gDT registered a 0.9% rise this morning with a good lift in Whole Milk Powder prices (2.4%) slightly offset with a small fall in SMP (-0.2%) and Anhydrous Milk Fat (-3.8%).

China large feed importer

With the commercialisation of Chinese Agriculture - away from small family operations - has come a huge change in the import/export of grains.  The following chart shows the situation with the country now a significant importer of all of the main feed grains.

gDT down again. Chinese buyers stay home - but only for now.

It's an interesting pass-time watching gDT at the moment.  From record highs to eight straight falls.  This morning gDT recorded a 4.2% fall with a startling fall of 8.5% for whole milk powder which is now selling for $3,594 per tonne.  There are a couple of points to note relevant to the past few months results;

Milk price announcement positive

Below is my take on yesterday's milk price announcement:
  • With slight fall in milk price yesterday the Compound Annual Growth Rate (CAGR) for the milk price (trend) for the last 10 years is 5.2%. This is significantly higher than inflation and one of the reasons the industry has been so successful.
  • The average milk price for the past four years and the coming year is just off $7/kgms

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