By David Hargreaves
Giant dairy co-operative Fonterra has announced a 65% lift in net annual profits to $834 million.
The latest result well surpasses last year's although the confirmed final payout for the year just gone (milk price of $3.90 and dividend of 40c, for a total of $4.30) is actually below last year's $4.65.
A fair bit of the interest was taken out of today's result announcement by yesterday's surprising upgrade from Fonterra of the forecast milk price for this season, to $5.25.
Chairman John Wilson said over the past three years Fonterra had worked hard to align its structure to its strategy with a focus on achieving more value for the volumes of milk produced by its farmers.
'The higher forecast earnings per share range [for the coming year] reflects the performance improvements the business will continue making.
'It is still early in the season, and we expect continuing volatility as reflected in price improvements in recent GDT auctions.
'Current global milk prices remain at unrealistically low levels, but as the signs in the market improve, we are very strongly positioned to build on a good result in the year to come,' Wilson said.
• Sales volume increased 4% to 23.7 billion Liquid Milk Equivalents (LME)
• Revenue $17.2 billion, down 9%
• Normalised EBIT $1.4 billion, up 39%
• Net profit after tax $834 million, up 65%
• Return on capital 12.4%, up from 8.9%
• Ingredients inventories down 25%
• Gearing ratio reduced to 44.3% from 49.7%
• Debt reduced by $1.6 billion to $5.5 billion
• Earnings per share 51 cents
• Cash Payout $4.30
- Farmgate Milk Price $3.90 per kgMS
- Dividend of 40 cents per share
Irrigators have started on the drier soils and warm temperatures should ensure strong responses to urea applications.
Most of NZ is enjoying good pasture covers and plentiful rain and milk flows are building as the end of calving nears, with the next focus being mating.
There is some evidence of surplus winter feed crops in southern provinces, as the mild winter gave excellent utilization, and some crops yielded better than expected.
Soil conditions are good for cultivation and next year’s crops should be ready to sow on time next month.
Fodder beet yields have been disappointing adding to it’s high cost per kg dm, and some are returning to kale for it’s reliability and lower cost.
Oceania milk prices have lifted with the auction and butter prices are back to an 18 month high, and reinforce hopes that a price turn around is in progress.
And today further indications of better times ahead, with Fonterra's surprise announcement of a 50c lift in this years payout, to now sit at $5.25 plus the 0.50-0.60c divedend forecast.
This total figure is now well ahead of the trimmed down break even level, and should create an opportunity for many dairy farmers to start paying down the high levels of debt.
After receiving much scorn about an early $6 forecast, ASB's analysts prediction now look realistic on the back of the Fonterra lift, and further consolidation at last nights auction.
The dairytrade platform result lifted by 1.7% for the basket of commodities, but did disapointedly ease for whole milk powder, although analysts heralded the small upward incline to be more sustainable than the recent sudden large lifts.
Chinese buyers were dominant in the purchases and that market again proves pivotal in NZ's agricultural success.
Optimism has now turned to tomorrows annual results from Fonterra and many analysts expect a further final lift for last year to be reported.
Synlait also reported a large increase in profit to $34 million as their canned infant milk powder and growth in cream and powder volumes raised returns.
They lifted last years payout to $4.02/kg ms and also announced a $300 million capital investment programme that will be partly funded by raising another $98 million of shares.
Reports from China suggest hot dry weather has lowered their domestic milk production, and if NZ exports can secure this shortfall, the price improvements could be maintained.
Fonterra continue to invest heavily in China and has just opened a dairy hub that has the potential to run 30,000 cows, of which half will be milked.
Bank lending to dairy has topped $40 billion and is now 66% of total rural lending, and continues to be the biggest challenge facing the sector.
Agents report good returns are being achieved for white faced bobby calves, as vendors are receiving $100-$280 per head dependent on quality and amount of beef genes.
By David Hargreaves
Giant dairy co-operative Fonterra has again hiked its forecast milk price for farmers - to $5.25 - from the previous $4.75 per kilogram of milk solids.
The forecast, coming a day before Fonterra releases annual results, is something of a surprise as it immediately follows a GlobalDairyTrade auction that saw only fairly moderate results.
