Rural

  • The Sheep Deer and Cattle Report: Good rains up north but central South Island sizzles as unsold wool stocks grow

    LAMB

    Lamb schedules eased again this week but analysts report prices are still ahead of the last two years for February, which is traditionally a low price month for the year.

    A short supply situation in filling Easter chilled lamb orders has kept prices stronger than normal and Chinese demand has continued to drive the yearly high mutton schedules.

    Saleyard demand reached highs for store stock in Southland, with two-tooth’s peaking at $210 and replacement ewe lambs at $139 a head.

    Good summer growing conditions in the Mid Canterbury high country saw a large sale of Merino/Poll Dorset lambs sell in excess of $100/head, which is well above last year’s levels.

    Beef and Lamb NZ are holding workshops on how to identify low body condition score sheep to allow managers to preferentially feed lighter ewes in the lead up to tupping.

    Some farmers are disapointed with the lack of promotion of "Eat NZ Lamb day" by Beef and Lamb NZ, especially as this method of advertising is very successful across the Tasman.

     Dry conditions in the south and good recent rains in the north  have brought store lamb prices to similar levels for both islands, but with the kill 13% behind in January some uncertainty remains on where the prime market will go after the Easter chilled season ends.

    WOOL

    This week’s double island auction saw volumes again withdrawn prior to the sale as brokers look to manage a very weak crossbred wool market with a reduced supply. This tactic seems to be working as price indicators did lift on an unchanged currency although passings were still 24% of the sale.

    However, with stocks of wool not sold growing this will continue to overhang the market for months yet, as the disappointing year for wool shows no signs of changing soon.

    Premiums for South Island crossbred wool over the North have disappeared, and lines contaminated by colour are proving the hardest types to sell.

    The small amount of merino wool sold very well at this sale, as it is in Australia where 18 micron and finer offerings are attracting prices at record levels.

    BEEF
    Another week of steady schedules for beef, although a shortage of bull beef did spark a price lift for entire animals.

    Processors report that there is now a plentiful supply of prime animals coming forward. But with tight margins it is only procurement pressure holding schedules flat.

    South Island local trade prices for beef are ahead of the north as are prices for prime steers at the saleyards, where butchers are paying nearly 40c/kg lwt more for similar weight animals.

    Silver Fern Farms has held its AGM last week and reinforced its goal to get more value out of existing product with the new partnership.

    DEER
    Venison schedules lifted this week as some spring contracts are concluded, and demand pushes prices to the top end of the historical ranges.

    Nervousness at these high values is creating caution about price resistance, as breeders start to reinvest in more females to expand the herd and remove killable venison animals.

    Weaner sales start next month and very careful budgeting will be needed to ensure profits from finishing yearling animals.

    Industry reports show that velvet has been traded at levels similar or ahead of previous years after a slow start, and while prices are back to around a $100/kg for Korean grade, good demand is evident.

    The import permit issues has been overcome into China, but whether the later recievers of this documentation will push demand for product not sold, is yet to be seen.

  • Dairy and grazing farm sales holding up but sales of horticultural, finishing and arable properties are down says REINZ

    Farm sales and prices were largely flat in January although dairy farm prices are on the rise, according to the Real Estate Institute of New Zealand.

    The REINZ said 521 farms of all types were sold throughout the country in the three months to January, compared to 499 for the three months to December and 532 for the three months to January 2016.

    The REINZ All Farm Price Index, which adjusts for differences in farm size, location and type, was up 1.6% for sales in the three months to January compared to the three months to December, and up 4.1% compared to a year earlier.

    Much of that increase was likely driven by the improved fortunes of the dairy industry, with the median price per hectare of dairy farms up 13% over the last 12 months.

    The REINZ Dairy Farm Price Index, which also adjusts for differences in dairy farm size and location, rose 5.2% in the three months to January compared to the three months to December, and was up 8.6% compared to the three months to January last year.

    Sales volumes in the dairy and grazing categories have been reasonably consistent," REINZ rural spokesman Brian Peacocke said.

    "However volumes in other categories, particularly finishing, arable and horticulture, have experienced distinct reductions during the month of January.

    "Current concerns in the rural sector centre on volatility of income, compliance issues and drought conditions in northern and eastern districts of both the North and South Islands.

    "Caution and uncertainty continue to be ongoing components of the marketplace.

    "This is causing some frustration with transactions taking longer to come together," he said.

    Here is the REINZ's full rural report for January:

    PDF iconREINZ Rural Press Release - January 2017.pdf

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  • REINZ says lifestyle block market is 'challenging' as sales decline to lowest level in two years

    The malaise which has seen the housing market cool over summer also appears to be affecting the lifestyle block market, with sales volumes well down and prices flattening.

    In the Real Estate Institute of New Zealand's latest report on the lifestyle property market, REINZ rural spokesman Brain Peacocke described the market as challenging, with loan-to-value ratio (LVR) mortgage lending restrictions affecting sales.

    "All regions apart from the West Coast of the South Island have experienced significant reductions in sales volumes during January 2017, making this the lowest month for volumes over the last two years," he said.

