90 seconds at 9 am

90 seconds at 9 am: Crude prices lurch down; Strikes in Spain and UK; Spanish bonds in crosshairs; US growth; Fonterra shines

30th Mar 12, 8:39am by David Chaston

Here's our summary of the key news overnight in 90 seconds at 9 am, including news that we are ending the first quarter on 2012 with most economic issues unresolved.

Even though prices at out petrol pump are almost at their all-time high, there has been a continuation of the sharp falls in benchmark crude oil prices overnight, with more indications that a number of countries are about to release some of their strategic reserves. Not only have tensions with Iran eased a bit, and the Saudi’s are talking the price down, stalled EU economies are depressing demand. And talk grows on evidence of surging US oil production.

The mood in Europe has not really gotten better in the first three months of 2012. There fears of a general strike in Spain are spreading, and there is hoarding in the UK ahead of expected strikes by fuel tanker drivers. Euro-zone bond markets overnight received their first jolt since the Greek debt exchange was clinched earlier this month, with Italian and Spanish bond yields soaring due to a combination of pressures. But over the quarter, global CDS spreads eased slightly despite a spike midway through the period.

In the US there has been confirmation their economy grew 3% on Q4, and the latest unemployment claims data was good, although not quite as good as economists expected. Officials there are claiming the US economy will grow this year at their long-term trend rate, which represents a significant rebound from the rates of growth over the past four years.

In the first quarter, our exchange rate rose almost 5% on a TWI basis. Much of that is due to our booming dairy sector, and Fonterra reported improved results yesterday along with growing global ambitions.

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27 Comments

by Colin Riden | 30th Mar 12, 9:28am 1333052932

Keep spinning the good news David, and don't let a look at Fonterra's actual financials get in the way.

For the six months to January 2012 Fonterra's equity went backwards by $181 million - in spite of shareholders contributing a further $119 million in share capital.

by Ralph | 30th Mar 12, 1:37pm 1333067841

The Herald's report says this:

Fonterra

Six months to January 31

Revenue: $10.03b (+7pc)

Profit after tax: $346m (+18pc)

Dividend: 12c per share (+50pc)

Gearing: 46.9pc (-3pc)

by Colin Riden | 30th Mar 12, 6:39pm 1333085957

What do you expect from the Herald/MSM? Read Fonterra's Interim Report:

http://www.fonterra.com/wps/wcm/connect/fonterracom/fonterra.com/our%20…

Note, on page fifteen of Interim Results FY12 - total comprehensive income for the period at ten million dollars, of which three million is attributable to shareholders of the parent.

The figure for the six months to January 2011 was 378 million (-99pc).

Of the ten million total comprehensive income 152 million came from tax credits on cash flow hedges (Fonterra lost 472 million in cash flow hedges).

The reason equity went backwards by $181 million - in spite of shareholders contributing a further $119 million in share capital - is that Fonterra paid out 303 million of dividends declared last season. The 180 odd million interim dividend just declared is to be paid on the same basis - from future revenue or equity.

Does anyone remember Fonterra's 2009 Interim Report?

by Christov | 30th Mar 12, 9:36am 1333053363

“We need to look outside of New Zealand, we need to look at other milk pools,” Chief Executive Officer Theo Spierings said on a conference call today after the Auckland-based company reported an 18 percent rise in first-half profit. “If we only focus on New Zealand, we’ll lose market share, we’ll lose relevance.”

“It’s an opportunity we need to grasp,” Spierings said. New Zealand production is forecast to rise about 5 billion liters by 2020, and exporting that to the world will always remain the company’s top priority, he said.

“We want to do less but with more intensity,” said Spierings. “We have to generate more cash if we want to grow faster.”

Without that framework, the company “may have to make other choices” regarding its strategy, Chairman Henry van der Heyden said on the conference call.

David, see if you spot the conflict between paragraph 1 and two.

Statements three and four are ominous to say the least.....the beast is awake, hungry, and now in fear of self implosion as it's staple can no longer sustain it's proportion.

by Basel Brush III | 30th Mar 12, 9:38am 1333053505

Meanwhile we will try to avoid screwing up the environment any more than is absolutely necessary so as to keep the watchdogs quiet."

by Andrewj | 30th Mar 12, 10:15am 1333055757

Christov, its all about confidence and being confident. The world economy hit an iceberg but we will stand on the bridge with confidence in a future, one which will be a brighter future, in a land of milk, who really needs honey, rivers of gold as the sun reflects off the shit, and the gentle moowing of cows sooth us to sleep. With 400,000 new immigrants in Auckland as 30,000 kiwis leave a month we will all be able to be confident and see how our leaders are soo much smarter than us even if most of us now live in Australia.

by Christov | 30th Mar 12, 10:28am 1333056520

Amen to that AJ.......and the cow jumped over the moon.

by Casual Observer | 30th Mar 12, 12:11pm 1333062671

Speaking to a few shareholders in North and South Islands I have yet to meet anyone who isn't wary of our new CEO. He and our knighted chairman appear to have a very cosy relationship.

