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Industry body DairyNZ says the latest drop in Fonterra’s forecast Farmgate Milk Price for the 2014/15 season is a signal to farmers to reassess the costs of their farm system.
Fonterra Co-operative Group Limited today reduced its forecast Farmgate Milk Price for the 2014/15 season from $6.00 to $5.30 per kg milksolids (kgMS).
It also increased and widened the estimated dividend range from 20-25 cents per share to 25-35 cents – amounting to a forecast Cash Payout of $5.55-$5.65 for the current season.
DairyNZ’s general manager of research and development, David McCall, says most farmers should cope with lower prices this season, provided another drought doesn’t hit the country.
However, around a quarter of the country’s farmers, those with a lot of debt, may have difficulty meeting their farm working expenses and interest payments.
"Our real concern is maintaining profitability across the industry if milk prices remain low for the 2015/16 season."
He says last season’s high milk prices will deliver a significant deferred payment to farmers into the 2014/15 season, which will bolster low milk prices this season.
“We expect farmers to make a determined effort to control farm working expenses this season, with an average budgeted reduction in farm working expenses of around 40 cents per kgMS to $4 per kgMS. That will affect regional economies and communities the most. We estimate just over a $1 billion loss of income for farmers based on comparisons with the 2013/14 season’s production,” he says.
“Our surveys show that farmers will reduce their spending on bought-in supplementary feed, fertiliser and repairs and maintenance, which all increased in 2013/14.”
David says the focus for DairyNZ isn’t just about getting farmers through this season.
“We will be urging them to think about the next five years – are they running profitable farming systems that can survive fluctuating long-term trends in payout?
“Our analysis shows we are just within the long-term bounds of the trends for average dairy company total payouts – and if you can’t survive those, then you need to look at your farm system and what to change.
“We know there are dairy farmers who operate low-cost farming systems that are able to make a profit with a $5 Farmgate Milk Price. There are lessons from their experience for our industry.
“We know how they do it – those farmers simply focus on growing grass well, using pastures really efficiently and maintaining a stable production system that delivers a consistent profit every year. They have low-cost farming systems. That’s always been the way in New Zealand – and we see the future heading that way too,” he says.
“DairyNZ has some farm systems research in its final stages that will help farmers reassess the costs and benefits of how they farm and we’ll be urging them to look at that work. We need to drive our pasture-based system to its most efficient and innovative edge.
“We want all farmers to build strength into their businesses – rather than just hold the line in the hope we will be rescued by a milk price lift next season.”
72 Comments
The reason I don't like DairyNZ:
"Industry body DairyNZ says the latest drop in Fonterra’s forecast Farmgate Milk Price for the 2014/15 season is a signal to farmers to reassess the costs of their farm system."
WTF are they talking about. Most farmers are either already low cost, or they continually assess their cost structures, so why are DairyNZ saying something so pointless, and taking the advisory pretense (again)?
>>>> and why is the pressure on the farmer to reduce cost below proper operation, and lack of pressure on Fonterra to perform up to business requirements. A salesperson is worth the profit they create - not by telling the owner to cut other costs to get the sale.
and
"He says last season’s high milk prices will deliver a significant deferred payment to farmers into the 2014/15 season, which will bolster low milk prices this season."
Typical DairyNZ trying to double spend - a bit like the merger of the two years results we saw from Fonterra earlier in the week.
The last season is the last season - it was used to pay down debts (remember) and to cover deferred maintainence from previous years (remember). It can't then be used for a third time, to bolster next years expenses.
These guys represent the worst in out of touch, over priced, academic "advisors".
If only I could reduce my costs by dropping that "levy" tax.
I have previously asked the question as to whether FF are part of the solution or part of the problem.
The same question could well be asked of DairyNZ. In the light of a low payout, how long will it be before they are again advising dairy farmers to produce a little bit more while reducing costs?
Marginal costs and diminishing returns are things DairyNZ economists have never understand.
more on the battle of on-farm costs
http://www.radionz.co.nz/news/rural/255748/fonterra-launches-farm-source
Farm Source will be offer its farmers financial rewards to bring down the cost of farm supplies and services and a share of profits from Farm Source hubs.
It will also provide an on-line service for farmers to manage their business with Fonterra and financial tools for managing their shares and capital.
Fonterra launched the initiative today at the first hub in Methven, which combined rural supplies with a drop-in lounge for farmers, meeting rooms and a home base for Fonterra's regional farm support.
a bank account seems be just a click away - if you take the same approach to money/interest costs.
here's a go...
Fonterra says it intends to consult on the merits of establishing an equity partners' fund that would be a source of long-term equity for farmers in New Zealand and Australia, by sourcing equity from investors.
"The equity partners' fund would invest at the farm level to support farmers to grow production and manage volatility, while meeting environmental and other requirements," the company said in a statement.
how did radio NZ miss this?
How about we rediscover the 'culture' in Agriculture? the one that is based on family farmers and their local communities and a need for stability and profitability.
