Here's my quick summary of the key overnight news you need to start your day.
The apparent resolution of the US fiscal cliff has markets taking a strong "risk on" view. The Dow is up 1.7% to 13,320 and the US dollar is falling sharply against the euro.
This is resulting in a sharp rise in the NZ dollar. It is now buying US$0.83 and it is 74.5 on the TWI. These levels are 1c higher than they were on New Years eve. The AU$ has strengthened against international currencies as well.
However analysts said the market euphoria is likely to be short-lived as the US Congress has just kicked their debt can a short distance.
A new bigger battle looms on their debt ceiling by the end of January. By the end of February, US budget spending deals expire. We will be getting major policy turbulence from the US in Q1.
In China, there are two items to note: firtsly, the flash HSBC PMI data for December came in more positive than many were expecting. The Index rose to a final reading of 51.5 in December from 50.5 in November.
The rise to a 19-month high, adds to recent signs of a rebound in China and is likely to further boost confidence in its economic outlook.
And still in China, Beijing land prices are rising in a frenzy, worrying even the developers in the market. A recovery in the Chinese land market began towards the end of last year and will be cheered on by local governments who rely on land sales as an important source of fiscal revenue.
But the price surge has triggered criticism that officials could be laying the groundwork for a property bubble by restricting the supply of land.
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32 Comments
The apparent resolution of the US fiscal cliff has markets taking a strong "risk on" view. The Dow is up 1.7% to 13,320 and the US dollar is falling sharply against the euro.
It is ever so pleasing to see the S&P 500 sustain a break above the old 1425 close recorded in May 2008 - admittedly my patience is being tested waiting for a return to the 2007 1565 high back in Oct 2007. It's been all risk and no return.
2012: http://www.dailytelegraph.com.au/news/foreign-buy-up-hits-baby-formula-…
THE nation's biggest selling baby formula, Karicare Aptamil Gold, is being rationed because Chinese customers are buying it in bulk to send back to their home country, where there are fears over the safety of infant products.
Major supermarkets are also reporting a supply shortage of the Bellamy Organic baby formula.
2011 :http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10719682
New Zealand supermarkets were forced to ration baby formula to customers to stop exporters from clearing the shelves and selling to China
Question: Why does Fonterra let this happen - still (and look a silly/[blank] in its two home markets).
It has the assets, connections, logistics, export nose and IT/Web skills to sweep excess NZ and Aust product up and Sell on the WEB - better still create a fly-in brand....
This could be a marketeers dream, NZ a la Marshall Plan bringing in food for the children. It could deploy the resources for a HK company (not named Fonterra) if need be (or do the insiders just gear up and buy farms -:) ). Such would leave a deep positive mark re NZ in middle class China (Rewi Alley like) ......
http://en.wikipedia.org/wiki/Rewi_Alley
Why does it just seem to do nothing, and appear ham strung. Is it
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=108…
Fonterra opts out of China cash cow
China might be the land of milk and honey for baby formula exporters, but Kiwi dairy giant Fonterra isn't cashing in with its own brand of formula.
The co-op has an infant formula brand, Anmum, which is sold in Malaysia and Indonesia but not in China, the world's biggest market for the product.
A Fonterra spokesman would not comment on why Anmum had no Chinese presence, but the answer is likely to lie in a single word - Sanlu.
or is there some deal with Nestle or such....
Feels like they are they sleep walking through the Korean Wool Boom....
its enough to make you lactose intolerant (makes digesting the lowering payout difficult for us all) .....
Ben Wilson, the retail manager for central Sydney YouSave chemist next to an international hotel, said that "Chinese visitors buy as many cans as they can fit into their luggage to take back to China".
http://www.stuff.co.nz/business/industries/8140698/NZ-infant-formula-ra…
Or to Fonterra, is it like nothing is happening..... (and thank you they are happy to bat first)..... grrr. The "market" will never get to a state like this again....
CHINESE students are being recruited to buy up hundreds of tins of infant formula in Australia and ship it to be sold on the black market in China for more than twice the price.
Michael Clifton, Austrade Senior Trade Commissioner in Shanghai, said there was pressure on local milk and powder suppliers to produce enough to cater for both our domestic market and the 20 per cent of 18 million babies born in China each year who are fed infant formula.
