What happened Wednesday

A review of things you need to know before you go home on Wednesday; RaboDirect raises term deposit rates, food prices fall, Fonterra payout price holds, home loan affordability improves

27th Aug 14, 4:00pm by David Chaston

For Wednesday, August 27, 2014. <a href="http://www.shutterstock.com/">Image sourced from Shutterstock.com</a>

Here are the key things you need to know before you leave work today.

TODAY'S MORTGAGE RATE CHANGES
There have been no mortgage rate changes again today.

TODAY'S DEPOSIT RATE CHANGES
RaboDirect has made some significant rate changes today. It has raised its six month term deposit rate to 4.50%, up 25 bps from 4.25%. It has also raised its savings account rate to 3.40%, up 15 bps from 3.25% and made the same change to its RaboSaver for Business account. Its PremiumSaver account rate has been increased to 4.60% a rise of 10 bps. And its cash PIE account has also been increased. Expect its TermAdvantage PIE account to rise as well soon. These increases are impressive given that wholesale rates are not rising.

FOOD PRICES LOWER
Food prices fell -0.7% in July because of lower prices for grocery foods, fruit & vegetables and meat. They even fell on a year-on-year basis, especially fruit and vegetables. WDKHLWA.

CHINESE BABIES
Fonterra is betting big on baby formula in China. Its latest moves today are an attempt to get a better return from its supply and distribution positions.

PAYOUT HOLDS
Fonterra has held on to its $6/kgMS payout forecast for the upcoming year.

GOING NOWHERE
Today's release of weekly home loan approvals data is unremarkable - except to note two things. We seem stuck in a tight range of the number of approvals - they have been very stable at around 5,400 a week, and that is now 16% lower than at the same time a year ago. But mortgage values are not down anywhere near as sharply ('only' -9.5% pa) as the average loan size is now well above $190,000.

HOME LOAN AFFORDABILITY IMPROVES
The Roost home loan affordability Reports show that affordability continues to improve on a national level - mainly because house prices are falling slightly and interest rates are low. But Auckland is missing out on the benefit.

RENTS RISE
Rents are rising faster in Christchurch than in Auckland. Greg Ninness has all the gritty detail.

WHOLESALE RATES
Swap rates were down marginally again at the long end, which accentuates the flattening. 10 yr interest rate swpas are now at only 4.58% which is its lowest level since July 2013. The 90 day bank bill rate remained at 3.69%.

OUR CURRENCY
Check our real-time charts here. The NZ dollar is still at 83.6 USc, now at 89.7 AUc and the TWI is at 78.7.

You can now see an animation of this chart. Click on it, or click here.

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35 Comments

by Boatman | 27th Aug 14, 4:37pm 1409114263

5 Minutes ago The HERALD came out with an article that Colin Craig was near 5%

I am not surpirsed .............he is untainted by all the unpleasant stuff in this election , and his open honest and family-value views are just what middle New Zealand is likely to see as sensible .

I am fed up with the leading story on the 6 o'clock news every day being some whaledump or Nicky Hager saga which I dont beleive and have no time for

by MortgageBelt | 27th Aug 14, 5:09pm 1409116192

Good on them: At least they are unlikely to be running smear campaigns. Interesting how events & circumstances can change the fate of seemingly outsiders.

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11315119

They actually have quite a good line up in their top 5 on their list.

1. Colin Craig (East Coast Bays)
2. Christine Rankin (Epsom)
3. Garth McVicar (Napier)
4. Melissa Perkin (North Shore)
5. Dr Edward Saafi (Manukau East)

by Basel Brush III | 27th Aug 14, 5:48pm 1409118518

Yeah,right

Three loopy ones at the top ,then two most of us have never heard of.

by PeakEverything | 27th Aug 14, 10:51pm 1409136660

Ha you are right. Now its the loopy left v the rabid right. Let’s see how smooth the National boat is now with Colin and Winnnie messing with the oars!

Still hoping for the 4.6% mark and they don't win an electorate. Obviously if the Epsom voters want the rabble of the rabid right wingers they should be voting for Christine now. (Oh god sensible Garth god help us.)

by MortgageBelt | 27th Aug 14, 5:13pm 1409116408

And I hope Christine Rankin knocks out the cynical Act & National candidates - or messes up their percentages anyway, so that ACT loses! Notice in the TV random interviews in Epsom that some Epsom people think that Christine is the one that National want them to vote for! - lol. Maybe they actually do - who knows?

by Stephen Hulme | 27th Aug 14, 5:53pm 1409118809

Fonterra is betting big on baby formula in China. Its latest moves today are an attempt to get a better return from its supply and distribution positions.