When combined with the forecast earnings per share range for the 2017 financial year of 50 to 60 cents, the total payout available to farmers in the current season is forecast to be $5.75 to $5.85 before retentions.
Returns of something in the $6 range are seen as necessary to be sustainable for farmers. But there's no doubt prices are now moving in the right direction after two seasons of depressed earnings.
Fonterra's opening pick for a milk price this year was only $4.25. This was boosted to $4.75 only as recently as August 25 and has now been lifted again.
Chairman of Fonterra John Wilson said that since the August review of the forecast milk price, global milk supply had continued to reduce, and demand had remained stable.
"Milk production in key dairying regions globally is reducing in response to low milk prices. Milk production in the EU for 2016 is beginning to flatten out and our New Zealand milk collection is currently more than 3% lower than last season.
"While we have seen some improvement in GDT auction prices recently, the high NZD/USD exchange rate is offsetting some of these gains.
"There is still volatility in global dairy markets and we will continue to keep our forecast updated for our farmers over the coming months," Wilson said.
Content supplied by Rabobank
New Zealand farmer confidence in the agricultural economy has risen for the second consecutive quarter and is now at its highest level since 2013, the latest Rabobank Rural Confidence Survey has shown.
Almost half of all farmers surveyed were expecting the rural economy to improve in the coming 12 months resulting in overall net confidence shooting up to a reading of +35 per cent from +three per cent last survey.
The survey – completed earlier in the month – found the number of farmers expecting the rural economy to improve had risen to 48 per cent (up from 25 per cent last quarter), 37 per cent were expecting it to remain the same (down from 52 per cent), while only 13 per cent were expecting the agricultural economy to worsen (down from 22 per cent).
Farmers across all sectors were more optimistic about the prospects for the agricultural economy as a whole with dairy farmers showing the biggest increase in optimism.
Of dairy farmers surveyed, over two-thirds (67 per cent) expected conditions to improve, the highest result registered on this measure since October 2007.
Rabobank New Zealand general manager for Country Banking, Hayley Moynihan said the jump in confidence recorded in the latest survey was largely attributable to farmers’ expectations that commodity prices – particularly for dairy products – have begun to ascend from the bottom and will continue to rise over the next 12 months.
“Since the last survey, in July, three consecutive increases in Global Dairy Trade (GDT) results have lifted commodity prices by 25 per cent and given those involved in the dairy sector a much-needed boost."
"The big jump in the overall confidence reading is also a reflection of how low confidence in the agricultural economy has been over the past two years contributing to confidence reaching near-decade lows in several survey results during this period.”
The improved outlook for the rural economy as a whole was also reflected in farmers’ expectations for their own business performance over the next 12 months. Overall 44 per cent of the country’s farmers expected their business to improve over this period, with 16 per cent expecting business performance to worsen. This resulted in a jump in the net reading for this measure to +28 per cent (+18 per cent previously). Dairy farmers were the primary driver of this increase, recording a net positive reading of +57 per cent (up from +nine per cent previously).
“On top of dairy farmers vastly improved expectations for their own businesses, the survey also signalled a potential lift in milk supply for the coming season with 31 per cent of dairy farmers expecting their production to increase and only 15 per cent expecting it to fall in the 16/17 season,” Ms Moynihan said.
In contrast to the increasing optimism amongst dairy farmers, the expectations of sheep and beef farmers for their own business performance in the coming 12 months dipped.
“The net reading for sheep and beef farmers on this measure fell to +two per cent, back from the +22 per cent recorded last quarter,” Ms Moynihan said. “This result was not wholly unexpected as, despite lamb prices rising in both the North and South Islands, and farmgate beef prices remaining steady, the high New Zealand dollar is currently providing a challenging trading environment for the sheep and beef sector.”
Horticulturalists expectations for their own business performance also fell, but remain at elevated levels.
“A net reading of +26 per cent was recorded by horticulturalists this survey from +47 per cent previously,” Ms Moynihan said. “This result is well back on last quarter, but the confidence amongst horticulturalists in their own business is still relatively high as it has been for a number of consecutive quarters.”