The govt has made it clear it wants Fonterra to grow - though it is proposing legislation that potentially will eventually destroy it .. Good to see Simon Couper of the Shareholders COuncil standing up and being counted - he's the only one saying any sense. http://www.stuff.co.nz/business/farming/6661097/Farmer-warning-over-dai…

With John Banks also saying he won't support it past the first reading it could be interesting. http://www.stuff.co.nz/business/farming/6663560/Price-of-milk-bill-risk…

A while ago I sent an email out to all Party's re this bill and within hours had a phone call from Damien O'Connor. I know of other farmers who have received such a call from Damien and they were impressed with him. No wonder there were a few Coaster farmers who voted for him. ;-)

by Ralph | 30th Mar 12, 1:42pm 1333068145

So is the farmers objection about the price transparency or is there something more sinister in the last line of the article do you know?

"The bill also includes changes that enable Fonterra to move to its proposed Trading Among Farmers (TAF) system."

Apologies for the ignorance.

by Casual Observer | 30th Mar 12, 2:52pm 1333072341

It is a combination of some complex things Ralph and I will attempt to give an example of some of them. To quote David Carter, (emphasis is mine): 'about making sure there is genuine transparency around the way Fonterra sets the price of milk because the price Fonterra sets by default becomes the price every other processor must match". Carter is talking bollocks.The co-ops Tatua and Westland do not try to match Fonterra. They pay their farmers a price that the Co-op can afford and can be more, less than, or equal to Fonterra's milk price. Miraka suppliers have told me that they have been offered 'Fonterra plus 10c/kg' so they obviously feel their cost systems allows them to pay more than the Fonterra milk price. Open Country Dairy is the processor who makes the most noise about the milk price and they have been reported in the media saying that the milk price is too high - so why don't they pay a price that is affordable to them? Synlait have more or less said that they can live with the new proposals regards access to DIRA milk, but Open Country are kicking and screaming against the new access proposals. This government seems hellbent on protecting Open Country Dairy. (Lookup which National MPs are/have been involved in it). As Simon Couper says, it has nothing to do with the price NZ consumers pay and won't change a thing in that regards.

Fonterra has made its pricing method public and both MAF and Commerce Commission say they have found it to be fair. So why bring in this heavy handed legislation with Commerce Commission oversight etc for something that everyone agrees is ok? This is purely an attempt to 'buy' votes for the future - and I have been told that this government 'is prepared to sacrifice 10,000 farmers to get 4million kiwis onside'. Fonterra is required by DIRA to announce it's projected milk price every quarter. Imagine how much work the oversight is going to create for the bureaucrats - they would hardly be announcing the price for one quarter and they would already be working on the price for the next quarter!

TAF has many farmers now questioning the real intent of it. There are growing numbers who believe that in it's present form (despite the protestations of Sir Henry) it will lead eventually to a full listing on the stock exchange. Shareholders do not want to lose control of the company - it's that simple. I recently had a conversation with a retired very senior industry exec about TAF. In their view (and they are far more clued up about stock exchange rules/company rules than I am), if TAF comes in as it is, they give Fonterra 5 years max, before it's farmer control is lost. In the fine print of the proposed legislation it implies if TAF doesn't happen, then not only could the govt set the milk price Fonterra is to pay it's farmers, but also set it's share price. Government intervention in setting the share price of a private company is something all New Zealanders need to be concerned about. So do we as Fonterra shareholder really have a choice about TAF given this veiled threat?

When an MP said to me 'this isn't about farmers, it is about dismantling a very succesful NZ company for the banking vultures to come in and gain total control over and the stakes for NZ are high' I realised that there is a much more sinister agenda in this proposed legislation.

by Ralph | 30th Mar 12, 3:11pm 1333073488

I see.

And all dressed up in the drag of "cheap milk for the kiddies" to the electorate.

I'd be deeply disappointed in Mr Key if this were the intent.

by Ralph | 30th Mar 12, 3:53pm 1333075992

Having taken a moment to fully digest your summary I have this to say.

If this is true; if the government has erred into treading on the rights and livelihoods of private individuals going about their collective business. If we are to witness an act of theft for their own sordid electoral gain -- then we must fight.

To quoting Mr Churchill for the second time today:

Never give in - never, never, never, never in nothing great or small, large or petty, never give in except to convictions of honour and good sense. Never yield to force; never yield to the apparently overwhelming might of the enemy.

Have we journeyed all this way across centuries, across oceans, across divides, through wars and opposing tyranny of every kind because we are made of sugar candy?

We are not a nation of idle fatalists who stand dumbly by. We are the nation of peoples who, like Royd Kennedy, crawled under a burning petrol tanker to pull to safety a trapped young woman in the midst of the fire.

We are the nation of peoples who, like Willie Apiata and Charles Upham, stood up on the battlefield in the face of death to save their fellow man.

