Here's my summary of the key news overnight with news of another fall in dairy auction prices.
They were down -3.1% in US dollars and -5.2% in New Zealand dollars, even though volumes sold were much lower. Milk powder prices were especially soft. Prices are now at a five year low. Part of the reason for the fall could be the reported enthusiasm by the Australians to rapidly ramp up dairy production now they have a dairy-friendly Free Trade Agreement with China. Whatever the reason, today's auction results are undermining the expectation by both Fonterra and the Government that these prices would be rising by now off their lows. It is not happening.
In contrast, the data out in the US overnight was reasonably positive. The National Association of Home Builders said its October index rose more than expected on the back of consumer confidence with builders reporting more buyer traffic and signed contracts.
US producer prices are also rising, and also more than was expected.
The confident theme also showed up across the Atlantic, in Germany at least. German investor confidence rose for the first time in 11 months after Europe’s largest economy avoided relapsing into a recession. The improved confidence was helped no doubt by a continuing rise in car sales.
The theme did not extend to Japan, however. Only one day after it was reported that the Japanese economy had slipped back into recession, Prime Minister Shinzo Abe has called an early election to seek a fresh mandate for his economic policies. He has also postponed an unpopular second rise in their GST. There is also a sense that Japanese investors are losing faith that their problems can be solved.
In China, home prices in the capital fell for the first time in almost two years as China’s property slowdown deepened, prompting developers to offer discounts to cut inventories.
In Indonesia, the newly elected government has pushed through increases fuel prices by more than 30% by sharply reducing subsidies on petrol in an attempt to save their economy more than NZ$10 bln next year. And then it raised its official interest rates to 7.75%.
In New York, UST 10yr bond yields are virtually unchanged in mid-afternoon trade, but slightly lower at 2.32%.
The oil price is slightly lower again, now below US$75/barrel with the Brent price under US$79/barrel.
The gold price is marginally lower too, now just on US$1,183/oz.
The NZ dollar is also basically unchanged from this time yesterday at 79.4 USc, has touched 91 AUc, and the TWI is at 78.7. These are two-month highs and that is despite the weak dairy auction result.
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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21 Comments
Fonterra is selling 3/4 the milk at half the price!
meanwhile production is doing this
http://www.attenbabler.com/new-zealand-milk-production-update-nov-14/
and the USA
http://www.attenbabler.com/u-s-milk-production-projections-increased-sl…
Growth in China is doing this
http://pg.jrj.com.cn/acc/Res/CN_RES/INDUS/2014/6/11/643fac05-f72e-4b31-…
Huston, we have a problem
Huston, we have a problem
Only if we talk about it. Nothing that can't be passed to future generations with PPP initiatives. Transmission Gully and Ruataniwha get a couple of mentions:
'Global dairy giant Fonterra will use the expertise it gained through New Zealand's free trade agreement with China to help develop its Australian exports
http://www.abc.net.au/news/2014-11-17/dairy-celebrates-fta-announcement/5897712
"So this isn't about Australia competing with New Zealand. There is plenty of demand.
Ms Swales says Fonterra Australia will be doing 'everything it can' to increase its milk production, and would welcome new milk suppliers.
"This is about us continuing to work with our existing suppliers, but we'd be very happy to welcome new suppliers into the Fonterra network," she said.
"But there is latent opportunity in existing farmers to increase their production and their output."
Ms Swales wouldn't say if the FTA will result in better farm gate prices for farmers, as demand from processors ramps up.
"Dairy is a globally traded product and farmers will get paid what the market will dictate," she said.
- as you would.
JUST as happened in iron ore, the dairy industry and its investors are having trouble grasping the significance of the 40 per cent fall in dairy export prices.
Fonterra in NZ is suffering and its Australian operations have been doing little better than break even.
The Japanese giant Kirin paid $3.7 billion for National Foods and Dairy Farmers in 2007 and 2008. It has already written down the investment by at least $1.3 billion, or one third, and there may be more write downs to come because many of its plants are old. The dairy business is tough on inexperienced players like brewers.
- and showing the scale of no go Russian trade on export prices (Oz domestic market taken as read gr..).