He said Chinese authorities were often perplexed why there were not more Australian branded products available for a growing market.
http://www.dailytelegraph.com.au/news/national/chinese-threaten-supply-…
A BACKYARD operation is sending up to 10,000 cans of baby formula each month to China from a suburban Melbourne home, netting $200,000 tax-free for its immigrant owners.
A milk industry insider who was outraged by the scam visited the home, in the southeast, and snapped photographs of the Aladdin's cave of baby formula.
"This is a threat to the Australian dairy industry," he said.
http://www.dailytelegraph.com.au/news/national/powdered-milk-exports-do…
But he said in talks with them about that proposed order, the internet-based company said it had 500,000 customers in China, paying $65 a can for Karicare baby formula - almost three times the retail price in Australia.
The company was making at least $20 profit from each tin it exported to China, the insider said.
Woolworths AU introduces four-can sales limit to keep baby formula on shelves
Karicare, manufactured in New Zealand, exported to Australia, being stripped from the retailers shelves at retail prices including retail margins and re-exported to China
Check the nationality of the customer
Comment from the market and thx to CO:
http://www.scmp.com/news/hong-kong/article/1139696/hongkongers-appeal-b…
and
http://www.stuff.co.nz/business/8256619/Smuggling-of-Kiwi-milk-into-Chi…
"Local parents in Hong Kong can hardly buy baby formula milk powder in drugstores and supermarkets, as smugglers from mainland China storm to this tiny city to buy milk powder and resell for huge profits in China," the petition says.
"Many retailers stockpiled milk powder and are reluctant to sell to local parents as the shops can sell their stocks in big cartons to a mainland smuggler for huge profits."
Still not much out of Fonterra or NZ INC.....
Q: Why are Hong Kongers asking USA for help...
We understand what mist mentions below, we still suggest (even as a way of putting DCD press behind us). Running round getting every spare can in NZ and flying it over to Hong Kong before the luna new year (gezz give it away from behind HK railway station) - say its from the Women's Division of FF if needs be..... / doing it for the children... woollen squares to follow.....
Our new best friends have long memories and would remember. NZ INC could dine out on it for years (let John/Henry whoever sit up front in the plane - beautiful pictures...)......
Bottom line. China is the biggest marekt. The supply chain and high profile market segment is out of control - how much more science does one need.
At least 45 people have been arrested so far as they attempted to cross into the mainland with more than the permitted amount of infant milk formula that can be taken out of Hong Kong.
They included 26 Hong Kong residents and 18 mainlanders. One person had a foreign passport. Eight of those arrested were cross-border drivers.
Secretary for Security Lai Tung-kwok said: "We expect that parallel-goods trading syndicates may change their tactics of getting infant milk formula out of Hong Kong.
"On top of random checks on passengers at border checkpoints, customs officers will also be looking closely at vehicles," Lai said
http://www.scmp.com/news/hong-kong/article/1173819/45-arrested-breaking…
Monday, 04 March, 2013, 8:42am
Henry - you won't be reading about this in the local financial press
China's Sovereign Wealth Fund CIC eyes move into Australian dairy sector
They're going viral now - except the victim is New Plymouth District Council
It's just a matter of time. This virus will arrive eventually
http://www.businessspectator.com.au/bs.nsf/Article/Chinas-CIC-eyes-move-into-Aust-dairy-sector-report-pd20130109-3SRJT?OpenDocument
Van Diemens Land Company owned by New Plymouth District Council
Well spotted, we hear less than happy campers (no pun intended re the terrible fires in TAS) in the Naki about this. And if memory serves me we have touched here on the history of NZ dairy in TAS.
http://www.newplymouthnz.com/NR/rdonlyres/1B54D981-B583-44EE-A8F1-900C9…
Alternative Assets are the largest asset allocation of the PIF at 88.3%. They include
• Tasman Farms Limited as a land, soft commodity and inflation hedge investment;
• Barings Asia Private Equity, a large private equity fund that provides exposure to private company growth in the Asia region; and
• Direct Capital, a New Zealand Private Equity Fund that provides growth exposure to large unlisted companies in New Zealand.
http://www.stuff.co.nz/taranaki-daily-news/news/7728874/Chinese-eye-cou…
And the news could see the council's investment arm, Taranaki Investment Management Ltd (TIML), embroiled in a Crafar Farms-type foreign ownership controversy.