We are the nation of peoples who, like 'two witnesses known as Mr & Mrs Clark', rushed to rescue two young men who crashed their car into a stream only to have to hold their hands in comfort as they drowned.

by steven | 30th Mar 12, 9:42am 1333053750

Looking at the oil price graphs its hard to see anything but noise...

http://oil-price.net/

however the rising trend is starting to look flatter for Brent....maybe overnight its was speculators bailing so as not to take losses....

regards

by Neven911 | 30th Mar 12, 10:44am 1333057478

Guys

Have you noticed that Oil has gone from being a sideline indicator to now a lead issue (it was always a lead issue just the growth acolytes didn't realise).

At some point Bernard and David will talk about notthing else...

by steven | 30th Mar 12, 11:20am 1333059623

yep.......though Matt Simmons maintained that it would take three such spike events for a) Peak oil to be generally accetped and b) for it to considered without doubt THE problem. .......this is the beginning of no2....but maybe B & D will be ahead of most.....maybe they are thinking this just keeping quiet...BH after all got considerable flak over the 30% drop he expected in property not happening yet.

Others of course like DavidB & PhilB will be denying it to the end....

regards

by steven | 30th Mar 12, 12:21pm 1333063297

Interesting read.

http://www.energybulletin.net/stories/2012-03-29/america-two-empires

regards

by Kiwi | 30th Mar 12, 11:05am 1333058734

Interesting article on why commodities are volatile at the moment.

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/3/29_Norcini_-_Trading_Extremely_Violent_%26_Will_End_in_Disaster.html

by Andrewj | 30th Mar 12, 11:31am 1333060267

Thanks Kiwi.

by steven | 30th Mar 12, 12:13pm 1333062793

Of course its speculation/opinion...no way can the writer know whats in ppls/traders minds....Also it had to be the Govn/fed causing this and not the market and its parcipitants itself. I think its more fear and greed...."oh god bernakie blinked...sell!!!! sell!!, he's smiling!...bye bye!!! no its a grimace...sell!! sell!!....etc

The only reliable bit of info is the market(s) is jittery and looking downwards, only fools play here IMHO.

regards

by Christov | 30th Mar 12, 12:54pm 1333065254

Hey Steven ...the Bernakie bit was funny....I mean genuinely funny.!..thanks for the laugh.

by meh | 30th Mar 12, 2:41pm 1333071705

Wolly hasn't posted many articles from here recently but this is an interesting read.

US economy dead man walking, the crash of 2012 http://www.marketoracle.co.uk/Article33767.html

by andyh | 30th Mar 12, 3:29pm 1333074556

''And talk grows on evidence of surging US oil production''.

Really David? Surging?

In 2008 annual US oil production was just under 5,000,000 barrels per day. 4 years later (2011 figure) it has risen to 5,670,000bpd (after the addition of thousands of fracked wells). Thats a 4 year cumulative increase of about 700,000 bpd or about 12%, or about an extra 175,000bpd of added total production per year (a 3% annual increase?).

To put that in context, back in 1970 the US once produced nearly 10,000,000bpd, as is shown wonderfully well in this graph:

http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRFPUS2&f=A

Surging you say?

When the world has to find new production of an extra 4,000,000-5,000,000bpd just to STAND STILL and make up for declines in existing fields such as the North Sea, Alaska etc? Even the EIA doesnt see the US getting to too much more than 7,000,000bpd by 2020 even if all the tight oil (shale oil) is exploited - however just think of what the cumulative deficit of loss to depletion of existing fields is by 2020..........

by skudiv | 31st Mar 12, 7:46am 1333133161

I think global production is becomming a bit misleading when you look at actual supply. Export land model explains it. The Saudi's are pumping near maximum, but exports are in actual decline. The reason is that, internal consumption is rising faster then production. The fundamentals for higher oil prices going forward are all there.

We all need to accept that in the future we will need to consume less oil. In NZ we are actually quite lucky, because we have a lot of renewable energy, and have a lot more resilience compared to a lot of other countries. Substitution for gas, or with hydraulic fracturing is the same as solving a debt problem with more debt. It may allow BAU for a bit longer, but it cannot prevent the outcome.

by Plutocracy | 31st Mar 12, 7:55am 1333133725

Well put!

by Andrewj | 31st Mar 12, 8:57am 1333137429

http://peterlbrandt.com/must-read-for-commodity-and-commodity-etf-trade…

by skudiv | 31st Mar 12, 7:10pm 1333174256

The willingness to create money out of thin air eventually catches up to a society. You cannot roll the dice forever without having to pay the piper eventually.

As Friedman describes on page 220 of Money Mischief, inflation creeps up on people when they least expect it. At first, stocks soar, wealth rises, and unemployment actually improves (temporarily).

by Wolly | 1st Apr 12, 8:15am 1333224903

"German Chancellor Angela Merkel has proven she is nothing but a liar"

http://globaleconomicanalysis.blogspot.co.nz/