    The REINZ said 1959 lifestyle properties were sold in the three months ended January 2017, which was down 7.1% compared to the three months ended January 2016.

    At the same time prices flattened, with the national median price hitting its record high of $583,000 in the three months to December last year and remaining unchanged in the three months to January this year.

    REINZ's Regional Summary of Lifestyle Block Sales:

    • Northland / Auckland – reduced volumes with buyer uncertainty making it harder to get transactions across the line; often good initial response to new listings then interest tapers off; Government LVR rules are impacting on the market.
    • Waikato - a major reduction in sales volumes over recent months; listings in short supply but improving; Auckland purchasers remain active; strong subdivision activity in north Waikato.
    • Bay of Plenty - a 50 % drop in volumes over the last two months; strong prices for quality properties.
    • Hawke’s Bay / Manawatu / Wanganui / Taranaki – reasonable activity in the mid-price range with volumes holding closer to recent levels.
    • Wellington / Wairarapa – more consistency within the region with very strong demand in the Wairarapa where prices are lifting and some properties are selling within a week of being listed.
    • Nelson / Marlborough - a significant drop-off in sales volumes from previous months albeit prices remain strong.
    • Canterbury – some very strong sales at the top end of the market although stocks are limited; moderate activity in the mid-range and quieter at the lower end; volumes in total down considerably.
    • Otago – steady activity throughout the central region with strong prices in the Lakes district; reduced volumes but solid sales and prices around Dunedin.
    • Southland – close to status quo within the southern region with modest prices holding steady.

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  • 2017 has brought sharply higher export prices for logs, and strong demand continues from the local market as Auckland replaces Christchurch. Regional shortages reported

    By Scott Downs*

    The domestic log market continues to have strong and consistent demand for all grades of logs from pruned to round-wood. There are still some regional shortages in quality structural and pruned logs. Whilst some sawmills have noticed demand tailing off from the Christchurch rebuild this has been replaced by the construction boom in Auckland.

    Prices paid by log exporters for logs at ports around NZ increased sharply in January with a slight reduction in February. Export markets are expected to remain steady for the next few months with any price changes for logs at New Zealand ports a reflection of shipping and exchange rate fluctuations.

    Domestic Log Market

    The domestic log market continues to be strong and consistent for all grades of logs from pruned to round-wood. There are shortages of quality structural and pruned logs in Northland, Central North Island and Canterbury.

    Sales of sawn product into the European clear-wood market according to one CNI sawmill has been “hammer and tongs”. NZ Radiata pine is replacing Southern Yellow Pine (SYP) from North America. Radiata has less downgrade, and is more reliable in performance with less checking etc. As people replace a door or a lintel from SYP to Radiata pine they like the entire interior to match so eventually replace all the wooden components within the internal architecture. Spain and the Canary Islands are two markets in particular that are developing a real demand for NZ Radiata pine clear-wood. A steady favourable change in the Euro/$US cross exchange has assisted NZ exporters into Europe as well.

    The Asian clear-wood market demand is not as buoyant resulting in price pressure. Asian processors are concerned about any potential Trump protectionism resulting in tariffs on finished wood products imported into the United States of America. They don’t want to get caught with full warehouses if this were to happen, and are only buying lumber to replace stock or fill existing orders.  

    The Australian and U.S. clear-wood markets are steady.

    The local demand for clear-wood is steady and strong. The closure of some mills around NZ over recent years has also meant a reduction in supply to the benefit of existing mills.

    Most sawmills supplying construction material report steady demand with a preference for the larger S30 type logs. Their mills are running at capacity with order books full for the next six months. Whilst some sawmills have noticed demand tailing off from the Christchurch rebuild this has been replaced by the construction boom in Auckland.

    Export Log Market

    Inventory at the China ports rose sharply from the reported 2.2 million m3 in December 2016 to a current estimated 3.5-4.0 million m3. Lanshan port has an estimated inventory of 800,000 m3. This is a result of the Chinese New Year and is not a major concern as factories across China closed down late January. While market observers are keeping a watching brief on this increase in inventory, they do not hold major concerns for the state of the market. Whilst there has been an absence of market information over this holiday time in China several factors should assist with reducing this inventory.

    • Consumption in China is about to start again with the Chinese Lunar New Year holidays concluding, and demand will ramp up.
    • There are early reports of a slowing down in supply of North American logs to Korea and China. China currently imports approximately 700,000 m3 per month from North America so any reduction will have a material effect.
    • The Indian market has started to take more logs again after several months of lower demand.

    Satinder Singh the NZ Manager for Aubade NZ, one of the main exporters of pine logs from New Zealand into India has provided the following commentary on the Indian market.

    The Indian market continues to face the after effects of the demonetization (of large value currency notes) in November 2016. This move, done with the salubrious objective of reigning in black money and curbing an enormous parallel economy, affected almost all sectors of the Indian economy. It brought economic and business transactions in many sectors to a virtual standstill from November 2016 to January 2017.

