• The Sheep Deer and Cattle Report: Winter arrives as meat schedules stay flat or ease with only wool on the up


    More gloomy news on the lamb market, with weak demand out of the UK and China due to strong domestic competition, but some renewed interest in the Middle East with the Ramadan season looming.

    Exporters are hoping this period of stable pricing will encourage greater demand, but at the farm gate this years returns have been disappointing and at this stage little hope of a recovery.

    This has been shown in this years livestock tax values where sheep prices are $5-$11 per head back on last year, and some say behind the cost of production.

    In the latest report to supporters, the MIE group warns that the Silver Fern Farms capital raising exercise may result in the entry of more foreign ownership in the red meat processing sector.

    Australian beef producers are bemoaning this situation in their industry and believe producer returns have suffered because of this foreign ownership structure.

    MIE urge producers to look for long term solutions and still believe the best of Alliance and Silver Ferns operations could build a strong Co-operative partnership for the benefit of all red meat farmers of NZ


    Wool prices strengthened again as the dollar fell at the latest South Island auction, with fine crossbred fleece and lambs indicator values reaching yearly highs and showing renewed confidence in natures fibre.

    The small amount of merino wools offered also lifted in price after a period of soft demand, but exporters reported values are still behind Australian levels.


    More easing of beef prices, as an Australian ANZ market analyst believes this product has peaked in price, with US stocks from the three main proteins up 15-25% on average.

    Production of chicken and pork in that country  is up 5% and pork prices are falling, adding more price pressure on beef, and the Chinese have lifted the beef ban with Brazil to increase competition for product into that market.

    Reports suggest, big numbers of cows are being harvested as the dairy season ends, as managers look to readjust their stocking rate around grass grown, without bought in feed to survive the dairy price slump.

    Stocks are building and the easing manufacturing cow schedules reflect the market sentiment, but in some saleyards good 18 month cattle look good buying if they can be finished by Christmas.

    Saleyard prime steer prices are still strong as the early kill has reduced numbers and propects for further rises look likely in the late winter spring period.


    Export volumes for venison are falling and are now 12% behind the five year average, and while prices out of Europe have improved, farmgate values have stalled with the unfavourable exchange rates.

    The industry is pinning it's hopes on the Primary Growth Partnership project to turn around this retrenchment, by planning to add $2 /kg to the returns from venison by investing in market development and improving on farm performance from deer farmed.

  • Keith Woodford unpicks the cash flow implications of the 'estimates' due from Fonterra for the upcoming season

    By Keith Woodford*

    This week is important for all New Zealand dairy farmers. The key announcement will be Fonterra’s decision as to the advance price for milksolids, which will be paid to farmers during the first half of the forthcoming 2015/16 season.

    In contrast, most media discussion as to milk prices for the forthcoming 2015/16 year has been and will be about what Fonterra will estimate this week as the expected overall price per kg milksolids for the coming year, which runs from 1 June 2015 through to 31 May 2016.

    Most pundits are suggesting an overall expected price for 2015/16 of between $5 and $6 per kg milksolids.

    But right now that estimate, which is little more than a guess, is largely irrelevant. It is the advance price that counts down on the farm, but which the media largely ignores.

    The Fonterra advance payments are also important for Synlait and Open Country suppliers. These investor-oriented companies pay whatever they need to stay competitive with Fonterra.

    Fonterra pays what are called ‘advance’ payments on the 20th of the month following when the milk is received. The rest of it dribbles in through to October of the following year.

    In a normal year, Fonterra pays these so-called advances at about 65% of the expected final payout. But this year could be different. That is because Fonterra’s own cash inflows during the first half of the year will be modest.

    Fonterra is already selling early season milk on the GDT auction platform, despite the milk not having been produced yet. There is nothing wrong with that; in fact it makes lots of sense if trading is to be at least somewhat orderly. However, the prices at which this milk is currently being sold will only support a final payout of about $4.50 at best.

    So how should Fonterra price the advance payouts? Should they be priced as a percentage of the early season prices, or should they be based on best estimates of the final price?

    If Fonterra bases its advance payments on the current prices, then some farmers are in for a shock. The advances could be well under $4, with a likely figure being in the ‘low threes’.

    If Fonterra bases the advance on overall expected prices, then the advance could be closer to $4.

    The problem with the second scenario is that the overall price for the coming 2015/16 season is still such a guess. Despite the pundits predicting prices between $5 and $6, the reality is that it could be anywhere between about $4 and $7, or even outside that range.

    Last year at this same time, Fonterra was predicting $7 per kg milksolids for the 2014/15 year. Yet the latest estimate for the 2014/15 season, which is now about to end, is $4.50.  Surely that should convince everyone that estimating milk prices this far out is almost total guesswork. Quite simply, no-one knows.

