The Weekly Dairy Report: Milk auction delivers a blow to returns but autumn rain should boost production to help compensate

The dry areas have at last seen some days of steady rain to start the autumn pasture revival - so important for winter supplies and a successful start to next spring.

While many areas in the north have had too much rain and some pastures will be waterlogged, other areas will welcome the moisture that will revive pastures and winter feed crops.

Rotational grazing lengths are slowly being extended and N applications will be used to boost feed, especially now that it has rained.

Advisers remind managers that it takes time to recover BCS in cows especially with autumn saved pasture, ( 3 months for 1 BCS) and they need to work back from calving to determine dry off time especially for the leaner animals.

This improved soil moisture levels that has now covered nearly all the country will be a boost for milk flows and production forecasts could now be ahead of earlier estimates.

Bank analysts report there has been a big variation in production across NZ dairy regions from OAD milking and high empty rates, to record milk flows.

However the market believes there is surplus product available, and reflected that at last week’s auction, with prices dropping 6.4% for the basket of milk commodities.

Worryingly it was powders that fell the most, whole milk dropping 12.4%, and worse still, skim milk suffering a 15.5% fall, on the back of growing unsold stocks of EU product.  

This has put a dent in the confidence to all in the dairy sector, and bank analysts, lead by the normally optimistic ASB, made big adjustments backwards to this year’s milk forecast.

A week after, WMP futures have recovered somewhat and it is hoped lower prices will stimulate demand up again to sustainable levels, and return the Oceania SMP premuim over EU stocks.

Forest and Bird have pulled out of the Water Forum, but the Government still believes in irrigation for agriculture as they support South Canterbury's Hunter Downs water scheme, which moves to the next stage of development.

A reduction in the environmental footprint of intensive farming is happening, lead by the Lincoln University Dairy Farm, which has shown good profits and production can be achieved with a lower stocking rate.

PGGW report that sales volumes of dairy stock are up on last year, with summer prices ranging between $1700-$2000/hd for cows while rising 2yr heifers have been trading from $1500-$1750.

The dairy real estate market was quiet in the south but in the North Island built to similar years levels and prices, as optimism returned with a more positive payout.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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22 Comments

News on Landcorp.
Not so much the converted now!
"We haven't been able to build the organic matter quickly enough"

see this and listen from 6 min mark.

http://www.radionz.co.nz/audio/player?audio_id=201836705

Landcorp (70,000 cows) - completely re thinking [their] farm systems now.
want to retrofit those farms to mixed use.

I think the problem is: the money [loan money] has been spent.

Yes, good link, thanks.

"How to wind back the clock with heavy levels of debt" - pretty much says it all, doesn't it?

I was thinking the other day, what if we made fertiliser and irrigation expenditure as non-deductable expenses? Would it force that wind back along, I wonder?

They have no where to go, just hit the wall, most of those cows are on leased land and they need an $8 payout.
They sold all the ewes at a station at Taupo, 10,000 and are going to intensive bull beef, when I think they should be hanging onto their sheep, instead they are chasing markets, a fools errand

AS for the beef market, I'd be very wary.

In the beef sector, when Tyson announced it was no longer processing Holsteins, a price decline quickly occurred, $30 live in the cash market, $45 in-the-meat regionally on a cash basis. Dairy beef is an important part of beef supply in the United States, and we stand behind our cattlemen who feed and finish Holstein steers.

I’m happy to say that our Livestock Division is continuing to work for producers’ benefit as they talk with Holstein processors to define our contract details and develop new partnerships. All of us in the cattle industry want to assist all cattlemen. Right now, it’s the Holstein producer who is facing a challenge, and we’re working to solve this market access concern.

http://www.thegazette.com/subject/opinion/guest-columnists/working-for-a...

http://agnewsfeed.com/2017/01/16/large-holstein-steer-discounts-seen-pac...

How many cows did Landcorp have in yr 2000, about 2000.
They followed the boom and did everything at the top of the market, they bet the farm and lost.

2013 Interview with outgoing Chief Executive Chris Kelly
https://farmersweekly.co.nz/section/dairy/view/the-battle-to-make-a-profit#

“So that’s been a major change,” Kelly said of the shift from sheep and beef. This had been done largely with the help of productivity improvements and by using humping and hollowing techniques to convert marginal swampy land on the West Coast to good pasture for developing dairy farms.