Why has the debate been closed and 12 comments deleted without any explanation - is it to be expected that this will happen to comments in the future, which in some cases have required in depth investigation, hence time?

by Kate | 27th Aug 14, 7:40pm 1409125246

Yes, also interested in the explanation. Am hoping it's just a technical glitch and the commentary is restored.

by Colin Riden | 27th Aug 14, 8:07pm 1409126832

Am hoping it's just a technical glitch and the commentary is restored.

So am I. As one of the three commentators contributing to the discussion I have checked the comment policy and and don't see any transgrssions there.

That is not to say the issues discussed wouldn't have caused discomfort to all of Fonterra, Treasury and the National Party.

I remain interested in whether the editor will defend comments made within his policy from what may be threats from external interests.

Ongoing silence from interest.co.nz may be telling.

Confidence can be fragile.

by MortgageBelt | 27th Aug 14, 8:15pm 1409127339

Kim.com?

by cowboy | 27th Aug 14, 9:23pm 1409131424

Generally it's what happens when the admin removes/censors a message early in the thread-chain. all subsequent "child" messages that decend from it also disappear. Generally it's not considered a bug as the theory is that child messages require the parent (deleted) message for context so the entire chain removal stops questions being asked.

by Colin Riden | 27th Aug 14, 9:46pm 1409132768

This time though it is not a case of removing individual comments but the ability to comment - that has been disabled by site administrators. Check for yourself:

http://www.interest.co.nz/rural-news/71666/fonterra-invest-nz615-mln-bu…

by cowboy | 28th Aug 14, 7:15am 1409166954

I did notice.

Here's another little odd fish:

I'm sure I read on Interest.co.nz that Landcorp isn't a major Fonterra supplier/supporter (I think it was mentioned that they are mosly Open Country Dairy).

Now it's depressing enough to hear that Northland is looking at bring in Watert Consents for intrinsic right-to-life activities like stock drinking, as well as washing up. (which I'm sure will develop into quota and purchase extension options)....

And more depressing how some nutty woman is going on about "How the farm workers model must change because of the deaths and accidents". She ignores that staff must be paid, and the amount of contract and employment related expertise involved...all stuff that must farmers went to a hands on industry and started their own business to keep away from that sh..stuff.

But I'm reading in the NZFarmer (nzfarmer.co.nz) 26 Aug 2014 edition, on page 5, "Fonterra Workers get down in the mud". And it turns out 33 volunteers from the Stirling cheese factory went and planted some _Landcorp_ wetlands as part of a restoration project.

the (Waitepeka Farm) managers have won Environmental awards, and Landcorp has just posted millions of dollars profits....

But why are Fonterra ("we can't pay out the full price to sharemilkers") workers donating their time (for free) to a multi-million dollar opposition company (who could obviously afford to hire labour to do the work)?? If they have the time, couldn't they at least work for their own shareholders (who according to nutty woman, are working too hard), or help with their own suppliers water issues/water courses. And why are multimillion dollar profit (and government owned) Landcorp getting free labour (when the rest of us have to at least pay a rising minimum wage.....)

...people wonder why farming has the highest suicide rate in any industry in NZ (not that anyone wants to fix that - just force us to file more bureaucracy..... eg Why does Dept of Statistics send out farm information forms in the _middle_ of calving?? like I need more tangental irrelevant work at the moment!

by cowboy | 28th Aug 14, 12:09pm 1409184545

also Fonterra spending this big stash of cash on a part interest in a chinese company.... But remember what they said after the melamine issue : "We've learnt our lesson dealing with foreign companies, Fonterra will never enter into partnership where we don't have full control over product quality and our supplier shareholders can be assured of this"..... words in the wind.

by Henry_Tull | 28th Aug 14, 12:50pm 1409187040

this big stash of cash

its on the plastic (refer key transaction parameters)

https://nzx.com/files/attachments/199398.pdf page number 14

Partial Tender Offer: RMB18 per share

Financing: Additional debt – strong balance sheet

Offer size: Up to 20% of Beingmate

Board Representation: Fonterra to appoint 2 out of 9 directors

Closing subject to regulatory approvals

by Colin Riden | 28th Aug 14, 1:37pm 1409189838

Thanks Henry.