    Everyone knows that international dairy prices are currently very low, but less well understood is the lags inherent in the system. Given those lags, most farmers will have received milk cheques during the current 2014/15 year in excess of $6 per kg of milksolids actually supplied. This is despite the estimate for the year about to end as being $4.50.  It is only now that the cash crunch is beginning to bite.

    Most farmers will receive some very modest payments in June for their May production, nothing in July, and then some tiny retro payments in August, September and October.

    The new season’s payments will include the advance payment on 20th September for August production, with increasing payments in the following months as spring production cranks up.  But if advance payments are only in the ‘low threes’, then for many farmers the overdrafts will continue to rise.

    Down on the farms, there is a lot of frustration at Fonterra’s failure to accurately predict prices. But that is not Fonterra’s fault; it is the simple reality of global commodity markets.

    Ironically, part of the volatility that we now see in international markets is a function of the open- market free-trade policies that we in New Zealand have advocated for so strongly. Whereas in the past, both Europe and the US would beat to their own drums in terms of production and pricing signals, everyone is now responding to the same international free-market signals.

    Commodity markets can be very profitable. Australia’s wealth is built on mineral commodities, Saudi Arabia and Norway have built their economies on oil as a commodity, and New Zealand has itself done rather well from our agricultural commodities. But the nature of commodities is that they are very volatile.

    For the last 15 years, I have been telling Lincoln University students that I can guarantee that at some stage of their professional careers they will face a major downturn, but that neither I nor anyone else can tell them when that will happen. The trick is to have thought out in advance how to deal with that downturn, and not to make silly decisions in a panic.

    Currently, I am seeing some indications that not all of the advice that farmers are receiving is sound. There are many costs that can be forestalled, but there is no point in saving costs unless those savings exceed the consequent loss of income in the same season. The key issue is that hungry cows punish their owners. I will have more to say on that at another time.


    Keith Woodford is Honorary Professor of Agri-Food Systems at Lincoln University. He combines this with project and consulting work in agri-food systems. He will be writing a regular column here. His archived writings are available at

  • BNZ's Doug Steel looks at what El Nino means for New Zealand and how we fared in similar weather patterns in the past

    By Doug Steel*

    Weather risk is ever-present in NZ agriculture. But sometimes it looms larger than others.

    We have been watching the El Nino weather risk from as far back as April last year when the Southern Oscillation Index (SOI) swung lower.

    The SOI has been flirting on and off with El Nino thresholds ever since, but has moved decidedly lower over recent weeks (to less than -15 through May more than double the level usually indicative of El Nino conditions). The SOI is only one indicator. Some weather agencies have called El Nino already, others not yet but have high odds on it occurring before long.

    All El Ninos are different.

    In general during an El Nino New Zealand tends to experience stronger or more frequent winds from the west and south-west leading to dry conditions in the east and more rain in the west. The drought declaration that remains on the South Island’s East Coast is testament to the El Nino-like indicators that have persisted for much of the past year.

    In this note, we take a quick look at how NZ agriculture as a whole has fared during various phases of the weather including El Ninos, La Ninas and neutral conditions.

    We should say up front that it is difficult to accurately assess the impact of weather on agriculture performance and the economy as a whole. Poor quality data is the first hurdle. And there are many aspects to consider across outputs, stocking rates, inputs and cost changes. Then there are the (biological) lags involved meaning that many weather events have multi season implications, each with their own financing and opportunity cost depending on all other factors at the time. And even when you assess what has actually happened, what do you compare it to in order to judge the weather event in isolation? Tricky. But we take a look.

    El Nino conditions, and associated low SOI, tend to be negative for NZ agriculture. Recent average levels of the SOI indicate the clear risk that agriculture GDP will decline over coming quarters. We say risk because there is not always a one-for-one relationship, but a decline seems more likely than not.

    Another way of gauging this is by looking at what the average change in agriculture GDP has been for the season during the various phases of the southern oscillation in the past. We admit looking at one year’s change is rather crude because agriculture performance can swing wildly from season-to-season for a host of different reasons. But, as simple as this analysis is, it does suggest some interesting general results, namely:

    • El Nino events (whether weak, moderate, or strong) have previously coincided with modest declines in NZ’s agriculture GDP

    • Moderate-to-strong La Nina events have also coincided with declines in agriculture GDP and larger than those associated with El Nino events

    • Agriculture GDP has tended to grow faster during periods of weak La Nina events or neutral conditions

    We are reluctant to draw very strong conclusions from this given that (even over the 25 year+ time span we looked at) the sample size of each weather pattern is small. But it does suggest NZ agriculture performs best when the weather is not extreme, it intuitively feels right.