The Iron Ore comparison is apt - in both cases analysts continually call prices higher and are caught like a deer in the headlights every time they are forced to revise their forecasts downwards.
Are there any dairy analysts who truly understand the global market and it's drivers? Fonterra certainly doesn't seem to.
Agree, I mean "To pay back £55 billion of PFI/PPP infrastructure will cost UK taxpayers £301
billion over the next 30 years." Is utterly obscene.
I hate using the word rape but really Im hard pushed to find anything else as adequately descriptive of this in-competance and idelogical blindness.
regards
Dairy price fall fall out (this story has everything)
UPDATE: RABOBANK has placed United Dairy Power’s parent company in receivership after a loss in confidence in its Hong Kong owners.
PPB and the dairy company’s financier, Rabobank, appointed Marcus Derwin as managing director of Five Star United Food on November 10 — the same day the dairy company was placed in receivership — and resolved to remove the board.
Mr Derwin has worked for banks and fund managers in the past and is an experienced chief executive officer.
Five Star United Food (Aust) is owned by Five Star United Food Holdings Limited and its directors were Hon Chung “Johnny” Chan and Yan Sui “William” Hui, all based in Hong Kong.
The business employs more than 150 staff.
“UDP continues to enjoy the support of its shareholder and financier,” Mr Derwin said.
“My appointment has also been positively received by a number of key suppliers of UDP.
“It is very much business as usual at UDP, with the company making payments to its suppliers in the ordinary course of business.
- what just happened
I can imagine that if looking down the barrel of a company in decline that it may be tempting for international investors to pay themselves handsomely and siphon off any funds they could into untouchable outside avenues, leaving only irreparable debt at the end.
Count the number of times this happens in business, executives walk away with houses, cars and very rich wives and children while leaving a trail of lost jobs and missing millions.
A sharp, in country, financier may move swiftly enough at the first sign of this to turn off that tap and at least run at break even until the environment improves or business can be sold.
$3.70 a kg ?
Fonterra's milk price forecast of $5.30/kg will be reviewed next month and AgriHQ dairy analyst Susan Kilsby said it would require a "very sharp recovery" in dairy prices for that mark to be achieved.
That was looking increasingly unlikely: Kilsby said whole milk powder futures prices remained below US$3000 a tonne throughout the 2014-15 milk production season.
She said that if today's auction prices were achieved for the whole season the milk price would be only $3.70/kg.
http://www.stuff.co.nz/business/farming/dairy/63329785/Dairy-auction-pr…
Is this the same Susan Kilsby who commented in the November 2014 NZ DairyExporter "But the impact of weak global commodity market is expected to be contained within the 2014-15 financial year. A price recovery is anticipated which should allow the milk price to recover to near $7/kg milksolids (MS) for next season?
The impact of the low milk price will be more felt in the 2015/16 year for farmers who had healthy retrospective payments this year but are looking at little or none next season.
Meanwhile banks are telling farm buyers to budget on 'long term' milk price of $6.50. Farms in Southland are still being advertised in the $40-45,000/ha and are attracting surprising interest - from locals.
Well if its true its turning into a great buying statagy. I'm more inclined towards the rehypothecation theory
http://www.zerohedge.com/news/2014-02-21/china-faces-vicious-circle-com…
LS small change
Chinese giant New Hope will invest up to $500 million in Australian dairy farms and processing plants as part of a deal with ASX-listed Freedom Foods in what could be the first of many deals fuelled by the historic China-Australia free trade agreement.
Freedom Foods and the Perich Group said yesterday they had signed a memorandum of understanding with New Hope, China's biggest private company with interests in agriculture, financial services and real estate.
Read more: http://www.smh.com.au/business/large-chinese-dairy-investment-follows-historic-fta-20141118-11p0jr.html#ixzz3JSqisSFS and http://www.asx.com.au/asxpdf/20141118/pdf/42tsqwvj7vdcdz.pdf
Dont be fooled by the low oil prices. It was reported a few weeks back that America was pushing the price down to $75 a barrel.
It was reported that ISIS gets a lot of its funding from the sale of oil and it was costing them $75 a barrel. America said if they push the price down to that level it will dry up a lot of their funding.
Of course they get a bonus because they hurt Russia as well.
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