“Export gains in the horticulture sector have been the standout performer for the New Zealand economy in recent years, and expectations are again high for strong returns this coming season, particularly for pip fruit and gold Kiwifruit.”
Ms Moynihan said horticulturalists continued to have the strongest investment intentions amongst all farmers.
“The survey showed 42 per cent of horticulturalists are expecting their farm investment to increase in the coming 12 months with only 11 per cent expecting farm investment to decrease,” she said, “and this result reflects the optimism horticulturists have about the returns they will receive for their product this season.”
Investment intentions for dairy and sheep and beef farmers were relatively unchanged from the last survey.
“The number of dairy farmers expecting investment to increase lifted to 19 per cent (from 13 per cent last quarter), while investment intentions fell amongst sheep and beef farmers to 21 per cent (from 28 per cent),” Ms Moynihan said.
“However, the majority of both dairy farmers (67 per cent) and sheep and beef farmers (66 per cent) are expecting farm investment in the coming year to remain at the same level as the previous 12 months,” she said.
Conducted since 2003, the Rabobank Rural Confidence Survey is administered by independent research agency TNS, interviewing a panel of approximately 450 farmers each quarter.
Stable lamb schedules this week, as chilled meat negotiations in the UK strike some resistance to the currency driven prices.
Lack of volumes are helping drive demand in the US and Middle Eastern markets, and exporters report they are selling more chilled product than frozen for this time of year.
Shortages are driving the local trade market and prices from saleyards have hit yearly highs with most lambs selling in the mid $120’s for heavyweight lambs.
In the north docking will be in full swing and many early lambers will be rueing the early storms that decimated new born lambs, but southern regions are experincing great lambing weather and survival rates are high.
Farmers are grumpy about the continuing poor returns from lamb, and many say they will be reducing sheep numbers in an effort to remain profitable, and will be even grumpier when they read, B/L x merino ewes have been selling for $292 per head in Aussie.
The OIO has handed it’s recommendation for the Silver Fern Farms Shanghai Maling deal back to the Government ministers for their final decision, and an outcome should be achieved in time for the 30th September deadline.
And today an announcement the final approval has been given, and the deal becomes unconditional, with the new company to start its tenure on the 4th January next year.
Shareholders will see a huge increase in the value of their shares from 0.35c to $2.84, and be rewarded with a special dividend at 0.30c/share paid before 31 March 2017 from the soon to be, debt free company.
The new partnership gets access to 800 supermarkets and retail stores in China, including 56 specialist retail meat stores in Shanghai, to sell it's products, and this alone will be a huge boost to the red meat sector.
As docking arrives, it has been reported that no Scabine is available for the second year running for the control of scabby mouth, as problems persist with the reliability of this live vaccine.
This week’s North Island wool auction fell again in spite of a 2.2% softer currency, with the lack of interest from China dampening demand, and crossbred indicators dropped to new yearly lows.
Shorter shears, which were the bulk of the offering were least affected by the drop, but only 70% of the sale was sold.
Values that earlier looked so promising for crossbred wool, have now dropped to levels last seen in 2013 and this will double the pressure on the sheep sector to improve profitability and stop the migration from sheep that has been in decline for years.
More beef schedule falls this week, mainly in the manufacturing and cow grades, as the US market turns to it’s domestic production.
Cattle futures in that country are also falling, indicating these lower prices could be around for a while yet.
The prime markets are faring better, helped by Asian demand and low Australian supply, but prime saleyard steers seem to have hit a peak at $3/kg live.
Demand continues for any store stock marketed, and with a mild winter and early spring grass, good animals are being sold for a premium.
Another small lift for venison schedules this week as they close in on $9/kg for chilled product, reported to be 25% back in volumes this season.
These shortages and high prices are making everyone nervous that long term relationships could be damaged if regular customer requirements are not met.
A mild winter and early start to spring should see a big percentage of young animals ready for this chilled trade and the high prices are a good reward for those that stuck with the sector when returns were low.
Button drop and early growth for velveting stags is now evident, as the mild weather has brought velvet growth on slightly earlier than normal.