    Looking at similar metrics for individual sectors increases the chance that season-to-season variation is driven by other factors beyond the current climatic conditions.

    We say this with reference to the stronger-than-average milk production growth coinciding with strong El Nino conditions in the past. This is counter-intuitive. Looking into the detail, the average result is influenced by a 10% lift in the 1987/88 season (a strong El Nino year). This overstates the strength in that season because the +10% did not even make up for the 14% production decline in the season prior (a moderate El Nino year). This highlights that we should not read too much into the specific results here, rather focus on the generalities.

    Milk production growth has averaged 1.4% in El Nino years compared to overall average growth of 4.0% since the late 1970s. So, in general, El Nino conditions have tended to restrict NZ milk production growth rather than turn it seriously negative.

    Change in livestock kill numbers correspond to the various states of the climate. Data over the past 30+ years show that livestock kill numbers have tended to increase in El Nino years. This likely reflects an undesirable situation, as farmers run lower stocking rates when dry conditions put pressure on feed supply.

    In contrast, when neutral conditions exist, livestock slaughter numbers tend to fall by more than average. This is likely a positive sign as farmers retain to build or rebuild stock units as feed conditions allow. Weak La Nina conditions have also coincided with lower-than-average kill number changes.

    Assessing the impact of climatic conditions on prices is even more difficult than on production. There are so many other factors to consider from market demand, to competitor supply, inventory levels, exchange rates, and expectations of all the above to name a few.

    That said, it is interesting to observe that in previous El Nino years lamb prices have tended to decline. In contrast, in La Nina years lamb prices have tended to rise by more-than-average. This relationship could reflect the influence of the climate on the likes of Australian lamb supply or other factors as much as NZ conditions.

    The latter is a reminder that El Nino conditions can affect agricultural producers around the world in many different ways. The impact of El Nino on NZ agriculture has tended to be negative in the past. The brewing El Nino risk is well worth monitoring to see how this one pans out.


    Doug Steel is a senior economist at BNZ Research. You can contact him here. This item was first publsihed as a Research Note by BNZ and is here with permission.

  • The Weekly Dairy Report: Auction and Oceania prices still moving lower as workplace conditions under scrutiny

    Mild conditions again this week, and no rain for North Canterbury where now the die is cast with minimal pasture for winter, and reports managers are accumulating large feed costs and making big capital stock reductions.

    A recovery in production has occured nationally with the mild autumn, and a 1.5% increase in milk flow over last year is the present prediction.

    Dryoff has started, with farmers increasing the number of cull cows sent to saleyards and to the works, and with cull in calf heifer demand minimal, they are being killed also.

    Gypsy day is looming and managers are encouraged to empty out traveling cows well, and feed no greenfeed 4-6 hours before shifting, to ensure effluent on the road is kept to a minimum.

    The Reserve Bank in its stability report expressed concerns of financial stress for the dairy sector, with some ANZ bank analysts lowering the predicted payout for next year to $5-$5.25.

    They report 25% have negative cashflows for this season, and with 10% of the sector with high debt, they will also be at risk next year, given this low payout prediction.

    Oceania dairy commodity prices eased again and skim milk powder here reached a yearly low, and this sentiment was followed at last night's global dairytrade auction, where this product traded at it's lowest rate since the auction began, at $1992US per tonne.

    On a reduced tonnage other commodities fell as well, and worryingly later delivery periods have also softened, signalling a slow recovery.

    History has shown, the present lowering number of farms for sale is the precursor for falling land prices, and if this happens, equity will fall, putting the heavily indebted at risk of foreclosure.

    Reports from Europe show they are still increasing the volumes of milk even as prices are at 2009 levels, and in the US forecasting the highest corn supplies in history, any supply driven upturn will be delayed.

    The trade unions have been exposing poor workplace contracts in a name and shame campaign, with high hours worked and low wages especially targeted at immigrant workers as being prominent with the exposure, and the small number of  employers will need to tidy up their act, as it's a bad look for the whole dairy sector.

  • Peter Weblin says China is where the demand is and who is prepared to pay the best prices. They take 80% of our export logs

    Russian logs destined for China

    By Peter Weblin*

    The downturn in the export log market gained momentum in May with NZ$ at-wharf-gate prices plunging $12-$17/JAS m3 for unpruned grades and pruned dropping on average $10.

    Domestic pruned was strongly sought after and had an average price gain of $4/tonne.

    Domestic unpruned log prices fell marginally ($2/tonne on average) and domestic pulp log price was steady.