    Fearing a dull demand, most NZ exporters did not ship any log vessels to India for a couple of months. The largest affected segment was the Indian tropical hardwood logs trade, while pine demand suffered a decline in this period by 20-30%. However this lack of shipment from NZ created a gap in supply (Editor’s note: Logs exported from NZ to India by value in December 2016 were 62% down on December 2015), increasing sawn timber prices and the Indian NZ Radiata pine logs import market quickly played catchup with the strong China prices in February.

    Another significant change in this period was the imposition of a service tax on the ocean freight component of all imports to India. India imposed a 4.5% service tax over freight on cargoes imported on a delivered or CFR basis on January 22nd 2017. This service tax was already being levied since June last year on cargoes that were imported on a FOB basis and ships chartered by importers domiciled in India. The move is significant because it will make cargoes of commodities such as timber, oil and coal costlier since ship owners will pass on the service tax to Indian importers.

    The Reserve Bank of India (RBI) cut the economic growth forecast to 6.9% for the current fiscal year from the 7.1% estimated earlier, and predicted that the economy will bounce back to 7.4 per cent rate next fiscal year. The RBI is keeping key interest rates unchanged, saying it wants to assess how the transitory effects of demonetization on inflation and the output gap play out.  

    For Feb–March 2017 NZ Radiata pine A grade log prices are in the region of US$141-143 and ocean freight from NZ to India depending upon the NZ load port sequence varies from US$28/JAS to US$32/JAS. The freight market is expected to gradually firm up over the next few months.

    It is expected that FY2017 annual volumes for NZ Logs for the Indian market will remain around 2 million m3and we may see a 15-20% growth in the following year.

    Freight

    Ocean freight has firmed slightly in the handy-size sector. Exporters are picking freight increases over the next couple of months mainly due to an increase in fuel prices. Current freight rates are in the range USD18-21 per JASm3 to China, and USD28-32 per JASm3 to India. Lloyds List intelligence Baltic Indices chart can be found here.

    Currency

    The greenback strengthened after US President Donald Trump hinted last week that he will soon announce tax cuts in the US, which helped drive US equity benchmarks to new highs. Reports of positive talks between Trump and leaders of China and Japan have also helped underpin the US dollar. But you won’t get any predictions here on where this will end up, as the Trump administration does seem to prefer a lower USD to reduce imports and boost export sales. The NZD/USD is currently 0.72.

    Potential Market Development in China

    We have long known that the majority of the logs China purchases from New Zealand are used to manufacture lumber and plywood that supports the construction of concrete dwellings. This is a high-volume but low value end-use and provides limited potential for wood products to break into higher value markets.

    Scott Downs, PF Olsen’s new Wood Matters editor, inspects plywood and lumber that has just been used to support construction of a concrete apartment in Yunnan, China. The pieces that haven’t broken or been badly damaged will be used again.

    That might be starting to change. There are encouraging signs that China is increasingly using wood in actual construction applications. This opens enormous potential new, and higher value, markets for wood. As usual Canada is very pro-active in this space, pouring millions of dollars into new product and market development in China. A new commercial-residential project located in Zhangjiako, Hebei Province, is using wood for roof trusses. These are going on top of traditional concrete wall structures. The first phase of the project consists of 115 town houses (over 400 individual units) and it will consume more than 2,000 m3 of Canadian SPF lumber.

    There are promising signs of increased use of wood as an actual component of Chinese building construction – a higher value use than the traditional concrete construction support role. Source of photo Canada Wood Today.

    Drivers for the uptake of wood in this application by the developer were speed of construction, safety, and beauty (aesthetics). In addition, it was consistent with a recently issued national pre-fabrication government policy. For more information, click here.

    2016 Export Log Summary

    New Zealand log exports by value increased in the 2016 year by 568 million NZD to a total of 2,557 million. This was a percentage jump of 29% on the 2015 year. China accounted for 77% of this increase with an additional 440 million NZD worth of export log sales. South Korea and India accounted for an additional 10% and 7% respectively. As mentioned earlier Indian sales slowed in quarter 4 with the total value of sales in this quarter 20% behind quarter 4 in 2015.  

    Courtesy: Champion Freight Export Report.

    PF Olsen Log Price Index to February 2017

    The PF Olsen log price index for February has risen from the $120 reported in December Wood Matters to $123. (It was at $125 for January). The index is now $36 higher than its 6-year low of $87 in July 2014 and $10 above the three-year average.

    Basis of Index: This Index is based on prices in the table below weighted in proportions that represent a broad average of log grades produced from a typical pruned forest with an approximate mix of 40% domestic and 60% export supply.

    Indicative Average Current Log Prices – February 2017

    Basis of Index: This Index is based on prices in the table below weighted in proportions that represent a broad average of log grades produced from a typical pruned forest with an approximate mix of 40% domestic and 60% export supply.