The long term partnerships with Asian partners into the healthy food sector should reduce volatility of returns that used to plague this product and allow farmers to invest medium term in quality genes for even better returns.
By Keith Woodford*
When I was an undergraduate back in the 1960s – in some ways it seems just yesterday – the dominant agricultural paradigms were about farm production and management. As students, we learned nothing about marketing. And when marketing did come in vogue in the following decades, the dominant perspective was that marketing was what happened at the end rather than the beginning of the agri-food chain.
To a considerable extent, that perspective of a value chain that starts with production still survives within our animal-based agricultural industries. In contrast, the plant-based industries have been more successful in making the transition to a consumer-led position. And that may well be why, in an evolving world, our horticultural industries are currently succeeding where our traditional pastoral industries are currently struggling.
Our three big plant industries that are leading the way are viticulture, kiwifruit and apples. And then there are some other such as cherries which are also making good progress, plus seed crops such as carrots.
If we consider the ‘big two’ of kiwifruit and viticulture, neither were traditional industries to New Zealand. Both started from a blank page and had to find their own way. Both recognised not only that branding was essential, but that being ‘world famous in New Zealand’ was not going to be enough to take on the world.
The kiwifruit industry has certainly had its ups and downs, but the overall trajectory has been spectacular. The Zespri brand has leadership in many parts of the world. The Psa-V incursion in 2010 was traumatic, but in hindsight it has set Zespri on a new trajectory with the high quality SunGold variety.
One of the key reasons for the success of Zespri kiwifruit has been the recognition that international palates and New Zealand palates do not always coincide. So one has to go out to the market place and work with consumers to find out what will succeed in the international markets. But it is not only about the consumers themselves; it is also the cultural, regulatory and institutional environments that operate in these countries. And from there the path leads back to the science of variety development and on-farm production strategies.
Viticulture has taken a different structural path than the single-seller Zespri, in that there are many wine marketing companies. However, all of these wines are tied into their New Zealand provenance. In wine, branding is fundamental, but it still has to have foundations in science. It is perhaps a little sad that New Zealand wines are largely owned by foreign companies, which therefore earn the entrepreneurial profits. That is what happens in a country where people are spenders rather than savers. The equity capital has to come from elsewhere.
The apple story is different again. Apples grow well all over the world and New Zealand has no fundamental competitive advantage. For much of the last forty years, the apple industry was going backwards, tied to traditional thinking. Some fifteen years ago I considered it unlikely that our New Zealand apple industry would ever prosper. But somehow it broke loose from traditional thinking, and entrepreneurial companies have worked with the scientists to produce premium varieties which sell at premium prices. Once again, it started at the consumer end of the chain, combined with entrepreneurial thinking, and led back from there to production systems.
For much of my life I have worked in academia, albeit closely aligned to industry. So when I came back to New Zealand and Lincoln University in 2000, I thought a great deal about whether we could structure an agribusiness degree that started at the consumer end and which complemented the existing and highly successful production-focused agricultural commerce degree.
The basics of the model that I had in my mind came from University of Queensland, where I had been based, and where colleagues of mine had taken similar steps some ten years previously. That programme was particularly radical in that it included all undergraduate students undertaking a project, in groups of about five students, which took them to Asia with an ‘academic minder’ for some ‘on the ground’ market research on behalf of specific firms. It was certainly stressful at times – I recall once losing half my group in coastal China for 24 hours when a typhoon hit, the city went under water, and we had to travel to our hotel in a row boat. But the programme showed what could be done with industry support.
For a long time, I and my Lincoln colleagues were unable to get acceptance in New Zealand for a consumer-led undergraduate agribusiness degree, even without the radical option of taking all students to Asia on projects, which in the interests of stress management I had no wish to repeat. The concept of the degree was a step too far for traditional thinking and institutional politics. However, eventually we did make progress, and in 2014 more than ten years later, the first cohort of students finally entered the new Bachelor of Agribusiness and Food Marketing degree. This year the first students will graduate.