    This market drop has been tough for forest owners, contractors and service providers, especially those with short duration programmes that get heavily affected by prices prevailing over just a few months.

    This downturn is also unnervingly close to the prior downturn just 10 months ago making decision-making much more challenging with the high market volatility.

    Export Log Market

    The main driver behind the big price drop was A-grade CFR price dropping to as low as US$95/JAS m3. Other price drivers had marginal impact and offset each other; foreign exchange (marginally unfavourable) and ocean freight (marginally favourable).

    The large drop in CFR price was a result of log inventory building to over 4.2 million m3 in early April representing over two months’ supply. Historically at this level, CFR pricing is vulnerable and volatile.

    Ocean freight rates have eased slightly over the past month. The Affinity Daily Market Report’s Baltic Handysize Dry Index peaked at 393 at the end of March 2015 and has steadily dropped to 326 as at mid-May (a drop of 17%). However, during the same period, bunkers (fuel oil for ships) rallied from a BWI (BunkerWorld Index) low of 780 (at the end of March 2015 to 900 in mid-May (an increase of 13%). These drivers, whilst largely offsetting each other, resulted in the slight easing of ocean freight rates and some shippers are reporting sub USD$20 for single port load/discharge. These are historically low ocean freight rates for logs from New Zealand.

    Log demand in China has been steadily increasing since the Chinese Lunar New Year holiday in February and in response to government initiatives aimed at stimulating a soft housing market. However, large volume inflows from New Zealand, Australia and Russia have exceeded demand and resulted in the accumulation of inventory at the Chinese ports.

    The situation, however, reversed during April as log offtake (sales from ports to traders and processors) increased and aggregate supply dropped slightly.

    In the chart below, for the month of April, deliveries (imports) were at an average level of 62,000 m3 per day and offtake was at 69,000 m3, resulting in an average daily stock reduction of 9,000 m3 or 261,000 m3 for the month.

    Looking more into the detail shows that most of the increase in offtake occurred in the second two weeks for April during which offtake averaged 71,500 m3 per day. If this trend continues, it is expected that the market will stabilise and CFR price will firm.

    It should be noted that the figures above do not include the over-land export of logs from Russia to China which appear to account for some 90% (or 10.8m m3) of the 12 million m3 annual log trade. The coastal seaports monitored below appear to take the balance of 10%, or about 1.2 million m3. The challenge with this supply chain, however, is that the Chinese/Russia border is many 1,000 of km from most of the demand for wood products in the big-growth coastal super-cities.

    It should be noted that there is a big difference between the current market low-point and that experienced in July of last year. The difference is the CFR price. In July of last year, the CFR price of A-grade logs troughed at US$120/JAS m3. In contrast, the recent low was US$95/JAS m3. At this price logs are both much more competitively priced in China, and much less attractive to alternative supply sources (both domestic and export). This is borne out by reduced supply from North America recently. The low log price is also affecting Russian supply but this is being offset by a much depreciated ruble which is propping up domestic receipts, potentially stimulating supply. As mentioned last month in this report and explored in more detail below, there is considerable speculation regarding the extent of the supply response from Russia and its potential gain in market share at the expense of logs from New Zealand.

    How much stronger will the supply response be from Russia?

    The Russian wood products supply situation is somewhat of an enigma.

    Russia has the largest potentially harvestable area of forests in the world, estimated at 20% of the world’s softwood forests. The total growing stock of Russian forests is estimated at 82.1 billion m3. Annual harvesting levels are around 200 million m3 with exports of only 20 million m3, made up of logs (about 12 million m3) and lumber (about 8 million m3). Most of the exports go to China. The balance is domestic consumption. With 3,600 km of border with China and a greatly depreciated currency (ruble), won’t Russia vastly increase its exports of logs and lumber to China? Not necessarily.

    The following points are salient and suggest only a modest and gradual supply response from Russia.

    • There are only two over-land import locations in China’s north. Both involve vast over-land transport distances both within Russia from forest source and then within China to end-use markets.
    • The coastal route to market from Russia only carries a small percentage of the total trade and again requires vast inland transport distances to port, then additional shipping costs.
    • Forest roads, harvesting resources and transportation infrastructure is drastically lacking. Investment in plant and machinery is expensive with the low ruble.
    • Access to capital is limited, and interest rates are high in Russia.
    • Most of the investment has been in north-west Russia, a long way from China.
    • Lumber exports are limited by sawmill capacity but there are few examples of well-conceived and well-executed projects to date.
    • The Russian government increased stumpage rates and railway tariffs in 2015 – this was presumable a measure to boost ailing government revenues.