    Indicative Average Current Log Prices - February 2017

    Log Grade $/tonne at mill $/JAS m3 at wharf
      Feb-17 Dec-16 Nov-16 Oct-16 Sep-16 Feb-17 Dec-16 Nov-16 Oct-16 Sep-16
                         
    Pruned (P40) 187 187 189 189 192 185 172 172 167 163
    Structural (S30) 112 112 113 112 111          
    Structural (S20) 102 102 101 102 101          
    Export A           135 128 126 122 120
    Export K           128 120 120 117 115
    Export KI           119 109 109 104 102
    Pulp 50 50 50 50 50          

    Note: Actual prices will vary according to regional supply/demand balances, varying cost structures and grade variation. These prices should be used as a guide only.


    This article is reproduced from PF Olsen's Wood Matters, with permission.

  • William Rolleston sees the advent of argument dressed up as science but which abandons the principles of evidence, balance and context in order to persuade

    Content supplied by Federated Farmers

    Our free trade prospects have been a victim of Brexit and the US Presidential election. New Zealand must be careful not to be caught in the crossfire of any ensuing trade war, Dr William Rolleston says.

    Rolleston, the President of Federated Farmers, told its National Council in Wellington today that there were opportunities in disruption but our officials would need to play their cards with skill and tact.

    "If there is any area of government which needs investment priority right now, it is our trade division," he said.

    An outcome of the post truth politics of the UK and USA of late has been a check on the liberal journey the western world has been on and "a reactive slide into isolationism, protectionism, anti-globalisation and the ugly side of nationalism".

    While a Trans Pacific Partnership which includes the USA has gone for the meantime "I would not write off its long term prospects," Rolleston said.

    "The TPP took more than ten years to negotiate. A presidential term is four.

    "New Zealand needs to hold the line in our trade with the USA and make small gains where we can but any trade deal, in my view, can wait. ‘America first’ is not a good pretext for a balanced outcome."

    In an era of post truth politics, at least one White House spokesperson considered it appropriate to cite ‘alternative facts’.

    "For us in the primary industries where evidence and science is so critical, these tactics are not new. I have termed it Post Factual Science," Rolleston said.

    It threatens to send us backwards technologically or at least slow our progress. Farmers will be impacted.

    "Post Factual Science is argument dressed up as science but which abandons the principles of evidence, balance and context in order to persuade," he said.

    "We have seen Post Factual Science frustrate us in the debates on immunisation, fluoride and 1080."

    New Zealand needed to be on guard it did not creep into debates about agricultural practices.

    It made institutions such as the Fertilizer Council very important and was why investment in scientific research, which uses the scientific method to sort out fact from fiction, causation from correlation, was critical.

    "Our decision makers need to resist Post Factual Science and pandering to fear. Our local councils appear to be particularly vulnerable in this space. The problem for us is that once rules are notified in Regional and District plans the burden of proof to have them removed can become insurmountable. We have seen this in the rules imposed by several councils on genetic modification and the use of glyphosate.

    "And it is simply not acceptable for regional councils to notify plans that include fencing rules for hill country farmers which are patently impractical and detrimental for the environment as well as the economy."

    Councils needed to realise they have to work with farmers if they are to effect change. They must sort out fact from fiction early on and set out with rules which are practical, doable and evidence-based, Rolleston said.


    William Rolleston is the President of Federated Farmers. The full version of this speech is here.

  • Keith Woodford says that the search for new agri-food markets always leads back to China and the ASEAN nations, but there are also lots of opportunities elsewhere

    By Keith Woodford*

    The proposed 12-nation Trans Pacific Partnership (TPP) is now well and truly dead. The question is where do we go from here?

    We are hearing talk from various sources about possibilities for a ‘TPP minus Mr Trump’s USA’. But that too is highly unlikely to happen. Getting Japan, in particular, to agree to something without the USA being involved is wishful thinking. And simply waiting for another four years and hoping the USA might came back into negotiations is also likely to prove wishful. Both major American political parties know that supporting a new version of the TPP is a sure way to lose the next presidential election in 2020.

    Personally, I have shed no tears about the failure of the TPP. The only real reason to join was that, with almost everyone else on this side of the world apart from China inside the TPP, the idea of us being left on the outside was unattractive. But the benefits to New Zealand were always overblown by politicians and parts of the bureaucracy. Many of us felt that the facts were arranged by our government and the bureaucracy to suit the desired message.   

    A search of export statistics shows how dependant we are on agri-food. Of total goods exported in the 2016 calendar year, more than 29 billion (60%) were agri-food. Add in forestry and fishing, and natural resource-based products total approximately $35 billion (72% of total goods exported). Manufactured non-food goods, including all forms of machinery and electronics, struggle to reach $6 billion. Our only other big foreign exchange earners are tourism ($10 billion) and foreign students ($3.5 billion)

    There is the counter view that as an educated society we can export knowledge. But history tells us that whenever we do come up with new ideas outside agri-food then most of those businesses soon shift offshore. Those that do prosper here are typically those that focus on niche products. Somewhat ironically, they are also often related to our agri-food industries. The idea that we can prosper as a high-income country without reliance on agri-food, forestry and other resource-based industries such as tourism is fanciful.