Overarching principles of this degree include that students must develop an understanding of food science. They need an understanding of marketing, and the complexities of working with food products. They also need to develop skills, via capstone courses, in the integration of science, markets, finance and people into agri-food systems. Within the limits of undergraduate teaching, they also need to develop skills in problem identification and problem-based learning, and also develop insights that, when they graduate, they have just taken their first steps in life-long learning.
We still had to make some compromises – in 2014 it was still very much a top-down environment at Lincoln – but in a changing environment even those issues are now starting to get sorted out. In the meantime, I and another colleague have moved on to other endeavours away from Lincoln, although I do retain some involvement. Others now carry the baton forward. As to the future, I am confident that the Agribusiness and Food Marketing degree will be one of the big three undergraduate degrees at Lincoln alongside agricultural science and agricultural commerce. It is also going to be a key degree that helps Lincoln further reach out to a global perspective.
A big question is the business environment in which these graduates will land. Will they find the challenges they seek within New Zealand or will many of them head overseas? Our horticultural industries, with their consumer focus, will be ready for them, but I am not so sure about the animal-based industries. Only time will tell.
Within our traditional animal-based industries there remains a deeply ingrained belief that our pastoral products are so wonderful that overseas consumers surely must want them. We have never quite learned that the consumer is the horse and that production is the cart. Changing traditional ways of thinking is never easy.
Keith Woodford is Professor of Agri-Food Systems (Honorary) at Lincoln University and a Senior Fellow (Honorary) of the NZ Contemporary China Research Centre. His archived writings are at http://keithwoodford.wordpress.com
Farm prices, including those of dairy farms are on the rise, according to the latest figures from the Real Estate Institute of New Zealand.
The REINZ All Farm Price Index, which adjusts for differences in the size, location and types of farms sold, was up 3.8% in the three months to August compared to the same period last year, while the REINZ Dairy Farm Price Index was up 6% compared to a year earlier.
"To the relief of all involved in the dairy industry, the increases in the recent Global Dairy Trade Auctions are a welcome indication of initial price recovery for dairy produce," REINZ rural spokesman Brian Peacocke said.
However the REINZ cautioned that the low number of dairy farm sales over winter, with just 14 sales recorded in the three months to August compared to 21 in the same period of last year, could distort the figures.
Overall there were 393 farms of all types sold in the three months ended August, compared to 387 in the same period last year.
"A shortage of snow and continuing dry conditions along eastern districts of the South Island, which are likely to impact on water reserves, is causing concern throughout those areas reliant upon irrigation schemes," Peacocke said.
"The current level of interest rates continues to provide opportunities for well structured enterprises in the rural sector and in the majority of instances, reports indicate the banks continue to provide support for farming operations demonstrating the ability to respond positively to difficult trading conditions."
The REINZ expected sales activity for dairy farms to remain constrained until the level of values in the new season was evident, however reasonable sales activity in finishing farms was continuing while sales of grazing properties was steady.
However there was reduced sales activity for horticultural properties and forestry blocks.
Unpruned export log prices were flat August to September and pruned export logs fell on average $2/JAS m3. It looks as though pruned export logs have now stabilised after falling more than $50/JAS m3 in the past three months.
The domestic market remained steady with stable pricing and strong demand. Pruned logs became more plentiful in the domestic market as exporters tried to reduce pruned logs being supplied into China. Quality pruned logs, however, are still keenly sought after.
Export Log Market
September saw a modest appreciation of the kiwi dollar and firming ocean freight rates which offset modest increases in US$ CFR price for export logs.
China demand continues to be solid following the end of the hot season with softwood log demand up to a high level of 61,000 m3 a day in early September. This is higher than seen during 2015 and the first half of 2016.
Inventory has remained steady at 2.5 m m3, representing 42 days’ supply. This makes the market well balanced.
Russian wood supply is emerging as a real threat. The country has a vast resource of forest – standing timber inventory is estimated at 82.1 billion m3, 77% of which is coniferous. Furthermore, despite an official annual total allowable cut of 717 m m3, Russia is only harvesting 205 m m3 (29% of the allowable cut).
Softwood roundwood volume harvest % for 2014.
The North-West region is substantially increasing lumber exports to China. Source: Ilam Timber.