Get to grips with investors' motivation
A family-run concern may only be interested in preserving capital, so may be prepared to accept lower returns, while a private equity firm may want returns as high 20 per cent to 25pc. Strategic investors may be wanting to see how an Australian agribusiness can fit into their supply chain. A state-owned enterprise may be focused on food security, so an attractive rate of return may not be critical, but having the ability to upscale and reliability of supply may be high priorities.
Understanding these drivers is the first step to becoming "investment ready", but it's also vital that agribusinesses look at their own operation. Although many agribusinesses have made significant leaps forward there are still far too many who focus solely on the "agri" and completely neglect the "business".
appears that retained earnings are not enough for the equity bit needed? to drive the increase in production planned for/scripted.
what is their proposed return of equity invested?? Considering that equity is the most expensive form of debt - and I doubt that silent investors are going to be happy to just let their funds mellow until Fonterra's next "up" year....
...and the risk of your equity "partners" pulling a carfar-ism and yanking the carpet out for a fire sale to foreign buyers.... if those Kiwi's won;t part with their farms willingly...
Something tells me (a) this isn't for Suppliers benefit, (b) probably should be taken a look at with transparency, by NZ orientated NZ government officals.
I put this on the what happened today
but sounds like a relief fund as you suggest.
"With the milk price being low and the share prices being strong, farmers really will be constrained for cash," Spierings told Reuters in an interview.
"We shouldn't force them to go to the bank to borrow a whole lot of money. We should make it available ourselves."
It all sounds a little wishy washy. No detail, just an idea to provide some equity (cough cough debt).. where is the money to come from?. How will it be secured? I will say again I think Theo Speirings is not being very coherrent with his thoughts in these 'interviews' , he looks distracted.
Maybe things are becoming desperate. Agriculture needs more capital injected otherwise asset values will deflate. Landcorp can only do so much.
I suspect banks with agricultural lending would prefer the required injections of capital come from anywhere but themselves. Banks have learnt some lessons after spending the last six years moving their most indebted properties across to those who had higher equity.
Where Theo is possibly losing it is in believing Fonterra has more credibility than it has or deserves. One day someone competenct, credible and independent will go through their accounts since formation and the illusion will all be over.
not quite
here is the full description
http://www.fonterra.com/global/en/home/note+for+editors/farm+source+hubs
Equity Partners’ Fund
Fonterra intends to consult on the merits of establishing an Equity Partners’ Fund that would be a source of long term equity for farmers in New Zealand and Australia, by sourcing equity from investors.
The Equity Partners’ Fund would invest at the farm level to support farmers to grow production and manage volatility, while meeting environmental and other requirements. However, the fund would only proceed if it meets these objectives and enables our farmers to retain control of their futures.
They so badly need the equity injection, they _investing_ money in outside businesses? Farm businesses, with famed low yields? When they know the payouts are poor?
Thats the kind of thing my ex-wife used to do with her credit cards....
They play silly games like that they get a massive credit downgrade... and when the Chinese cane their infant formula holdings with a bunch of random fines... what happens to all the equity...and all the equity that Fonterra has put into supplier farms !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
- - -
I mean... that's how you make a Crafar-Pina`ta
That a tough shell, pump it full of tasty debt, then keeping hitting until all the goodies fall out.
NO! Colin!!
Agriculture doesn't need any more capital injection - it is already showing signs of catching the urban addiction in that regard.
Agricultural, like much of the over-extended GFC style high risk volatile market, needs more retained earnings. The external capital _____******MUST*****______ be matched by earnings, retained earnings.
Stock Instruments aren't my drug of choice but even *I* know what a P/E ratio is !!!
and since most farms are talking about needing to be debt free to have proper cashflow, that means their P/E is very poor. And since the sale price is _completely_ out of control of the farm business....
So cowboy this rebranding of RD1 money well spent? It does seem a bit odd while they scoot into a less than awsome year. I look at Theo in his last couple of interviews and he looks very uncomfortable. Quite a few of the RD1s around here are pretty new or very new, seems a waste but there you go.
I text a close reli who works for fonterra about it this arvo. He was rip roaring angry. Apparently they have had dust problems in the work area for months and all manner of complaints never got them anywhere. Of course dust is a major health and safety issue. Explosive. He was told this week they are being audited by H & S in december so heres 100k fix the dust. He is as mad as a hatter. They dont give a shit that they could all blow up until threat of audit. Hmm
setting aside the equity fund/loans element, and payout v annual result.
The re badging of RD1 is more a copy of Nestle/Swiss Milk District System - excluding the collection centre part.
http://www.nestle.com/brands/dairy/dairycsv
The Nestlé Milk District Model involves:
- Milk collection centres featuring payment systems, quality and safety controls, electronic weighing equipment and cooling tanks.
- Free technical and animal husbandry support to improve milk quality.
- Free veterinary services.
- Transportation and infrastructure networks.
- USD 25 million of microfinance loans each year.