    A look at import statistics soon shows how we would be in trouble without a healthy export sector to pay for them. The big-ticket areas in 2016 include machinery, cars, electronics, oil, new planes and pharmaceuticals. Life would indeed be very constraining without these import flows!

    Currently, our big four trading partners, in order of export importance, are China, Australia, USA and Japan. If the EU is treated as one market, then it comes in above Japan. If the ASEAN countries are added together then they too come in above Japan.  

    It is notable that in regard to bilateral free-trade agreements, it is only China and Australia of our major partners with whom we have free-trade agreements. That is unlikely to change in the near future. That same fact reinforces the key point that vibrant trade arrangements are possible without free-trade agreements. Many of our exports to these countries are already essentially free of tariffs, largely as a result of historical global WTO agreements.

    Japan has shown no enthusiasm for a bilateral free-trade agreement with New Zealand – they have bigger issues with which to keep themselves occupied.  In any case, Japan’s population is now in decline, and economic growth there is minimal. Selling more to the Japanese will be hard work.

    There are prospects for a free-trade agreement with the EU. Such an agreement is unlikely to have the draconian conditions demanded by the USA on our own New Zealand decision processes relating to pharmaceuticals and services such as education, insurance and banking. But there are limits to how much agri-food we will ever sell to Europe. ‘Yes’ for wine, and ‘yes’ for kiwifruit and even ‘yes’ for out-of-season apples. But ’no’ for large scale exports of dairy, sheep and beef. For those products, European internal politics and food security issues will dominate over free-trade arguments.

    Once Britain gets out of Europe there will be prospects of a free-trade agreement. But once again, Britain does not really need our agri-food exports. The days when we were ‘Britain’s farm’ are long since gone.

    I often come across media articles talking about the challenges of feeding a hungry world and therefore how we need to produce more food in New Zealand.   Unfortunately, producing more food in New Zealand will do nothing for the hungry people of the world. The food is largely of the wrong type and it will never be economic to produce food in New Zealand for the world’s hungry people.

    I hope no-one will think that I am saying that the problems of the world’s hungry people are not important. They are very important. And I have worked and continue to work in areas of the world where this is a huge issue. I am simply saying that we cannot solve those problems by growing food in New Zealand; it has to be within those countries or nearby.

    Here in New Zealand, our future lies in growing food for wealthy people in other countries, and using that income to pay for all of those things that we struggle to produce in New Zealand. So we need to focus our thoughts on countries that have growing economies, a growing middle class, and where there are local constraints on good-quality food production.

    Such a search always comes back to China and the ASEAN countries such as Indonesia, Malaysia, Thailand and Vietnam. There are also other opportunities, with Mexico particularly interesting.  

    Currently Mexico imports a lot of food – it is the biggest export market for the USA dairy industry. Given the developing state of relations with ‘big brother’ USA, we may find a willingness of the Mexicans to engage.

    India is another prospect of interest, but no-one should ever under-estimate the challenges of India. Those challenges make dealing with China look very simple in comparison. Nevertheless, for some products such as kiwifruit and perhaps lamb – but almost certainly not dairy or beef– India is worth giving attention to.

    South Korea is another opportunity. We do have a free trade agreement with South Korea, and it is one of the more-wealthy countries of Asia.  Indeed, they now beat New Zealand on many statistics including GDP per person, life expectancy, and infant mortality. However, the Koreans have forgotten how to have babies, with the so-called average South Korean woman now only giving birth to 1.25 babies in her lifetime.

    If we genuinely do want to develop agri-food markets, then a lack of bilateral trade agreements does not have to be a big constraining factor. The limitation is more in our ability to engage with people of other cultures. That includes shedding some of our own cultural perspectives relating to product attributes that these people want. It also means engaging more closely in business arrangements to get win-win value chains that link all the way from consumers back to production.

    For many people in New Zealand, working with Asian businesses in mutually beneficial business arrangements is anathema. Well, that is OK as long as people are also willing to forego having a society which can afford to import all those things we have come to accept as being the basics of a Kiwi life.


    *Keith Woodford is an independent consultant who holds honorary positions as Professor of Agri-Food Systems at Lincoln University and Senior Research Fellow at the Contemporary China Research Centre at Victoria University.  His articles are archived at http://keithwoodford.wordpress.com

  • The Weekly Dairy Report: Dairy advisers suggest summer management will ensure production for this season and set up a good start for next

    Another dry windy week in the east of both islands has seen major fires causing property, pasture damage, and stock losses and huge costs in getting the outbreaks back under control.

    These conditions are not unusual for this time of year and cropping farmers are reporting good yields, as the headers quickly devour the drying harvest.

    As summer proper starts, advisers suggest farmers carefully manage the rest of the seasons production with culling of poor performing cows important, to lower the overgrazing pressure on vunerable dry pastures.

    It is still wet in the west of both islands, but a goal of reducing the herd size to 80% of the peak, and milking only the core numbers, will help set up next year both in body condition scores and pasture production.

    Dairy managers will be checking the in calf rates, and culling dry, poor producing cows as they streamline the herd for next year’s season.