Harvesting is constrained by high costs and limited infrastructure, but a 50% devaluation in the ruble during 2014-15 significantly lifted sales revenues. Also, greater mechanisation is boosting harvesting productivity as is modernisation of the sawmilling industry. In addition very cheap container rates are allowing lumber from timber-rich North-West provinces to economically find its way into China (this region is the source of most of the increase in lumber exports to China this year – see table below).
Russian lumber supply has been at record levels of over 1 m m3 a month since April. The five year trend is for Russian lumber to peak in May and then to reduce through to the end of the year, and ideally we will now see Russian lumber supply tail off.
Source: DANA Limited
The longevity and full extent of the surge in Russian lumber exports to China will be largely influenced by the value of the ruble. Certainly, the massive devaluation has been highly stimulatory. However, modernisation of the sawn timber industry and advances in harvesting productivity will continue to allow Russia to harvest increasing amounts of its vast forest resource and sell lumber into China. Whether this has a significant adverse impact on the market for Radiata pine will depend on China’s ability to continue to increase its demand for softwood logs and lumber.
The Indian market is continuing its strong run and Korea and Japan are steady. The Indian market is providing a welcome higher-price option for lower grades at selected ports. The growth in log supply to India this year is clear in the table below. We are expecting India to become an increasingly important market for NZ Radiata pine.
Source: Champion Freight
Domestic Log Market
The rampant New Zealand housing market, spear-headed by Auckland, needs no more air-play in Wood Matters. Short-term it’s beneficial for NZ wood processors and forest owners selling logs (and those fortunate enough to own one or more of those “million dollar” homes in the City of "Sales"). Longer term, however, the bursting of a bulging housing market bubble is about the most potent mechanism to cause significant and sustained pain to an economy and its participants. For those that don’t own a home, any bubble-bursting holds some promise of delivering more affordable homes – if they don’t lose their jobs along the way.
For the time being, however, domestic logs sales are buoyed by strong demand for unpruned and pruned logs and most domestic wood processors are enjoying strong demand for their products both in New Zealand and their key export markets.
Red Stag sawmill, Waipa, Rotorua, has invested in new sawmilling capacity to grow its share of the NZ structural lumber and remanufacturing market. This expansion increases lumber production to 750,000 m3 per annum, making it the biggest sawmiller in Australasia.
It’s great to see more attention to innovative wood-focussed building design emerging in New Zealand. The design approach and leadership for Nelson airports $23m redevelopment must be applauded. The use of wood as the primary building material, and in highly innovative applications, looks set to create not only a compelling aesthetic, but also a showcase for locally grown and manufactured timber. Apparently around 440 m3 of locally grown timber will go into the project which is expected to be completed late 2018. Click here to read more.
PF Olsen Log Price Index to September 2016
The PF Olsen log price index remained steady in September at $116. The index is $29 higher than its 6-year low of $87 in July 2014 and $11 above the two-year average and $13 above the five-year average.
Basis of Index: This Index is based on prices in the table below weighted in proportions that represent a broad average of log grades produced from a typical pruned forest with an approximate mix of 40% domestic and 60% export supply.
Indicative Average Current Log Prices - September
|Log Grade||$/tonne at mill||$/JAS m3 at wharf|
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.
Higher log supply volumes are expected from New Zealand through the remainder of this year as we move into more favourable seasonal harvesting conditions and the large early 1990’s plantings are starting to emerge into a reasonably well-priced log market.
The domestic market is expected to continue with strong demand and stable pricing for high quality unpruned domestic logs. Small downward pricing pressure is expected for domestic pruned logs in the fourth quarter (Oct-Dec 2016) on the back of large falls in the export log market. This could manifest itself in a bigger pricing differential for quality which would be a good development for the market.
At current settings for the export market, the outlook is for moderate increases in unpruned log prices and a larger rise in pruned log prices (noting that export pruned logs have fallen over $50 in the past three months).
If the appreciating kiwi dollar trend continues through September, however, it will have a negative impact on NZ$ at-wharf-gate log prices, unless offset by rising US$ CFR prices. Already this month the NZ$:US$ cross rate has increased from a start point of 0.724 to trade at 0.735 at the time of writing. During that period it has traded as high as 0.748. Each 0.01 appreciation in kiwi dollar shaves about NZ$ 3.30/JAS m3 off the NZ$ at-wharf-gate price.