I also see you are not going to get an update on business performance till after the election.

by cowboy | 28th Aug 14, 1:36pm 1409189802

Still wanting to know when sharemilkers are going to see their share of this investment...

Point remains "so much for 'we will remain control' " guarantee. Guarantee right up until they don't want to.

by Henry_Tull | 28th Aug 14, 3:45pm 1409197557

Cowboy: The Beingmate deal seems to be about Australian milk.

https://www.nzx.com/files/attachments/199398.pdf page 16.

and

A Fonterra spokeswoman said it was not concerned about its brand being damaged by the scares and emphasised that the new partnership would use Australian milk, which had an excellent safety reputation.

Regulatory approval in Australia and China is needed before the partnership can go ahead. Ms Swales expects the process to take up to eight months.

because over there:

The boss of Australia's biggest dairy company is forecasting more consolidation in the sector, saying there "isn't enough money to be made" for all players.

Murray Goulburn managing director Gary Helou says Australia's "stagnant" milk production means that some of the countries biggest dairy companies will have to merge in coming years.

so would seem to be Fonterra saluting Colesworth and their $1 litre milk cratering the domestic market..

in a way saving the Australian assets that Fonterra shareholders here own.

Q: should fonterra promote a higher farmgate milk price in Australia to stimulate supply there, regardless of NZ farmgate price.

- any answer will be accepted provided it includes the the works volume and increasing.

by cowboy | 28th Aug 14, 8:39pm 1409215187

I'm aware that Australia markets like to act anti-competitively, which points towards by-passing that part of the chain although - if the projected cost is going to be big, take a leaf from Pengxin and take control vertically. Generally the best tactic for price wars is too get the other guy to increase THEIR volume of sales as much as possible, while you undermine what premium margin products they have, until they cease the foolish endeavour. The battle tends to go to the one with the lowest debt footprint ... the one not spending to far outside core business, and not getting into business with dodgy and far-afield overly-sensitive fad markets.

What stands out is farmgate price drops when the volume is increasing, so why are they driving down their own commodity revenues? That's how we used to end up with those commodity mountains back in the 70's.

Note also the NZ's many many "experts" are telling us that productivity must soar, and that China will pay for everything... so what this about stagnant and full markets? We are spending and developing production into flooded markets??

by cowboy | 28th Aug 14, 10:40pm 1409222405

yes Henry, this is bugging me.

"in a way saving the Australian assets that Fonterra shareholders here own."

So Fonterra ... went all "Warehouse" into a saturated market in Australia (anyone want to buy a pipe manufacturer?)... I remember my boss when I was sharemilking and getting a $7 payout that year, crowing about his Australian farms were making $7 AUS !! and his prices were cheaper over there. He said water quotas were a must have, but once you had them they were gold and the rtules so much more lax than in NZ. I also recall back in '04 following the floods, I was off work due to foot injuries that put me off work for three years...having to come back to work to cover for the Australian Dairy worker that was supposed to be covering for me. Basically he found it "too tough" working in NZ, and that wasn't even calving (it was March, one of our quietest times...)

So saturated market, anti-competitive behaviour, better payouts, rules more lax....why are we there?

And I know the forum owners don't like me "tapping on the glass" but Fonterra ("we will never surrender control in Foreign investments") is going in - as a minor partner - importing across Chinese borders - perishables - sensitive volatile and highly sort after market - competing against local and our own suppliers (both local here and local there) - and they're doing on 100% raised finance.... in a game of brinksmanship... with a gambling partner known worldwide as "The Tiger" .... whom even their neighbours are wary of doing business with.

Perhaps you can see why I think this is a rather un-sensible idea.... and so when I ask "when is this going to mean 'money in pockets' for NZ sharemilkers" I'm thinking a short payoff and considerable cash payout for what seems to be a rather outstanding level of risk.

by Andrewj | 29th Aug 14, 3:35am 1409240154

Dutch-based FrieslandCampina said that global supplies of milk, whose increase has been one factor in a tumble in dairy prices, will "increase still further in 2014", with prospects strong longer-term for European Union output, prospects for which are being boosted by the ditching of production quotas.

Indeed, FrieslandCampina said that much of an E652m investment budget for 2014 is being spent on boosting capacity at processing plants to cope with "the expected increase in the quantity of milk supplied by member dairy farmers from 2015 – the year in which the milk quota will expire".