Australia's biggest dairy business, Van Diemen's Land Company, milks 17,400 cows across 24 farms in northwest Tasmania, producing about 5.76 million kilograms of milksolids.
The company is 100 per cent owned by Tasman Farms Ltd of which the council has a 98.42 per cent share through TIML, set up eight years ago to oversee its $250 million Powerco share proceeds.
Last we heard were the TAS Ag producers not looking forward to a rise in frieght rates:
http://www.themercury.com.au/article/2012/03/28/313371_tasmania-news.ht…
The comment was the sea trip to the mainland made it the most expensive sea trip in the world (not good for ag input costs/export ex mainland).
found it http://blogs.wsj.com/dealjournalaustralia/2013/01/10/chinas-sovereign-w…
and
The Wall Street Journal in November reported CIC has held talks with Fonterra Co-Operative Group, the world's largest dairy exporter, about investing in the New Zealand dairy giant's newly created shareholder fund. That investment was expected to be less than $US100m as no single investor is allowed to hold more than 15 per cent of the shares.
A deal with VDL, which supplies Fonterra from its 24 farms, would allow CIC to take a more significant slice in the business, said a person with direct knowledge of the matter.
http://www.theaustralian.com.au/business/mergers-acquisitions/china-inv…
and http://blogs.wsj.com/dealjournalaustralia/2012/10/29/aussie-dairy-farme…
Early days re TAS:
One of the mam inducements to emigration at that time was, of
course, the depression that hung like a pall over Europe after the
Napoleonic war. The situation was, in many respects, extraordinarily
like that of the present day. Prices were low, the burden,
of taxation was heavy, and trade was stagnant.
http://eprints.utas.edu.au/14391/1/1935-hudspeth-experiences-settler.pdf
Well some one is doing something to knock the supply chain into shape:.
Yashili International Holdings, which manufactures and distributes infant milk formula products in China, is the latest Chinese company looking to invest in New Zealand, with plans to build a 1.1 billion yuan ($210 million) processing plant.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=108…
http://media.nzherald.co.nz/webcontent/document/pdf/20132/yashili.pdf
Q: Why doesn't Fonterra really take on the branded can market in middle income China? :)
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1084...
Fonterra opts out of China cash cow
China might be the land of milk and honey for baby formula exporters, but Kiwi dairy giant Fonterra isn't cashing in with its own brand of formula.
incorporated in the Cayman Islands.
Yashili International's principal activities include the production and sale of pediatric milk formula and nutrition products, and also the production and sale of packing materials, according to a profile on the Hong Kong stock exchange, where the company listed in November 2010.
The chairman of the company is Zhang Lidian who, with others of the Zhang family, set up the company in 1993. It is headquartered in Chaozhou in Guangdong province, and incorporated in the Cayman Islands.
http://www.stuff.co.nz/business/industries/8169550/Chinese-infant-formu…
Cayman Islands (or http://en.wikipedia.org/wiki/Porsche_Cayman ) and Hong Kong based. If the HK sub buys from NZ, sells to PRC, it earns income outside of HK, HK tax rate ZERO......... (income earned within within HK 16%).
We might as well do the NZ tax returns now,
Yr 1 loss
Yr 2 loss
Yr 3 loss
Yr n loss
Yr n+1 loss
Correct us if we are err [ please ]
Henry: Correct. No error. You are starting to see the magnitude of it. The inscrutables are not the originators, but they sure as heck are very fast learners. As I posted yesterday: if an exploitable tax loophole exists, it will be exploited. And why wouldn't they. Starbucks have been doing it for 15 years. And they weren't the first. Shell Oil and IBM were the first. Years ago. Have a close look at the global reach of the Canadian Teachers Pension Plans (the're all at it, Ontario Teachers Pension Fund, AIMco etc) and the Ontario Teachers Pension Fund has just set up an office in Hong Kong (believe it or not).