    Russian logs being received in Manzhouli, northern China. Due to difference rail gauges, the logs must be unloaded from Russian wagons and loaded onto Chinese rail wagons. We were told the different gauges were to make military invasion more difficult. In any case, logs imported via this gateway, and surplus to the limited local market, face a 2,000 km train ride to Beijing and much further to other large Chinese cities. One response has been to increase processing of wood products at Manzhouli.

    For those that ponder why so much of this Log Report is devoted to covering China, it’s because China now takes nearly 80% of New Zealand’s export logs (Korea about 13%; India about 5% and Japan only about 2%). Whilst not a great market diversification story, it’s the reality of where the demand is, and who is prepared to pay the best prices.

    For most forest owners the immediate question on their mind is: where is the market going in the near future? Whilst one can never be certain, indications are that we should see a price rebound in June, and hopefully beyond:

    • CFR prices have reportedly lifted during May.
    • Log stocks are in a downward trend.
    • Exchange and ocean freight rates have move favourably (slightly).
    • The government is committed to continue to implement measures to restore confidence in the housing market and recent indications are that the market is recovering.
    • The low CFR prices will reduce supply of wood products from other sources.
    • Russia’s supply response is likely to be slow due to massive transportation, capacity and capital formation constraints. The ruble appears to have troughed and is in an appreciating trend.
    • China has announced retiring of large tracts of forest to improve environmental outcomes. This will constrain domestic supply of logs.
    • Whilst the growth rate in China has fallen to around 7%, consumption has risen to account for more than 50% of GDP (up from 35% in 2009). This is an important transition for China from investment/capital based growth to consumption/services based growth.

    Domestic Log Market

    Domestic pruned logs are well sought after and top dollar is being paid for reliable, high-quality supply. On average prices for P40/P1 logs lifted $7/tonne in May to $169/tonne. Unpruned prices were down marginally (an average of $2/tonne) due more to softening in the export market than any change in the domestic market dynamics. Domestic pulp log demand and prices were steady.

    The Christchurch rebuild is continuing to create strong demand for structural timber in particular, and wood products in general. The booming Auckland housing market is also stimulating additional house construction and adding to demand of wood products.

    Residential dwelling approvals in Australia continued to rise in February 2015, with a 10.6% increase in free-standing dwellings compared with February 2014. Approvals for apartments (four or more storeys) leaped by 17.8%. The 6% depreciation of the NZ$ against the AU$ since the peak of NZ$0.99/AU$ in April will boost returns for exporters of wood products to Australia.

    Housing starts in the USA were lack-lustre with March’s seasonally adjusted figure of 926,000 well below the expectation of over 1 million. Improving economic conditions, job growth and low mortgage rates, however, are still expected to lead to stronger house construction and demand for wood products.

    The PF Olsen log price index fell five points from $100 last month to $95 this month. It is now $10 higher than its cyclical low of $85 in November 2011 and $11 below the two-year average and $6 below the five-year average.

    Whilst the export log prices are almost as low as levels they got to in the last market trough in July of last year, the index is faring better by $8 due to the relatively higher price of pruned logs. Forest owner who are harvesting good quality pruned logs with market access are consequently weathering this down-turn better than those heavily exposed to the export log market. A greater focus on domestic supply opportunities, where possible, is also helping to prop up forest owner returns in a very challenging market.

    PF Olsen Log Price Index to May 2015

    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

    Log Grade $/tonne at mill $/JAS m3 at wharf
      Mar-15 Mar-15 Feb-15 Mar-15 Mar--15 Feb-15
    Pruned (P40) 169 162 152 157 167 168
    Structural (S30) 105 108 111      
    Structural (S20) 94 95 97      
    Export A       92 92 110
    Export K       85 85 104
    Export KI       80 80 104
    Pulp 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 and specific advice sought for individual forests.


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

  • Despite some signs of stabilising dairy prices, economists see any chance of a sharp rebound in returns as a 'distant prospect'

    By David Hargreaves

    Economists at the country's biggest dairy farm lender ANZ see any chance of a sharp rebound in dairy prices as a "distant prospect" and are picking a "tough" forthcoming season.

    Global dairy prices dropped again last night, with prices down 2.2%, the fifth consecutive fall and taking prices to their lowest level since mid-2009 - though there was some sign prices were stabilising.

    The Reserve Bank has warned that financial stress in the dairy sector "could rise markedly" if prices remain at low levels in the 2015-16 season. The RBNZ estimated in its six-monthly Financial Stability Report released last week that despite many farms being in a position to manage down working expenses, around one-quarter of dairy farms are believed to have negative cash flow for the 2014-15 season.

    "The sector’s vulnerability to reduced incomes is increased by elevated indebtedness, despite moderate growth in borrowing since 2009."