The furthest north farm developed so far is Sweetwater Station, north of Kaitaia. The complex comprises three dairy units and a support block, milking a total of 2650 cows

The capital investment required for just these two points would be massive

and from 2001 when he started to leaving 2013:

The biggest change in Kelly’s time at Landcorp has been the increasing importance of dairying. When he arrived to take over as chief executive, about 85% of the state-owned enterprise’s (SOE) revenue was from sheep and beef farming and some from deer, “and the rest was rats and mice and a small amount of dairying”.

The crap about organic matter is bullshit.

Now are they following the beef boom? The people getting into bull beef right now will be walking a tightrope. Frankton sale up Hamilton has not seen the huge numbers of weaners for probably 15 to 20 years. Every week they were getting in between 1500 to over 2000. Replicate that all over the country and we are going to have an awful lot of yearling bulls looking for homes next spring. Once they hit their straps as young fellas to bolshy men a lot of these farmers will bail out quick smart. Add in another round of large numbers of calves reared by cash strapped dairy farmers...it mite be interesting times. Then come autumn, suddenly we have bulls to kill like in the 90s....but now we have a large cow kill at the same time. I am picking next year will be a fraught one for the bull farmer. At least Landcorp have plenty of land to farm them on.

Keep an eye on the dairy cow kill. Volatility could be around for a while. Stay short.

Cow kill will be interesting but might be later if they continue to milk longer under 16/17 payout?
Despite the volatily in the international cattle market and all the bearish factors - esp the in US. the Nz market has been resilient for the past 16 months.
Appears Grass has been king. Less dairy grazers Contracted out. The scale of the South Island in regards to how much grass it can grow in a good season - have been the key factors to observe this year, so appears the shorts have to wait another day / season.

Yes thinking next year. This rain must have confounded the meat companies. El nino is once again lurking for next season. I drive through the south island at least a couple of times a year. Constantly amazed at how progressive it has been. Irrigation is everywhere.

The EU still cannot move its intervention stocks. There has to be a huge cow kill coming, meanwhile margins are tight.

Published 15 March 17
The sixth tender process for SMP intervention ended last week with only two bids for just 136 tonnes. This is a large step change from the first tender where 19,707 tonnes were bid.

Daily Price Update 15/03/2017: skimming new depths
European skimmed-milk powder (SMP) is coming under increasing pressure, latest exchange prices reveal.German SMP slips this weekbelow the EUR1,800 level to a new low this year of EUR1,780 per tonne.

It makes the price theCommission has been insisting on, of EUR2,150 per tonne, for its interventionstocks, all the more out of touch.
After five fruitless tenders, in which only 40 tonnes of intervention powder has been sold, EU officials admit they were wrong-footed by the market.

And it warm in Europe / U.K. Good start to spring only need to check out the footage from Cheltenham festival to see it's a picture of grass.

Yes the rain wrongfooted many, including me, as it looks in lamb, with brexit / gbp and and and. Result massive short covering in the store markets, exaggerated with all the finishing crops to eat. I'd expect given the success of fodder beet that acreage has only increased in decent size - thus needing more more mouths. Though Agree next year plenty of uncertainty as to where it goes. And the windows only get smaller. Need to watch aus as a start.

Crude collapse and prior to that the rolling backwardation in commodities not helped.
Nz lamb / beef would've out performed many commodities.

In the first five weeks of this year beef imports from Brazil remain minimal as processors there wait for USDA to clear up some final procedural issues. It is entirely possible that we will see a notable amount of Brazilian beef come into the US, in part to fill the vacuum created by the shortage of Australian product.
But the lack of quota means that the supply available will likely be constrained to around 40,000 to 50,000 MT. And the reality is that with US cattle slaughter increasing, we are also generating more fat trim and need the supply of lean beef that imports provide. Beef trade so far remains in balance and this is not expected to change much in 2017.

Ah yes,
Our lean beef.
I remember watching our lean beef being flung into a mincer in chicago, as you say, to extend the VL in their hamburger patties
Dont think they bothered removing the cardboard boxes, or the strapping...
Frozen of course.

Yes. They did ask stop using metal box staples. Because of jamming - back in the day. In she all goes.

Damn that sounds straight out of Upton Sinclair's The Jungle, his famous expose of the Chicago meat trade from 1906.

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http://www.zerohedge.com/news/2017-03-14/court-docs-prove-monsanto-collu...