The Weekly Dairy Report: Litigation and another food scare shake Fonterra

DAIRY

Good feed conditions continue for the South Island and the bottom of the north, but for the balance of the country, pasture growth rates have fallen to levels that need supplementation.

NIWA's just released two month predictions do however predict above normal rain for these now rapidly drying areas so dry conditions may only be short term.

Dairy advisers suggest summer is a good time to empty effluent ponds without the risk of runoff to the environment, and remind operators to regularly monitor young stocks progress to live weight targets.

To address animals behind in weight targets is much easier to address now and into the autumn than try and play catch up in the winter..

The major news of the week is dairy giant Danone’s determination to seek legal compensation for the botulism scare via the courts, which if successful could hit Fonterra shareholders in the pocket by about $40,000 each.

While analysts suggest that Danone are unlikely to be fully successful in achieving compensation to where they want, there is no question companies they are associated with did suffer a major financial setback from this scare.

This was followed by another Fonterra food scare with E. Coli being found in fresh cream supplies and a product withdrawal is in progress. While the scale and cost to this latest food safety issue is small, this is just another chink in the reputation of Fonterra and NZ to guarantee safe clean food and if global production does lift to surplus and choice returns this could prove to be costly to our farmers.

More news of more processing capacity being built with the Yashila plant on schedule in South Auckland and reports another plant is to be built in the Gore region.

A slight drop at the latest global dairy trade auction on reduced volumes, saw SMP prices fall by the biggest amount in 8 months, as it appears customers are sourcing this commodity elsewhere.

Also of concern is a Canterbury report that states operating costs are now $5/kg ms and average debt servicing costs another $1.40, to keep the pressure on maintaining strong prices and production into the future.

Mixed aged cow herds are selling for $2,000-$2,350 per head on strong demand adding to the huge capital required for new conversions.