    The central bank said that approximately 30% of the dairy debt was concentrated among the most indebted 10% of farms. "Indebted farms are particularly vulnerable to a period of reduced cash flow."

    Dairy giant Fonterra recently dropped its forecast milk price for farmers in the current season to $4.50 per kilogram of milk solids from a previous pick of $4.70. Including dividends, the total return to farmers is forecast at between $4.70 and $4.80, compared with $8.50 just a year ago. This suggests a drop in earnings this year of about $6 billion for Fonterra farmers alone and about $7 billion for the dairy farming sector.

    Fonterra will make its opening milk price forecast for the 2015-16 season next week and the ANZ was today sticking by its pick that the opening forecast price will be between $5 and $5.25.

    ANZ agri economist Con Williams said a "tough" season awaits farmers.

    "We are expecting something in the $5.00-$5.25/kg MS range, which with low deferred payments from 2014/15 will make the 2015/16 season very challenging for many operations," he said.

    Williams said skim milk powder (SMP) prices had been "at the centre of the storm in recent months" with aggressive selling from Europe into key New Zealand markets.

    "Worryingly the later delivery contract periods have softened more aggressively at recent auctions pointing to little buyer anxiety that they will need to pay higher prices anytime soon," he said.

    "The price action was a little more encouraging for whole milk powder (-0.5%) and suggests that a trough is near, but a sharp imminent rebound seems a distant prospect. Taken with NZD strength in recent months we expect more conservatism to be applied to next week’s opening Fonterra milk price forecast for 2015/16."

    Industry has 'evolved'

    Westpac senior economist Michael Gordon said there were signs that the global dairy industry had evolved since the 2008-2013 period "when New Zealand was uniquely positioned to service the rise of the Chinese market".

    "Several years of higher dairy prices, on average, have incentivised other countries – including China itself – to expand capacity in their own dairying sectors, leading to greater flexibility in the global milk supply. The removal of excess production levies in Europe will play a part in that greater flexibility over the long term, although in the near term low milk prices are likely to be a restraining factor on production growth. Consequently, it’s possible that farmgate milk prices over coming years could be lower on average, after adjusting for inflation, than they were in the preceding five years," he said.

    Westpac economists are forecasting a milk price of $5.70/kg for next season, which "is below the average of the last decade".

    "...The soft result from last night’s GlobalDairyTrade auction puts the risks around our forecast to the downside once again. Note that our forecast is for the final price at the end of the season; we don’t take a position on where Fonterra will pitch its own initial estimate for the season," Gordon said.

    'In the doldrums'

    ASB chief economist Nick Tuffley and rural economist Nathan Penny said they were sticking with their milk price forecasts at $4.50/kg and $5.70/kg for this season and next season, respectively.

    "The timing of any price rebound remains difficult to predict. If NZ (and global) milk supply remains high and Chinese demand weak, prices may take longer to recover than we currently anticipate," they said.  

    "...Dairy prices are in the doldrums. They are low and going nowhere fast. Prices are now at their lowest level since 2009. Moreover, we expect prices to remain low over the next two to three months, before finally beginning their lift. NZ production has got a second wind, ending the season on a high. We expect production this season to lift 2% on last season.

    "This result is a far cry from the gloomy production expectations during the height of this summer’s drought. In contrast, demand is weak. In particular, demand from our key market, China, has fallen like a stone. Export volumes for the nine months to March 2015 are less than half what they were for same nine months a year ago.

    "All up, we expect this means that the prices will remain low for a few months more. Markets still need to clear this season’s extra production, plus further months may be required before farmers here and globally respond more fully to low farmgate prices by lowering production.

    "Also, measures by Chinese officials to boost demand will take time to gain traction. Dairy industry sails will fill again in time and prices will lift. Exactly when that welcome warm breeze it arrives remains hard to pick. But for now, we are earmarking sometime around spring," Tuffley and Penny said. 

    'Positive signs'

    AgriHQ dairy analyst Susan Kilsby said despite the fact that dairy prices had now dropped for five consecutive auctions there were some positive signs "starting to trickle" into the market.

    "European milk supply is now at its seasonal peak and the growth in supply appears to be moderate rather than excessive which will reduce fears of a global oversupply of milk,” she said.

    “...The markets now appear to be slowly starting to turn but this optimism is yet to be reflected in the GDT prices.”

    Labour's Finance spokesperson Grant Robertson called for "meaningful" Government action in tomorrow's Budget.

    “Dairy prices are the lowest since August 2009 and have more than halved since its February 2014 peak," he said.

    'Black hole"

    “This has created an economic black hole of $7 billion from the forecast Fonterra payout cut that will suck in regions reliant on dairy and crucial industries, as well as the Government’s books.

