Here's my summary of the key news overnight in 90 seconds at 9 am, including news of another big fall in dairy prices overnight.
But first, America's manufacturing industry expanded in September, though a tad slower than during August, while the ADP employment report suggested the upcoming non-farm payrolls report will show solid employment growth well above +200,000 new jobs in September. Both of these markers were better than expected.
However, construction spending unexpectedly fell in August, hit by weaker private spending outside the housing sector and a pullback in public investments.
In Europe, Germany auctioned 10-year bonds to yield less than 1% for the first time, reflecting Europe’s economic quagmire and the possible steps the European Central Bank will take to engineer a recovery.
France has reneged on further adjustment to its economy, breaking the EU rules it signed up to and it helped to impose on others. French manufacturing's fall eased in September but it is still contracting.
But the big news is local. The overnight auction of dairy commodities saw another -7.3% price slump taking the globaldairytrade index back to levels last seen in May 2012 and equal to what was paid in the 2004-2006 period. Make no mistake, prices are now at an all-time low on inflation-adjusted real terms.
The main falls were for the high-volume wholemilk powder which is down -10% from the last auction. Butter is down -6.6% from the last auction just two weeks ago. Overall volumes sold were up +10%.
The situation is not so dire in NZD terms; the overall fall is -2.4% in local currency from two weeks ago. But this takes us to 2005 price levels, a nine year low even after our recent currency fall. If prices don't start rising by the end of this month the Fonterra payout forecast will not be sustainable.
On Wall Street stocks opened the fourth quarter with sharp declines amid growing jitters about global economic growth.
UST 10 yr yields have fallen today to 2.43% in line with the jittery sentiment.
And the oil price remains low, under US$92/barrel, with the Brent price under US$95/barrel. Gold has had a little bounce to US$1,218/oz.
We start today with our currency unmoved by the dairy auction. It is now just on 77.9 USc, at 89.4 AUc, and the TWI is at 76.2. But remember, while dairy prices might be tanking, prices for many other exports are going the other way - beef especially - and the lower exchange rate is giving those exporters a boost.
If you want to catch up with all the changes yesterday we have an update here.
The easiest place to stay up with today's event risk is by following our Economic Calendar here »
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17 Comments
What will the bank lenders be thinking, we are well below the lending plug price for productive valuation/servicing calculators.
With this year many may need to to borrow on, will the lenders base their loan approvals on farmgate prices of $5.80 to $6.25 servicing and connected asset values for the LVRs.
- not a time to market to market.
None. What is appalling is that competition that sprung up for local milk, was annihilated by Fonterra. However Fonterra is a business, and when given the tools as it was by Helen Clark, it was enabled to do this. What the government stuffed the government needs to fix. How I have no idea, but you cant force a business to drop its prices. You can stop anti competitive behaviour though.
Well if farmers are getting $4.30 a milk fat solid, thats 10- 11 liters, so .43c a liter. I'd start up a local enterprise selling milk direct. (expect problems from the regulators, who don't work for the people but the problem).
You could have a tanker going around the neighbourhood and filling up bottles for people. Real milk, not the reconstituted radiated stuff that never goes sour you get today. The only thing in the milk would be the odd glove, plastic dog whistle or a bit of cow shit.
I won't as I dont like the routine, but farmers will if given the chance, compete in the market with supermarkets, you just need a free and level open market. Which means you have to by pass supermarkets.
A local farmer near me sells whole milk at $3 a liter. Thats a slightly better return than Fonterra is giving. The maths is easy and farmers are smarter than they look.
Gotta be consistent AndrewJ. Last week, I was chastised for using "average" debt per farm of $3.2 million when it was subsequently pointed out that a mere 10% of ALL dairy farms accounted for huge proportion of total dairy-farm-debt of $32 billion. Surprising Henry let you get away with that one
Hong Kong crisis exposes impossible contradiction of China's economic growth - Telegraph
We could be in very serious trouble if this goes wrong
There will be a spike in the retail price of beef as there is a shortage of beef in NZ the price farmers have been getting has risen from approx. $4.50 to $5.50. These prices won't last, as farmers may move from dairy support back to sheep and beef.
We were told about a year ago that dairy would be good for at least 10 years, but will it now take ten years to recover? Are the dairys set up on poorer land economic in the long run? Maybe they should still be in sheep and beef/ venison. farms?
Will the Lochinvar sale go ahead?, that farm would be looking too expensive now wouldn't it?
Its an expensive excercise to get back into beef , especially now. Stock numbers go up you have to pay tax on them, and acc. No cashflow. With so many drystock farmers doing some dairy grazers along with some of their own stock, this will hit them also. Then there are the arable farmers who sell grain to the dairy farmers. Hard times for all. The beef bonanza is less a bonanza than a nice blip.
Goldman Sachs reportedly forecast earlier this year that annual global dairy output would exceed demand by 2 billion liters through to 2018 a five-year glut that would depress prices.
http://www.china.org.cn/world/Off_the_Wire/2014-10/01/content_33664955…
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