The world of dairy farming in New Zealand is starting to become a little more certain in the last week or so, with some better news coming through - starting with the confirmation of a buyer for Fonterra's China farms.
With a selling price $544 mln it potentially reduces the cooperative's debt from NZ$4.7 bln to nearer the NZ$4 bln mark.
Back in 2018 Keith Woodford wrote a detailed analysis of Fonterra’s roles with China Farms and at that time the farms value on the books was NZ$748 bln of which the livestock made up NZ$280 million. Reportedly over NZ$1 bln has been invested in the setting up of the operation which milked 31,000 cows. So while the sale will bring some relief to the board in not having to keep being reminded of the poor decisions that led to setting up the farms in the first place, the sale is hardly the ‘sale of the century’, at least not to the seller.
It is perhaps interesting that the buyers are Inner Mongolia Natural Dairy, a subsidiary of China Youran Dairy Group, and Beijing Sanyuan Venture Capital, which held the minority share. Neither of the two-milk producing giants Mengnui and Yili, who also both have farms in Inner Mongolia, have featured in the purchase.
The Brazilian based company DPA Brazil, co-owned with Nestlé is the final major asset left to go. Fonterra has a 51% share of that company.
The second piece of good news was the latest GDT result. This auction came and went and barely rated a mention, however, the news was good with another rise in the weighted average price of +2.2% and follows the previous rise of +3.6% two weeks ago. The main product results are below with SMP having a fall (-0.9%) and butter being the largest improver with a +8.4% rise.
Butter index up +8.4%, average price US$3,561/MT
Cheddar index up +0.4%, average price US$3,694/MT
SMP index down -0.9%, average price US$2,865/MT
WMP index up +1.7%, average price US$3,041/MT
With milk production in both New Zealand and Australia getting close to peak production for the season, if the GDT price was ever going to dip then now would be a likely time. So positive signals for the future.
The final price for Fonterra organic milk was announced last week with farmers to receive $10.19 per kgMS, a record price. The forecast for the current season is between $8.50 - $9.00. At present it is reported that there are 74 farmer suppliers with another 25 in the pipeline - yet another case of Fonterra having done a u-turn on a previous poor decision. Economic drivers are definitely moving many Fonterra farmers down a greener pathway, only 10,400 to go (or thereabouts).
The final positive piece of news is the fact that both major political parties are recognising the role that agriculture and in particular dairying has to play in maintaining New Zealand’s balance of payments and keeping the lights on in New Zealand. While this is not a free pass to do whatever, it at least has seemingly taken the foot off the throat of dairying. What happens after the elections is another point which only time will show.
The biggest negative on the horizon is likely to be the climate. With the amount of disruptions seen in other parts of the world the likelihood of extreme conditions affecting New Zealand would appear to be higher than any time in the past. This may make a change to current thinking where climate or environmental policy has been where much of the headaches occurred, rather than actual climate itself - although, farmers in affected drought areas of last year may disagree. Most farmers should be in agreement now, recognising the threat as a major disrupter to the farming calendar.
In the meantime, elections for the Fonterra board are approaching with a few new names being thrown in the hat. Six candidates have come forward for the two positions available. They are:
Nicola Shadbolt, a past director who is keen to get involved with the future direction of the coop.
former Minister Nathan Guy, who is retiring from parliament this year.
Lawyer Cathy Quinn, who narrowly missed out last year,
Hamilton-based financial analyst Annabel Cotton
Corporate farmer Mike O’Connor
and Brent Goldsack a sitting director aiming to regain his seat.
The other vacancy is due to chairman John Monaghan retiring at this year’s annual meeting to be held on November 5.
The candidates start a roadshow to meet and answer questions from Fonterra shareholders on October 19 and voting packs will be sent out to farmers next week. Voting closes 10.30am on November 3, and results will be announced later in the day.