    “If the price keeps falling or even stays where it is, Fonterra’s payout will be significantly lower than forecast and the economic black hole even bigger.

    “The lion’s share of the milk price pain will be felt in regions that National is neglecting. Many small communities are now mainly reliant on dairy farming. We want the dairy industry to thrive but it isn’t good for farmers to carry much of the burden of economic growth on their own.

    “New Zealand needs a modern, diverse economy that creates well-paying jobs across all industries. This Budget must show a plan to get there,” Robertson said.

  • The Sheep, Deer and Cattle Report: IRD's livestock valuations reflect each sectors position compared to last year


    Another week where lamb schedules sit at levels unattractive to the costs of early winter feeding, and statistics reveal sheep numbers are now below 30 million, reflecting farmers disappointment in this land use option.

    Inland Revenue have announced their annual livestock valuations showing the sheep sectors disapointing results with valuations being $5-$11/ head behind last year.

    Mating will now be over in most flocks and many farms will now be settling into their early winter maintenance programmes.

    South Island store lamb prices have remained stable around $60 per head, and look unlikely to attract much more interest from traders, given the demand for quality feed from the dairy sector and these weak schedules.


    Prices stayed strong at last weeks North Island wool sale for fleece and lambs wool, but short second shears did ease slightly.

    This weeks southern sale has been boosted by 4000 extra bales passed from previous auctions, as vendors look to cash in on wools present price surge.


    The easing in beef prices continues, driven by a dairy induced high cow cull as that sector strives to adjust it’s stocking rate back  to levels determined  by on farm pasture only, without  bought in feed.

    Analysts suggest this easing may be short lived, driven by a harvest that is well ahead of the norm, and when the cow cull finishes, prices should start to move again.

    The annual livestock valuation showed a large lift in prices for all ages of beef cattle, with a range of price gains between $101-$262/head with bulls leading the way.

    The growth in the use of fodder beet as a winter brassica has unveiled unprecedented liveweight gain opportunities for beef finishers, as managers understand the feeding techniques needed to express this forage’s superior energy attributes that allow weight targets to be met earlier.


    The annual deer farmers conference comes round again next week, as this sector grapples with falling deer numbers now below a million head, and a venison schedule still too low to stimulate reinvestment.

    Valuations for deer were hard to compare with previous years, as the Inland Revenue had one value for all different breeds from fallow to elk, which makes a mockery of the values posted compared to their market value.

  • Farm sale prices remain firm but lifestyle blocks surge - REINZ

    There was slight drop in the number of farms sold in the three months to April but an increase in the median sale price, according to the Real Estate Institute of NZ.

    There was also a big increase in sales of lifestyle blocks, with their median prices hitting a new high.

    REINZ said 485 farms were sold in the three months to April, which was down 2.6%, compared with the same period last year.

    In the 12 months to April, 1798 farms were sold, down 2.8% compared to the preceding 12 months.

    The median price per hectare of all farms sold in the three months to April was $28,668, which was up 2.5%  compared to the three months to March and up a whopping 16.7% compared to the same period last year.

    The REINZ All Farm Price Index, which adjusts for differences in farm size, location and farming type, was up 1.9% compared to the three months to March and up 0.8% compared to a year ago.

    Dairy farm prices continued to rise and the median price per hectare was $38,802 in the three months to April compared with $37,761 in the three months to March and $34,615 in the three months to April last year.

    The REINZ Dairy Farm Price Index was up 6.9% for the month and 15.5% for the year.

    Another feature of the market was the ongoing strength in the sale of horticultural properties, primarily led by kiwifruit orchards as the industry's fortunes rebound from earlier PSA outbreaks.

    Seventy three horticultural properties were sold in the three months to April, compared with 56 in the three months to March and 48 in the 12 months  to April last year.

    The median selling price per hectare for horticultural properties was $266,883 in the three months to April compared to $175,462 for the same period last year and $118,119 in the same period of 2013.

    The market for lifestyle blocks was also buoyant, with 1940 lifestyle properties changing hands in the three months to April compared with 1711 in the three months to March and 1707 in the three months to April last year (+13.7%).

    The national median price hit an all time high of $552,500, up 8.3% compared to a year ago.

    In Auckland the median price for lifestyle blocks came in exactly at $1 million after sitting at $980,000 for the three months to March and $860,000 for the three months to April last year, which means it has increased by $140,000 (16.3%) in the last year.

    The median price of lifestyle properties has also increased sharply in Nelson, where it was $635,000 in the 12 months to April, compared to $605,000 in the 12 months to March and $482,000 in the 12 months to April last year.

