As the slowdown becomes a shutdown and bailout programs kick in, Guy Trafford takes a close look at the signals reaching the farm gate and tries to make sense of them

As the slowdown becomes a shutdown and bailout programs kick in, Guy Trafford takes a close look at the signals reaching the farm gate and tries to make sense of them

The latest Global Dairy Trade result was as expected, down. However, the results on the product mixes was somewhat unusual.

Overall, the drop was -3.9% but within the mix cheddar rose by +2.6% and butter +0.3%. That then left the powders to drag the price down. Skim milk powder fell -8.1% and whole milk powder -4.2%. These are the two main drivers of farm gate prices and so the fall here while not going to influence this seasons prices greatly, may be the start of a detrimental impact upon next seasons farm gate price.

Second guessing the results one could believe that the influence of Covid-19 is working both ways. In previous recessions fast food outlets reported an upturn in sales as people avoided restaurants and instead opted for a pizza or hamburger for a meal. This already is being magnified with in some EU countries and parts of the US restaurants being closed except for takeaway meals. So that may account for the lift in cheddar sales.

Butter is more difficult to place but possibly has benefited from some of the same influences.

The milk powder prices, both SMP and WMP, are strongly influenced by China. Given we have been hearing that the giant is waking up there was a hope that these prices may have held at a higher level and it was in the previous GDT auction that the hit may have been felt. Perhaps their stocks are at satisfactory levels negating the need for greater demand purchasing. Whatever the cause, China is also going to feel the economic effects of the rest of the globe going into a recession and this must reduce their demand and ability to pay into the future.

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Fonterra have tried to shore up their cash flow and financial position by apparently drawing down the $7 bln overdraft facility they have available with their bankers. They are no doubt, working on the basis that it is better in their coffers than the banks, especially with the record low bank interest rates they will be paying on it. This should ensure they are able to meet all their financial obligations for the foreseeable future. (The only concern I have is that they have left enough in the banks’ coffers for the rest of us!)

The Government announcement earlier this week regarding the injecting of over $12 bln into the economy as a means of “limiting the damage to a recession rather than a depression” certainly has done a lot to mollify the concerns of many small businesses and protect many jobs for the meantime. The twelve week period the wage support extends for may take us into a whole new paradigm. It would be nice to think that China may be over its issues with Covid-19 and we, providing New Zealand manages to contain and eradicate the odd outbreak, are in a position to begin some flights with them. Probably pie in the sky but at least we have some breathing space for staff.

One question ‘we’ had being a new business was the clause of comparing this year’s income with last years. We didn’t have our Riverside Market business last year and so couldn’t meet that. However, having just spoken with WINZ I feel more reassured that the intent is to help and the monthly totals drop is more the driving proof that WINZ need to provide the wage subsidy. We’ll feel happier when the money is in the bank but at this stage there are two staff still employed and I feel some relief. This whole Covid-19 event has a slightly surreal feel too it, not helped by the speed the events are unfolding. Nobody likes uncertainty and between markets, droughts and Covid-19 - plus Government responses to them - the place is buried in uncertainty. But slowly (in the context of these rapidly moving events) the pieces of the jigsaw are coming together although the picture they are forming is quite a different one to what we were looking at before the jigsaw got thrown up in the air four months ago.

It is perhaps unfortunate that Covid-19 has occurred in an election year (for both us and the US) as the opposition parties seem to feel an obligation to try and make political gains.  The situation for all is serious and it would be nicer in New Zealand case anyway if Parliament could work together on this rather than try to point-score. From my perspective it is not useful to the situation. In the meantime we will keep unloading livestock and we had our first frost of the season so it may be a cold winter ahead.

A positive footnote which has just come through is that Local Trade prices in the Northern Region and Local Trade Lamb in the North Island have had a small lift on their schedule which just came through. It has been a couple of months since we have had an up on pricing. No doubt driven by supply shortages, but up is still up. See here.

P2 Steer

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The 'NZ average' chart will be drawn here.
The 'NI average' chart will be drawn here.
The 'SI average' chart will be drawn here.

Dairy prices

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The 'GDT TWI index' chart will be drawn here.
The 'GDT TWI index % change' chart will be drawn here.
The 'GDT volumes sold' chart will be drawn here.
The ' GDT AMF' chart will be drawn here.
The 'GDT Butter' chart will be drawn here.
The 'GDT Cheddar' chart will be drawn here.
The ' GDT SMP' chart will be drawn here.
The ' GDT WMP' chart will be drawn here.
The 'USDA Butter' chart will be drawn here.
The 'USDA SMP' chart will be drawn here.
The ' USDA WMP' chart will be drawn here.
The 'USDA Cheddar' chart will be drawn here.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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As long as the meat works and the dairy factory staff continue to show up to work each morning farmers will be okay. Okay being a relative term. If there are outbreaks among staff in the processing plants and factories close the ramifications for NZ will get a whole lot worse.
Once the supply chain frees up and meat starts getting delivered offshore there should be a significant bounce in the schedule. Unless winter comes early and hard - then all bets off.
For our farm the race is now between autumn weight gain and a looming balance date.

I hope you are right but poor people don't become great customers overnight. Also Meatworks closed in Brazil means lots of meat waiting to enter supply chain.

Dairy news.
Look at Synlaits comments, referring to the screwed up supply chain.
Confident to say, it all comes right in the 2and half.
- given where we are now.

Dairy company Synlait has reported a 30 per cent fall in interim profit, due in part to "shipping challenges".

We may see China not wanting to pay as high as they have in the past.

Up to last week the beef schedule was all the processors way. Virus fears, China shut down, bovis herd clearances, North Island drought, reduction in some plant operations - one on top of the other.
Today - farmer supply slowing down, falling exchange rate worth 20-30c kg, China reopening, home deliveries replacing restaurant meals, rain is coming, (okay last claim less scientific - more hopeful). Bull offers already back up over $5 kg.
Prime Mid $5s kg by end May. $6 plus kg early spring. Or I will go vegetarian for a week.

Only beef I have is with Banks being allowed to steal from Savers to keep themselves and the Man and his ilk propped up and themselves from falling over.

When my term ends, there is gonna be hell to pay....and that you can actually Bank on.

When all and sundry and that includes the Sun dried patches of NZ and the classic borrowing from Peter to pay Paul to keep em afloat, during the lean meat times and the Fiat Money car payments put onto Houses, then we shall see when the tide goes out, just who is floundering.....Orr is that too simple to understand, underestimate at your peril......we ain't got a lot of Le-way and Liar loans and pumped up Government spending in Petrol Taxes left for this Legalised Ponzi schemes and all attached victims to end well. It may be a bit rich but thieving is still illegal in this brave new world of ours.

I'd be more cautious, economic crisis are not good for commodity prices.

Andrewj - If Roger Kerr with his currency forecasting skills can claim expertise I can make outlandish statements also.
To support my views the SFF Chair was on radio saying there is a rush to what I call comfort foods such as mince.