- Prompt payment to farmers for each milk delivery.
While I basically agree with most of what you said, from your first commen our local focus farm while organised by Dairynz is currently going outside their advice and using the advice of a nutritionist. Result is they're buying in feed, making silage with their massive feed surplus all the while not producing any measurable extra production. So yes some do still need telling.
If that's the situation right this moment, it is probably to preserve "condition" (body weight) with this terrible weather.
It's much cheaper to maintain the body weight than try to regain it, and regaining it takes 30-60 days. Without full bodyweight the cow will not come up to full potential of production.
Good modern cows will turn the feed into milk and stay skinny and have reduced fertility (and have poor body reserves for health reasons).
Not so good cows won't convert nutrition into milk, putting it into weight gain instead. The hormone levels that drop with the sustained lower milk production rate will remain throughout the rest of the season. However in this scenairo the lost weight can often result in the poor cow having better fertility and longer milking days, averaging out the loss. But they still won't perform to full potential of a genetically superior producer.
Thinking about that graph on volatility of the milkprice. The GMP ( guaranteed milk price) must have an effect as the contracts set aside to cover it will always come from near the centre of the graph therefore pushing the price out either above or below that point.
Many people, some of them well placed, have repeatedly said that the advocates have to get more active. But sadly, the old NZ story, they get pay and recognition for taking up space, not for starting fights. For membership, not for accomplishments.
And the people feeding them information know how to feed it to their educational/corporate backgrounds so the pitch is just the right temperature...
same for houses....tis simple if you cant grow anymore (debt is exhausted) so ppl feel better, the only thing left is to lie to them, people want to feel better, want to believe.
You are right there will be a lot of angry people when they realise they have been misled...
regards
What do you think of this? Its from whaleoil, not my favorite site, but here goes
Taxpayers have forked out over $228,000 to lobby group Federated Farmers since 2009, much to the surprise of its president William Rolleston.
Dr Rolleston has also refused to say whether corporate donations are part of the $7.45 million the federation has received in unspecified “other revenue” since 2008.
When NBR ONLINE informed Dr Rolleston that the Ministry for Primary Industries and its predecessors have paid about $228,000 to the federation over the past five years he replied, “Gosh, really? What have they paid it for?”
The information was obtained under the Official Information Act and only includes payments of $500 and over.
It shows Federated Farmers received many payments via three Sustainable Farming Fund projects – a contestable fund investing up to $8 million a year in applied research and projects led by farmers, growers and foresters.
Yep Belle - the effluent is usually urban and sheep/beef access to waterways, nitrogen all farming types but predominately noted in dairy, and phosphate - sediment - hill country, drain cleaning, high floods and forestry- the biggest issue in Southland.
Of course no one is interested in the fact that it is very significant which soil type you farm on - much better to tar all farmers with all brushes and make sweeping statements that totally ignore lag times, and that some waterways are actually improving.
I hope things are changing Cas Ob, doubt it though. Yes S&B guilty too. Everywhere I look today the farms are soooo green I hate to think the rates of N to get that achievement. But we agree to disagree. How do you feel about Fonterra's new plans? I like the look. All that pretty green in their logo. Ironic really. But apart from that, the equity plan, the hub for everything. I think us dry stock people could do with something similar. Not the equity thing, just the hub. A place to share info, get together as a group.
Things are changing Belle - whether we like it or not. It's just some Regional Councils are more proactive than others at present. :-) Going to be interesting to see how farmers in Horizons, Canterbury and Otago go. I have seen nutrient budgets done for new conversions not far from here that have a N leaching rate of only 11. Usual rates would be more like 30-40 in the rest of the country. However they come well within the Otago RC rate of 30, so 'no problem'. Will be interesting to see an Overseer report/water quality in 10/15 years on the same farms. You never know though, peat leaching rates actually improves as farming matures on it.
Very cynical and wary of Fonterra's new plans Belle. Kinda reminds me of the TAF initiative where they basically convinced turkeys to vote for Christmas.
$231,875 was received for Project Title: Flowers for healthy bees in times of pollen dearth
This Sustainable Farming Fund project by the Bee Friendly Farming Group grew out of the original Trees for Bees project started in 2009 by John Hartnell the Chair of Federated Farmer’s Bees Group and Shona Sluys Policy Analyst for FedFarm. Landcare Research joined them to create 10 Regional Bee Plant Guides www.fedfarm.org.nz/treesforbees . http://www.fedfarm.org.nz/Files/SFFProjectSummaryProgrammeHandout.pdf
All projects funded can be found here: http://www.mpi.govt.nz/agriculture/funding-programmes/sustainable-farmi…
Fed Farmers don't just represent dairy/sheep/beef farmers. Industry groups are:
Bees
Rural Butchers
Dairy
Goats
Grain and Seed
Meat and Fibre
High Country
Is NBR also going to look in to Maori Agri Business SFF grants or is it only non Maori Agri business it wants to highlight?
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