    Analysts report the fundamentals of the dairy market are steady, and the milk auction showed that, with a small lift on lower volumes offered.

    Prices did defy the recent downward trend of the futures market, as buyers lifted whole milk product to $3314US/tonne, and firmed the forecast indicators at the pre-announced levels.

    Even SMP values held steady, after Fonterra announced it was lifting volumes offered, and it seems the market prefers Oceania powder over the evergrowing stockpiles of European product.

    ASB economists suggest prices will track sideways for the rest of the season, but still believe a $6.50 payout is likely for this year, and $6.75/kg ms for next.

    Synlait Milk shares that optimism as well, and have lifted their forecast to $6.25, and now all eyes will be on Fonterra’s February review.

    A2 Milk has nearly quadrupled its first half profit compared to last year, as sales to China and Australia explode, and some within the sector wonder whether the NZ dairy sector missed an opportunity with this differentiated product.

     

  • Allan Barber reviews how large the risk is to New Zealand's beef trade with the USA if the Trump Administration ends the current favourable quota access

    By Allan Barber*

    It hasn’t taken long for the hawkish new US President to throw several cats among the trade pigeons or doves if you prefer.

    He has wasted no time in signing an executive order to withdraw from the TPP over which 12 countries had slaved for seven years, but now the participant that probably caused the most delay has acted to ensure it won’t happen at all.

    Japanese PM Shinzo Abe wants to convince Trump to change his mind, while Australia’s Malcolm Turnbull thinks it’s worth going for a TPP minus one. Our new PM is more realistic than Abe and will probably look closely at the other option. But lurking in the shadows is China which will be very eager to take the prime position in Asia Pacific trade now the USA has abdicated its role. The Regional Comprehensive Economic Partnership (RCEP), involving the 10 ASEAN members and six others including China, India and Japan offers a readymade alternative.

    TPP would have represented 40% of global GDP compared with RCEP’s 24%, but the latter group covers 46% of the world’s population with greater potential for economic and trade growth. However, the RCEP negotiations have not addressed protection of labour, human rights and the environment which were part of TPP. Nor do the disputes resolution procedures which were such a contentious aspect of TPP form part of RCEP. Considering the violent anti TPP protests this may not necessarily be a bad thing, although no doubt the lack of labour protection and human rights will provoke objections if an RCEP agreement were about to be signed.

    To me the most surprising aspect of Trump’s presidency, apart from his election in the first place, is his resemblance to a mediaeval monarch or, given his wall building ambitions, a Chinese emperor from the Quin and Han dynasties who built the wall to protect trade on the Silk Road. He also seems to want to return to a simpler post WW2 world when separate countries traded real goods with each other without the troublesome confusion of design, assembly and fulfilment across borders to take advantage of differing skills, labour costs and tax structures.

    He also wants to make America great again by returning it to the manufacture of heavily industrialised products which required a large domestic workforce and raw materials without depending on computerisation for design and manufacture. He also appears to ignore the irresistible movement of the world’s workforces away from manual labour. Trump’s view is of a much more one-dimensional world in which nations knew who their friends and enemies were and trading between them was a simple proposition.

    The frightening reality is, as President of the USA, he can insist everybody else plays with his old steam engine instead of being prepared to play with their high speed electric trains. New Zealand is faced with a choice between keeping its head down and praying nothing blows up, using logic and diplomacy to deal with an unpredictable child, or confronting him directly. I suspect diplomacy will be the chosen option.

    In the meantime, New Zealand has several trade challenges on its plate, all of which threaten established red meat access provisions with key trading partners: the largest product sector is beef into the USA which is currently subject to a 213,000 metric tonne quota under WTO rules. Trump appears to have all types of imports in his sights and there is no guarantee he won’t decide to impose an import tariff on all red meat in contravention of WTO rules. Taking a complaint to the WTO would be a lengthy process, as shown by the slow resolution of the Indonesian import ban, and a favourable decision would not result in an immediate resumption of trade.

    Trump’s stated preference is for bilateral trade deals with a whole range of ‘partners’ which is a euphemistic term for co-signatory, because of the intention to achieve an unequitable outcome which benefits only the USA. If in the opinion of the stronger party the partner fails to live up to American demands, 30 days’ notice of termination will be served. Free trade agreements are supposed to benefit both parties equally, but this fact seems to have escaped the new President. Still there will be some comfort from the time required to negotiate any sort of FTA which means these will be impossible to conclude within the term of a Trump Presidency.

    Under WTO rules New Zealand’s red meat and associated co-products to the USA incur tariffs which amounted to $13 million in 2014, equivalent to less than 1% of $1.543 billion of total exports. Most of this was frozen beef on which the maximum tariff rate of 26.4% would otherwise apply, totalling more than $300 million.

    The stakes for this country are very high. If Trump should decide to ‘protect’ American farmers by ripping up WTO rules, the fallout would be enormous for all countries including the USA, but there would be an unholy mess while it was sorted out.