Scion’s latest log price outlook reports a consensus that both pruned and unpruned export logs will rise over the next 6 months and can be read here.
The signs of spring are plentiful but the dry region still lags behind in soil moisture levels, and managers will be planning ahead with that in mind.
Soil temperatures are lifting and urea applications will now be kicking grass growth into gear, and milk flows are building.
Balance day nears in many rotations up north but managers are urged not to go any quicker than 21 days as growth rates in the warmer areas begin to build to surpluses.
South Island farms are now well through their calving and apart from the odd cold snap have had a good weather run and most should have little problem ensuring good BCS are able to be achieved by mating.
Monitoring of R2 heifers will give farmers an update on how they are tracking as mating looms, as after heavy culling every animal must perform in the herds replacements.
More optimism in the milk market when last week’s auction delivered another strong lift, which have now totaled nearly 30% in the last 3 events.
Analysts suggest the price correction may be largely complete, and predict a future period of consolidation with only low supply forecasts likely to drive further rises.
Others warn that the market fundamentals have not changed significantly, with oil prices still low, no signs from China of impending shortages and the high NZD still impeding farmgate returns, so managers should be very cautious on spending decisions for a while yet.
Some news from China suggests that this country has been suffering from hot dry weather, which may restrict domestic milk flows and increase the possibility that they may again start increasing their importing of milk products.
Open Country Cheese lifted it’s payout to $4.60-$4.90 in line with it’s competitors, but did warn farmers the recent rises maybe just a market blip.
Bank lending to the dairy sector has increased to $40 billion and now sits at 66% of the total rural debt and while the increase is slowing a percentage of farms are still under considerable financial pressure.
Northland also looks at a major irrigation project as planners look to utilise plentiful rainfall at certain times of year for storage to utilise when things are dry.
Funding has been received for the next stage of the Hurunui Water Project and the development is underway in an area still desperately dry.
The project has been developed as a low density scheme with most farmers only committing to irrigating 25-35% of their properties, but this amount of water will enable them to significantly improve the profitability of their dry land systems.
By David Hargreaves
Bank lending to the struggling dairy sector has topped the $40 billion mark, according to new Reserve Bank figures.
The annual figures for the year to June 2016 show that borrowing by the dairy sector accounts for pretty much exactly two-thirds of the $60.021 billion banks have advanced to New Zealand's agricultural industries.
This is the last time the RBNZ will be releasing these annual figures in this form.
It says it has been working with the registered banks since mid-2015 to develop a new registered bank balance sheet collection that will replace the Annual Agriculture Credit Survey. From next year it will publish more frequent statistics providing "more timely insights" into agriculture sector credit activity from the new registered bank balance sheet collection.
Dairy debt had been increasing quickly in the face of falling global prices and slumping returns for farmers. But the debt figures have levelled off in more recent times and now global prices are showing signs of recovery.
The RBNZ figures show that dairy debt rose $2.332 billion, or 6.2%, in the year to June from $37.746 billion to $40.078 billion, accounting for the majority of the increase in total lending to agriculture, which rose from $56.603 billion to $60.021 billion.
Dairy debt has made up about two thirds of the total in recent years after surging in the earlier 2000s. Ten years ago, dairy debt made up slightly less than half of the just $28.5 billion of total agricultural industry debt.
The detailed breakdown of the latest year's figures shows that $27.787 billion of the diary farm debt is on fixed rates, with $12.291 billion on floating. The latter figure is down from $12.575 billion on floating as of June a year ago.
Across the whole agricultural sector, $41.525 billion of bank debt is on fixed rates, while $18.426 billion is on floating. These figures compare with $37.317 fixed and $19.286 floating a year ago.
The Reserve Bank's separate sector credit figures show that banks have over $90 billion loaned to businesses and nearly $240 billion advanced to households, mostly as mortgages.
*This article was first published in our email for paying subscribers early on Tuesday morning. See here for more details and how to subscribe.