European Union milk production volumes rose 5% year on year in the first half of 2014, including a 3.5% increase in the group's core Dutch market.

'Uncertain outlook'

http://www.agrimoney.com/news/dairy-markets-still-face-lacklustre-china…

The Fonterra crisis, and the real problem with New Zealand's economy http://www.nbr.co.nz/article/fonterra-crisis-and-real-problem-new-zeala…

by Andrewj | 29th Aug 14, 3:38am 1409240325

However, some experts call the movement to invest in agriculture as an “abnormal tendency”. Agriculture is a risky production sector which brings low profits, and therefore, will be a tough playing field for small enterprises that lack experience, money, land fund and advanced technologies, which are all needed to achieve success.

An economist said it was time to ring the alarm bell over the “agriculture rush”, warning that overproduction would lead to poor sales of farm produce and the collapse of businesses, which would then adversely affect the entire economy.

http://english.vietnamnet.vn/fms/business/110665/real-estate-companies-…

by Andrewj | 29th Aug 14, 3:50am 1409241035

Investors pile into Australia's dairy sector "That's about managed money and superannuation funds wanting to invest in agriculture, and they see dairy and Australian agriculture as a great way to do that."

Hoping to ride on this rising wave of investor interest, small-cap APA Financial Services will re-list as Australian Dairy Farms Group this year. APA currently has just two farms in Victoria state, but it plans to grow fast.

Dairy producers are looking to ramp up stagnant local production in the face of Asia's fast-growing middle class, which is expected to consume more Australian dairy as it develops Western tastes while distrust of local food safety procedures prevails.

http://www.fin24.com/companies/agribusiness/investors-pile-into-austral…

by cowboy | 29th Aug 14, 7:25am 1409253906

Well then AndrewJ, the only sensible thing for NZ and NZ government to do is impliment more costs and barriers to NZ dairy farmers. (sarcasm alert)

by Andrewj | 29th Aug 14, 7:36am 1409254616

Sailing into a perfect storm with the spinnaker up.

Its going to do wonders for afforability in the AKl housing market.

http://www.oftwominds.com/blogaug14/artifice8-14.html

by steven | 29th Aug 14, 8:46am 1409258781

Everyone, not just the AKL housing market.

"There is nothing remotely "normal" about the echo-bubble's rise, and we can anticipate that its deflation will be equally abnormal."

indeed.

For me not fixing the finance indistry but throwing money at it is like giving someone with a headache asprin while allowing the asshole behind him to continue to bang away with a hammer. Except of course its worse, they have handed the asshole a bigger hammer to boot.!

oh boy.

by Colin Riden | 29th Aug 14, 11:03am 1409267025

The Ruataniwha Water Supply Scheme being a perfect example of increasing costs to HB farmers be they in the scheme or not.

To be fair though it is a joint central/regional government operation (government policy, funding and subsidies but with the regional council supposedly leading the process).

by cowboy | 28th Aug 14, 1:59pm 1409191189

so they can't borrow to pay their bills, but they can borrow to spend more in China

by Henry_Tull | 29th Aug 14, 8:19am 1409257150

the dairy co-operative's new partner is facing falling sales and profits and is reportedly grappling with major distribution challenges.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11315755

is the 20% for new shares or for purchase of existing shares?

by Colin Riden | 29th Aug 14, 10:54am 1409266460

It has been described to me as a basket case that may have considerable liquidity problems.

by Henry_Tull | 29th Aug 14, 12:17pm 1409271470

well local press over there seems to indicate some issues:

(be prepared to use/deal with google translate). note the company has several names or known by/translation names.

Henan, a milk dealer complained great wisdom news agency, said the transition too quickly Bein America brings pains with no buffering, dealers now have a lot of grievances. "Last year, too Yahuo calendar harm, and later dumped goods dealer pressure, and now efforts are stopped, but the prices directly up, the stock does not move." According to the dealer said, now Beingmate milk dealers each category Chu Huojia than previously rose more than 10 percent.

　　For Bein America's new children's milk is currently the dealers said they did not look good. "Currently temporarily out of stock yet, but have seen the samples, and the company's popular products Want Wang Zi milk packaging as well." Preceding analyst believes that competition in the market has been more intense, increasing homogenization of products premise, as later who, this time to cut children's milk market, most can only imitate share.

http://suzhou.liebiao.com/sheying/131930566.html

　Bein United States ( 002,570 ) disclose the 22nd evening reported that the company in the first half operating income of 2.405 billion yuan, down 25.24%; attributable to shareholders of listed companies net profit of 108 million yuan, down 72.09%; basic earnings per share of 0.11 yuan.