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    *Allan Barber is a commentator on agribusiness, especially the meat industry, and lives in the Matakana Wine Country. He is chairman of the Warkworth A&P Show Committee. You can contact him by email at allan@barberstrategic.co.nz or read his blog here ». A version of this article was first published in Farmers Weekly. It is here with permission.

  • Dairy prices eke out a small gain; economists see an extended period of consolidation as 'possible'

    By David Hargreaves

    Results at the overnight GlobalDairyTrade auction surpassed expectations, with overall prices as measured by the GDT Index pushing up 1.3%, and an average price of $3,537 per metric tonne achieved.

    In the lead up to the auction, market expectation - bolstered by lower Whole Milk Powder futures prices - had been for a drop in overall prices.

    The key WMP managed a 1% gain to an average US$3,314/t.

    This means that WMP prices are still around 7% lower than they were at the end of 2016, but the prices have levelled off in the past three auctions. Additionally, WMP prices are about 75% ahead of where they were at the same time a year ago.

    Fonterra initially forecast a milk price for farmers this season of just $4.25, but has been increasing this as prices globally have rallied. The last increase - to the current $6 - was made on November 18

    The current prices still suggest Fonterra should be able to achieve that payout price or even a bit better.

    Among the bank economists Westpac have been forecasting a $6.20 price, ANZ economists have  a current expected milk price this season of $6.25,  BNZ economists recently raised their forecast to $6.40, while ASB economists who had stood alone in forecasting a $6 price much earlier in the season when the average consensus was for a much lower price, lifted their pick shortly before Christmas to their current $6.50 price.

    ASB senior rural economist Nathan Penny said he was expecting dairy prices to remain firm at or near the levels seen in the latest auction over coming months.

    "Looking over recent months, dairy market fundamentals have not changed much. Supply remains tight, although NZ summer production so far has fared better than the very weak spring. Meanwhile, demand is firm, although risks remain in play. Dairy, like other markets, will continue to fret over the ‘Trump factor’ and the potential for protectionism impacting on dairy trade.

    "However at this juncture, no news is good news. For dairy markets ‘no news’ is likely to translate into one of those rare periods where prices hold steady at or near current levels. Of course given that this level is a relatively healthy one by historical standards, this is ‘good news’ for this year’s milk price.

    "As a result, we reconfirm our 2016/17 milk price forecast of $6.50/kg. Also, the current market dynamics bode well for a relatively strong start to the 2017/18 season. With that in mind, we note our 2017/18 forecast remains $6.75/kg."

    ANZ senior economist Philip Borkin said while the lift in overall dairy prices at the latest auction was only modest "it should be seen for what it is; a positive result", when put against market expectations of lower prices.

    "...After some large gains over the second half of 2016, prices have effectively been unchanged now since the start of December," Borkin said.

    "The market will continue to take its lead from European, Chinese and local supply developments, and it may mean that an extended period of consolidation is possible.

    "However, we are becoming a little more mindful of some forces that could weigh modestly on prices going forward, especially improved local volumes, large European intervention stocks and the increased political tensions between the US and Mexico (a large skim milk powder importer)."

    See here for the full dairy payout history. 

  • Keith Woodford says truth is the first casualty in water debates

    Remnant mountain totara in catchment high above Lake Forsyth (Annette Woodford)

    By Keith Woodford*

    Recently I dipped my toes gently into the debate about how to use water fairly for all New Zealanders. I did so knowing that to say anything about water is like stirring up a nest of angry wasps.  

    Both environmental and economic development protagonists are typically convinced their cause is ‘noble’.  Accordingly, many protagonists organise the ‘facts’ to support their prior-determined position. The term for this is ‘noble cause corruption’’, where ends justify means.

    It is not only individuals who act this way, so do organisations.

    In this environment, truth is the first casualty. Regardless of whether the underlying driver is ‘noble cause’ or simply ignorance fuelled by self-interest, the outcome is the same. Debates become tribal shouting matches.

    One of the problems with water is that the true facts are almost always complex. Even the so-called experts are learning on the job, and can be wrong in their assessments.

    Science has a way of trying to deal with such situations. It is called the scientific method. Hypotheses are developed from logic and observation, and these hypotheses are tested by measurement and experimentation. When dealing with complex systems, scientists often use models to help them interpret the interacting variables.   

    However, the idea that science can ever prove things is a dangerous assumption. It was Karl Popper, the famous 20th Century philosopher of science – who actually spent years at Canterbury University during the 1940s, having fled from Nazi Germany, and before finally settling in Britain - who encapsulated the idea that science advances by showing that existing perceived knowledge is wrong; i.e.by disproving theories rather than proving them.

    All of this might sound very theoretical, but it is also highly relevant to our water challenges here in New Zealand.  We need to base our thinking on known science and known fact, but always willing to re-assess our positions as more evidence comes forth.   That willingness to reassess also applies to scientists – they too get locked into positions and they too can suffer from noble cause corruption.

    Somewhere in amongst this there is also a precautionary principle. In essence, the precautionary principle says that it is not easy to unscramble an egg.