Next time you are in Christchurch you should try and catch up with Mr Speckles for a round or two of golf. Get the inside drum
Two things come to mind over posts during the past year.
1. Fonterra dealings with the supermarkets in the ANZ zone. and the dramatic reduction in earnings over the past 2 to 3 years, This now seems to be a permanent reduction. Woolies and Coles won: We lost.
2. The infant and other milk powder market in China [posts above etc]. PRC companies / Nestle / back yard & grey exporters won: We ?
Henry: Yes. That thought occurred to me yesterday. Couldnt believe the supermarkets can screw the living daylights out of Fonterra to get a can of Karicare onto their shelves in australia at AUD $22 per can and that's their retail price after shipping costs from NZ to AU, then distribution costs from the logistics centre to the retail outlets, plus markup (probably around 30%), and the inscrutables are buying it off the shelves at retail AUD $22 per can, packaging it up and freighting it to china and wholesaleing it to chinese wholesalers at $67 per can ... and the street-smart local kiwis are sitting there with their jaws on their knees watching it happen. So what is Fonterra's wholesale NZD FOB price to Coles and Woolworths? NZD $10? or, more probably NZD $10 FIS
Right again.
Following negative growth in the local market, Fonterra is combining its Australian New Zealand (ANZ), Southeast Asia (ASEAN), Middle East and North Africa (MENA) businesses into one unit.
John Doumani, Fonterra's current managing director ANZ, will assist in the transition period and leave the co-operative at the end of March 2013.
http://www.foodanddrinkbusiness.com.au/news/fonterra-anz-md-exits-co-op…
We are not happy that the ANZ is now mixed with South East Asia and Middle East and Africa. (What have they in common? - same customers, same tastes, same what???)
and South East Asia is not PRC, and not PRC consumer business and not PRC middle income infant powder market.... grrr.
Compare this to what Heinz have done:
PEACE has broken out between Australia's leading supermarket chains and their most vocal critic, global food manufacturer HJ Heinz, which has talked of an improving relationship with the retailers after years of acrimony and accusations.
Read more: http://www.smh.com.au/business/revitalised-heinz-cans-war-with-coles-woolworths-20120529-1zhc5.html#ixzz2HiVEASjC''In the past eight months, we've seen a stabilisation of this business and that comes down to three elements. First, we've improved our relationship with the retailers, and they have told us that they have noticed our increased ability to bring them real value,'' Mr Warmoth said.
''Our customer service has gone from poor to strong and that's due to a total overhaul of our planning process.''
The conciliatory stance is a long way from the combative position taken by top Heinz executives last year and that peaked in June when Heinz chairman and chief executive Bill Johnson described the Australian food market as the ''worst'' in the world, laying the blame at the feet of Coles and Woolworths as they battled for market share.
Should Fonterra follow what Heinz have done (not like suggesting the impossible): ''Australia has also reduced cost on every front,'' he said. ''We have five factories, we closed one and have downsized three. We had a record year by far on the supply-chain productivity. Q: Does having a leg listed make one a better run, more productive coy?At the time when they buried the hatchet I thought the peace-deal was a political treaty and not an economic peace-deal, because of the subsequent closure of Rosella and the impact on the rural community of Kyabram, happening too soon after the re-location of the frozen vegetables processing plants from AU to NZ.
Good thinking, volume and "developing markets" expalins alot of their actions and branded products the inactions.
We can see how fun and the good life could get in the way of supply chain productiivty improvements... especally when they have block of suppliers placed to take it (us).
No freaking wonder the inscrutables are coming in and doing what the locals can't seem to get their head around.
One issue that does arise that I havent seen any discussion on is that of quality control and protection of the "NZ BRAND" name and image once it's out of NZ hands. Like for example the dealing being done in Van Diemen assets. It is offshore and outside new zealands control.
Well yes.
There could be a certification program, people being accredited etc, etc....
Think of the stories of empty milk powder tins being traded in PRC, fake NZ coy and addresses bwing put on PRC product etc, etc.
Without an accreditaion program of similar something like the followimng could occur:
Cows milked by poorly paid and often Filipino folk" (Mind you think of the Indians that have been the main Kiwifriut harvesters pre-virus)......
on highly geared (thank you Oz banks).......
on industrial farms etc.....
each using more water than a small city.....
on several inches of top soil .....