　　The company also expects the first three quarters of net profit 12,527.59 to 375,827,600 yuan, down 25% -75%.

　　Decline in performance reasons: the company's ongoing business transformation and process reengineering, resulting in key products, infant formula milk powder sales decline in sales in the short term, a larger decline in operating income in the first half, earnings below expectations.

http://stock.10jqka.com.cn/20140822/c567067600.shtml

and

http://irm.p5w.net/ssgs/S002570/

by Colin Riden | 29th Aug 14, 12:31pm 1409272284

It may be that the local press over there is more onto dairy processor financial performance issues than the local press is over here.

by cowboy | 29th Aug 14, 1:29pm 1409275778

So who are the companies Chinese sponsors in the marketplace? Who is "guiding them through" government compliance?

by cowboy | 29th Aug 14, 1:27pm 1409275651

Holy crap ! That's not a "buy" signal ! That's a _BURN_ signal (out and fast).

You realise that they are going to be up against Pengxin's own home brand, and Px own the distribution points so retail "first shelf" space will be their own name brand, followed by the Px "generic cheap" second shelf?

They're buying into a falling major company? that is losing ground on Product, on Promotion, on Placement... and that is likely to have supply & efficiency issues as it's the market behemoth??

Are the same decision makers the one trying to expand in a saturated Australian market and buying pipe companies etc? Who are they really working for (because it sure ain't For Fonterra!)

by Andrewj | 28th Aug 14, 3:28am 1409153298

I think it could have been ME! I have been known to have the odd drink in the evening and sometimes I find humor is the only solace I have left.

I think our boys in Fonterra are in a bit of a bind,'painted into a corner', so to speak. China is the only growth market and its not looking as good as it looked when they became production focused a few years back. Now the production in NZ is continuing to turn up and if it doesn't go the China, then where to?

Then things get more interesting, China has a grain surplus, this is a country that in 2004 China had a 10 million tonne grain surplus. Governments are not that good at guessing markets. This year China has a 75 million tonne surplus, it is out of storage space. Why, good question it could be price driven.

>>>

Corn on China's Dalian Commodity Exchange traded at around 2,390 yuan ($388) a ton as on Monday, compared with corn on the Chicago Board of Trade which traded at about 367 cents a bushel -- equivalent to about 890 yuan a ton.

>>>

So getting the surplus into perspective, its more than Australian grain production (34 million tonnes) Canada produces 37 million tonnes of wheat, buts its still more than Canadian total grain production around 70 million tonnes.

China's surplus is massive at a time when even the Ukraine is starting to produce reasonable volumes, with production growing at %40 a year and this year exports are expected to be 4 million tonnes.

China is a monster in the grain business. http://www.agricorner.com/world-top-ten-wheat-producers-2013/

http://www.theaustralian.com.au/business/latest/china-is-awash-in-grain…

>>>>>

"The stockpiles are absolutely ginormous, way out of line with anything that you could justify holding onto on any sort of commercial basis," said Thomas Pugh, an economist at Capital Economics in London. "These are perishable goods, so they will start to deteriorate." He estimates China holds about 40% of the world's corn stocks. China plans to build storage facilities to hold 50 million metric tons more of grain by 2015 to cope with the excess, according to state media.

>>>>

Good on Fonterra for having a go in a world market that is rapidly reaching oversupply, but a 1.2 Billion dollar punt on China? that I'm not so confident about.

I suspect world agriculture is reaching an impasse, we all want to be the exporter, we all want to be self sufficient and someone else to be the importer, I just don't see the importer as easy as I did 10 years ago.

Beef in the States is getting the speed wobbles, at these prices alternatives are taking over.

China

http://davidstockmanscontracorner.com/chinas-monumental-ponzi-heres-how…

Even India is in on the game

Wheat shipments from India, the second-largest grower, may climb to a record as the government cuts the price for overseas sales, adding to supplies in a year when farmers are reaping the biggest global harvest ever.

by cowboy | 28th Aug 14, 12:10pm 1409184624

well if the grain starts to drop below food quality, and below stock food quality, I'm sure they can use it for fuel