    I am going to use two water examples that have been in the news in recent weeks here in New Zealand, one being Lake Forsyth and the other the Selwyn River. They both happen to be in Canterbury which is where I live, and so I know a little about them.  However, there are undoubtedly equally good examples from all over New Zealand, where a mix of ignorance and noble cause corruption leads to issues being simplified and distorted, and where so-called facts are used to bolster pre-determined positions.

    Lake Forsyth (Wairewa) is in the news because of massive outbreaks of Cyanobacteria, creating a thick green scum. The lake lies adjacent to the Little River township, and both sheep and dogs have died from consuming the water.

    Lake Forsyth used to open naturally to the sea on the southern side of Banks Peninsula.  That changed way back in the 1800s as a result of changing sea currents and the deposition of shingle dragged north from the outlets of the big alpine rivers.  The fundamental cause behind the changing shingle deposition – it may even have been precipitated by the huge Alpine Earthquake of 1717, with its consequent release of shingle over the subsequent 100 years, and perhaps also by uplift of the land itself - is conjecture. What is clear is that the closing-off was not caused by man, either directly or indirectly. This was simply nature doing its thing.

    However, that is just the first part of the story, because humans have had a big impact on Lake Forsyth. This occurred through 19th Century deforestation and logging of Banks Peninsula, and conversion of land for sheep grazing. This in turn led to erosion, with the sediment ending up in Lake Forsyth. As a consequence, Lake Forsyth is now shallower than before.  Shallow lakes warm up more in summer than deep lakes, and that too has been important.

    Starting in the 1950s, there was a lot aerial topdressing of the Banks Peninsula grasslands. Inevitably, there was phosphorus runoff from rainfall events.   

    Putting all of these things together, the preconditions were all in place for outbreaks of the toxic bloom from Cyanobacteria, and these have indeed been occurring in recent decades. All it then took was nature to do its thing in 2013 and 2014 with flooding coastal rains which sent lots more phosphorus into those waters, to create the current crisis.

    So what we see in Lake Forsyth is an example of what happens in complex ecosystems where nature and humans are both doing their thing. Note however, that in contrast to considerable media commentary, this has nothing to do with irrigation, nothing to do with dairying, and almost certainly nothing or at least very little to do with global warming.

    Ecologists and local iwi are working to find solutions. With hindsight, and from a lake perspective, it would have been better if much of the deforestation of Banks Peninsula did not occur. But that egg was first scrambled 150 years ago. And yes, it would also have been better if the effects of phosphorus runoff from sheepgrazing lands had been better understood some 50 or more years ago.   Hopefully, the ecologists will find some answers, but solutions will not come easily.

    The Selwyn River is a different story. It begins in the foothills of Canterbury behind the townships of Hororata and Coalgate. It flows all year back in those hinterlands but quickly disappears underground once out on the plains. It is only during wet years that it flows through to Coe’s Ford in the Ellesmere district, and then on to Lake Te Waihora (Ellesmere). 

    However, the lowland plains of this catchment have historically had many springs which bubble to the surface.  And until recently this has usually been sufficient to keep Coe’s Ford with sufficient water to provide good swimming holes.

    The springs in the lower Selwyn catchment have been in decline for more than 50 years. Lincoln University has its ‘Ashley Dene’ farm in this zone, and historically it was plagued by undercurrents which would well-up in winter and cause major flooding. Although the springs were originally marked on the farm maps, these were removed in the 1960s because they no longer existed. And at that time there was close to zero irrigation in the district. 

    These undercurrents did make their presence felt again in the mid to late 1970s during a series of wet winters, but since then all has been quiet.

    More recently, there has been extensive development of irrigation in the Ellesmere zone drawing water from shallow aquifers. There can be little doubt this has played a role in the current record low flows of water at Coe’s Ford. However, the pictures that I am seeing in the media of dry riverbeds elsewhere in this catchment are nothing new; it is the reason the Maori Maoris called the river Waikirikiri – river of shingle.   And the point needs to be made that most of the irrigation in the Ellesmere district is for cropping, not dairying.

    Although the winters of 2013 and 214 brought huge rains to Banks Peninsula, this was not the case on the adjacent plains. The last few winters have been very dry on the plains, and this is undoubtedly part of the story as to the current sad state of the Selwyn at Coe’s Ford.

    There is hope that the waters of the Selwyn can be restored. Currently there are long-term restrictions on water abstraction from shallow aquifers. These aquifers do need to be treated differently than the deep aquifers. Also, the much-maligned Central Plains Water Scheme, sourced from alpine waters of the Rakaia, is expected to produce significant recharge to the shallow aquifers. But it is not going to happen overnight.

    My closing thought is that science and rationality struggle in a superficial world which beats to 15 second sound bites, 140 character tweets, and dominated by media which are driven by sensationalism and the need to sell advertising.  Complex water debates do suffer in that superficial world.


    *Keith Woodford is an independent consultant who holds honorary positions as Professor of Agri-Food Systems at Lincoln University and Senior Research Fellow at the Contemporary China Research Centre at Victoria University.  His articles are archived at http://keithwoodford.wordpress.com

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