    That means it has risen by $152,500 (32%) in the last 12 months.

    To read the REINZ's full rural Market Report, with analysis of sales by farm types and regions, click on the following link: 

    The chart below tracks the sale of lifestyle blocks in each region of the country:

  • Allan Barber warns of the risks in the way MPI is setting its priorities and says it risks loss of focus on food safety and biosecurity

    By Allan Barber

    Most people would almost certainly see the primary role of Ministry for Primary Industries as the protection of New Zealand’s biosecurity, food safety and primary production.

    The creation of MPI was designed to meet a number of objectives, one of which, probably the most important, must surely have been to ensure a world class agency to deliver this priority.

    Since 2012 there has been an increased focus on a series of policy initiatives which appear to the outside observer to be in danger of taking precedence over the core function on which our agricultural sector’s prosperity and survival depend. A reading of the 2013 and 2014 Annual Reports confirms the importance the department attributes to the protection role, but it is only one of a number of business areas which receive equal precedence.

    MPI’s Vision is ‘Growing and Protecting New Zealand’ which is fine, but it isn’t an accident growth comes before protection, because that is the reason the government pushed so hard for the mega agency to be established.

    The 2014 Annual Report lists four key areas of focus which appear as follows: maximise export opportunities, increase sustainable resource use, improve sector productivity and protect from biological risk. The final point should be the ministry’s core responsibility, because if that isn’t delivered, all the export opportunities in the world will count for nothing.

    In May 2011 the Ministers of Agriculture and Biosecurity, and Food Safety announced the reintegration of MAF and NZ Food Safety Authority after several years of separation. This would be a forerunner of the formation of MPI 12 months later. A consequence of setting up NZFSA in 2002 was the separation of the food safety function from core MAF which retained biosecurity, although at that time the new organisation assumed responsibility for domestic food safety from the Ministry of Health.

    It was not for another four years that NZFSA became a fully independent government department. From its inception until he retired in late 2010 Andrew McKenzie guided food safety from a focus on defect spotting to a science based approach which was instrumental in negotiating better access arrangements with many of our trading partners.

    Before he left McKenzie wrote a value proposition for the reintegration of MAF and NZFSA. This expressed the view New Zealand had introduced the risk of divergence in achieving wider biosecurity and national economic goals by treating food safety as something separate to other elements of biosecurity, rather than applying an integrated approach. Particular areas of risk were seen to emerge in areas of regulatory policy and standard setting, cost recovery and international standards. Given New Zealand’s unique biosecurity and trade needs, the regulatory programme was not considered optimal for creating economic advantage or, presumably adequate protection, for New Zealand.

    A major reason for reintegrating the two departments was the importance of meeting what the Food and Agriculture Organization of the United Nations (FAO) and the World Health Organisation (WHO) describe as the necessity for “a strategic and integrated approach to analysing and managing relevant risks to human, animal and plant life and health, and associated risks to the environment”.

    However when Fonterra’s whey protein scare occurred in August 2013, the subsequent WPC80 report stated ‘overall there was a lack of commitment to ensuring readiness to deal with a food safety event’ quoting a senior official as acknowledging nobody had taken ownership of food safety. The report goes on to say this gap has since been closed.

    Nevertheless it’s pretty horrifying the failure ever occurred, even if the merger of ministries to form MPI created pressures which diverted attention and resources.

    The ministry’s core function of managing biosecurity risk through a robust regulatory function appeared to have taken second place to the demands of the merger and the other sexy growth related aspects of the Vision.

    Damien O’Connor, Labour’s spokesperson for primary industries, food safety and biosecurity, is adamant MPI is too big and has a conflict of interests between its regulatory and compliance responsibilities as well as its goal of maximising exports, while the increasing quest for trade freedom is at variance with the protection of New Zealand’s biologically based economy and reputation.

    O’Connor goes further than the value proposition which underpinned the combination of MAF and NZFSA in 2011, because his preference is for food safety and biosecurity to be in separate agencies, but accepts the alternative of both combined under a single structure outside MPI would still be better than the status quo.

    It is unlikely the present government will entertain the idea of reducing the scale and scope of MPI which will be expected to deliver all its goals within the listed areas of focus without necessarily any increase in budget. The goal of maximising exports will always threaten to suck up departmental resources which should ideally be applied to improving food safety and biosecurity. Export growth becomes increasingly challenging in the present environment of low milk prices and lower sheep numbers.

    This must not disguise the fact New Zealand’s reputation for safe food production depends on the excellence of its food safety and biosecurity systems.

    We can’t afford to compromise them.

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    Here are some links for updated prices for


    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 or read his blog here ». This article was first published in Farmers Weekly. It is here with permission.

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