VDL, has not been the success people hoped. Why the Naki folk put almost all their money in there is an unknown.
Now the fun starts. Reduce Recommendation = SELL
http://www.stuff.co.nz/business/farming/8169552/Fonterra-leaps-into-NZX…
Earlier in the week, brokerage Forsyth Barr recommended investors reduce their Fonterra Shareholders Fund holdings in its inaugural brokerage report on the fund, saying a 33 per cent appreciation since November 30 appeared to have outstripped fundamentals.
"The fund units have performed strongly since listing at NZ$5.50 and are now trading above intrinsic value," said equity analyst Andy Bowley. "The units appear expensive even considering our above prospectus forecasts.
"We therefore rate Fonterra Shareholders Fund with a reduce recommendation." For those at the back of the class, this means SELL
Bowley said there were several issues that posed downside risks to the fund.
The first was farmer shareholders wanting higher milk prices, which represented an input cost for investors.
Bowley said Forsyth Barr expected the price of milk to rise in the near-term which would drag on the dairy giant's earnings.
Longer term, he believed Fonterra was facing structural challenges, such as the need to transition into a higher value-added dairy role, and the need to expand globally into high return markets.
Forsyth Barr must be thinking the Fonterra boyos are still on holidays......
1. Nice to see their comments regarding farmer shareholders as being a drag ......
2. Need to transition into higher value add [ refer comment re supermarkets and PRC milk powder ] - the inference being is that such a transition is too hard for the boyo's (if they were able/had already, they would never have needed to sell some of the family silver.......)
3. Expand into global markets [ the FBer must mean PRC non? ] . Refer comments above re supply chain to PRC.
So does the future look like:
1. Farm Gate: $5.50 to $6.00 for ever - flat, for its a commodity etc...
2. Dividend (what had otherwise been high margin/branded products earnings): 40 cents, increasing 5% to 10% per year or whatever (so that shares yield 5% to 7% - given each yr the start number is higher) - call it share register magt/smoothing.
Mist thanks, I hope you keep copies, your journal/s will be a cracking read...
Q: so who, what provides [has/does] the thinking behind Fonterra's action/strategy past and future,
Or do you think as we, they really thought the Payout would keep going $8 (white gold days) and beyond and that its all proved harder than they thought for them...
Considering the side bets insiders have made (here and O/S) over the past 5 to 7 years it has indeed been all vol.
Cheers
mist, Share price on Farmers market is showing as at 9 Jan at $7.29 and units as $7.31.
Anyone like to place bets on how long before there is a bonus/share split issued?
At this sort of share price Fonterra is at risk of supply redemption. Miraka is being highly talked about by suppliers. It's not an option available for everyone, but for those that it is, its looking very attractive.
Miraka is full CO,but talk of expanding in next five years, and with Chinese infant formula plnt proposed for Tokoroa ,will be a bit of competition in the region. I've been told infant formula is more difficult to manufacture than wmp, and that there will be a wall of cheap calf milk replacer on the market (in ref to Synlait).
I downloaded a podcastfrom the BBC Business Daily program, on the 'Green Revolution' discussing new technology to feed the world. There was discussion about developing nations having the greatest need in terms of food production, but because individual farmers were so poor, they couldn't implement more efficient agricultural practices. The solution ws for them to pool resources; as in form co-operatives to gain more economic and political leverage. So part of the solution to global food security is to promote co-operative development.
In case anyone is wondering, Fonterra is not a cooperative, it's a hybred corporate wannbe, re posts above.
Maybe so Mist, I've heard of such things before, however the chairman of Miraka comes across more than competent, at least to me.
Getting back to the suggestion that for the developing countries to develop their agricultural (food production) capability, they need to organise themselves, it makes one wonder the what if in relation to Dr Onno van Bekkums suggestion that Fonterra supplier shareholders should reject TAF in favour of future growth opportunities in the form of alliances with other cooperative producers globally, so as to better negotiate with Nestle, aussie supermarkets et al.
It's posterity now, and it seems we're more for exploting their plight instead of promoting positive development.
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