The Weekly Dairy Report: Some farmers hit with feed shortages and low prices but as yet production holds on

The Weekly Dairy Report: Some farmers hit with feed shortages and low prices but as yet production holds on

The lack of rain in the last two weeks has accentuated the dry in the east coast of the South Island and soil moisture levels have disappeared rapidly from many other areas of NZ.

Reports suggest North Island areas have made good supplements in the spring, and after a slow start maize crops have made up for lost time, but although good rains have occurred just in time, soil moisture levels are low and high temperatures could change the feed situation fast.

A drought call is close in South Canterbury predict NIWA, and with the Opuha dam only 30% full, severe irrigation restrictions are imminent, and even areas of Southland are looking for rain.

Snow fed rivers in the South Island are still at harvesting levels but rivers that source from the foothills are drying up fast, and water storage schemes are a common discussion topic.

Palm kernel extract sales are again on the move, but with the predicted payout still low, feeding for extra production maybe uneconomic and NZ Dairy advisers suggest doing the sums via their calculator.

The first dairy auction of the new year did lift by 3.6% as evidence that prices have bottomed, but with lighter volumes offered and small gains for whole milk powder the payout is nowhere near secure yet.

Fonterra reports milk flows are 4% ahead of last year but volumes will ease soon with the dry and profit pressures, and this may force later price contracts to firm and start the predicted upturn.

At an Irish dairy farmers conference a NZ nutritionist stated that the average NZ farmer was producing 40% more milk and not making any more money, and European speakers predict a brutal year in Europe for those with high cost systems.

The A2 milk corporation looks to expand in Australia as it’s growth strategy, and plans to reduce it’s NZ directors at a SGM are a sign of this change.

 

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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China's small dairy farmers dump milk as sector enters downturn
Prices are still coming down for raw milk in what is supposed to be a peak consumption period," said Chen.
The larger players are also struggling to sell any surplus fresh milk not already contracted to processors, said a manager at a 10,000-head dairy farm who declined to be identified.
"There was massive demand for milk and then it just dried up in the second half of last year," he said.
http://www.reuters.com/article/2015/01/09/china-dairy-idUSL3N0UO1WG20150109

I'm sure the New Zealand government is more determined than ever to increase that agricultural output and productivity.

U.S. Dairies Get Crash Course in Exporting

Cooling Chinese Demand Points Up Unpredictability of Global Prices

 

http://www.wsj.com/articles/dairy-factory-gears-up-for-production-142076...

 

 
 

Pouring away milk and slaughtering cows spreads across China

 

https://www.youtube.com/watch?v=VWoQZqSSmoI

Milk is now cheaper than water in the UK

 

http://www.cnbc.com/id/102332556

best rethink your drink - water is free? add a slice of lemon if you need some flavour
 
but hats off to nestle (something out of nothing)
http://www.nestle.com/brands/allbrands/spellegrino
With a tradition of excellence and fine taste since 1899, S.Pellegrino sparkling mineral water is an extraordinary combination of exceptionally pure water and minerals. It has a distinct sophisticated taste which has help make it the sparkling mineral water preferred by top restaurants worldwide.
- they even have to tell people how it tastes (cause nobody knows - lol)..
 
having said that, their milk price is up against the supers...
and well played by the massively over-captalised supermarkets (with dairy coolers at the back of the shop enabling punters to load you on sugar laced impluse purchases [&chippes]), within the highly leveraged retail centres
 

Feel free to correct me if some of my premises are wrong, but I see things quite differently.
A) The vast majority of Chinese people are choosing to have only one child. http://en.wikipedia.org/wiki/One-child_policy#Relaxation_of_policy
B) The year of the dragon was very significant to parents making the decision to have a child. http://gbtimes.com/life/after-dragon-baby-boom-watch-out-snake-babies
A + B makes it very unlikely that there will be a continued baby boom in China.
C) Relatively few Chinese adults drink milk although many enjoy cheese and yoghurt and other low lactose milk products. (citing general lactose intolerance in asian peoples)
D) The Dragon babies are now two years old and won't be drinking as much milk.
C + D makes it quite likely that demand for WMP is likely at it's peak and headed down.
E) According to Bloomberg and Goldman Sachs, global milk supply will exceed demand by 2 Billion litres at least until the end of 2018 due to new international supplies and lower demand. http://www.bloomberg.com/news/2014-07-11/milk-output-expansion-poised-to-spur-5-year-world-surplus.html
F) According to the Reserve bank of New Zealand, 10% of dairy farms are highly leveraged to the point where they will be highly distressed by the crash in dairy prices. http://www.rbnz.govt.nz/research_and_publications/speeches/2014/5721595.html
E + F makes it quite likely that up to 10% of dairy farms will sell in distress over the next 4 years with few buyers.
I think you get the idea. Whoever sells their farm first loses the least.

I like your logic but think the RBNZ's 10% is conservative unless it is based on operating units (where 10% made up of mainly larger corporates could easily represent 15-25% of production).
 
It is past time the RBNZ updated their analysis.

(A) is from a political decision to try and preserve racial mixes.  If your race is a minor portion of your prefecture then you can have several children.  If you are of the dominant race of the area you are limited to one child..

Due to a growing elderly population compared to working population China is re-evaluating this policy - after all why should they limit their population if no-one else is, their families love their babies and children just as much as other countries.

A+B+C (D was A+B) The interest in imported milk and formula in particular was that local milk could/cannot be trusted layered over that local volume could not be found. 
The per capita figures are comparatively low, you need look at comparative income/asia product (cheese, yoghurt, fluid milk) elasticity’s i.e. lactose intol. not the issue.
E.g. After allowing for average income levels, overall the consumption per capita picture is superior for fresh dairy and milk powders over cheese and butter. Over the last ten years, worldwide consumption per capita for fresh dairy and milk powders has risen 15% compared to 7% for cheese. Within fresh dairy and milk powders category, milk powders is the standout performer with worldwide consumption per capita increasing by 21% over the last ten years. In particular, milk powders is the only dairy product with no obvious variance in consumption between Asian and non-Asian countries. We believe this reflects limited availability of fresh milk products and greater reliance on paediatric milk formulas in Asia.
 

Hi Henry,
Your method of writing is a bit confusing. Are you disagreeing or agreeing? As far as I can see you are perhaps disputing the magnitude of the milk intolerance issue? I imagine a lot of people would love it if you could quantify and provide citations for your statements.

E You need see the whole GS report/s, eg they also say global clearing price will revert to $3,900 (happy days). Problem was the SS/DD was the only one liner a sub editor/s could use.....
Integrating country-specific assumptions with our macro-economic forecasts through our global dairy demand/supply model reveals five dominant global themes over the next five years or so, being:
 
· A move to above-trend global production growth (2013-2018E CAGR of 2.6% vs. longrun
average of 2.3%) through removal of EU quota restrictions, higher US farm
profitability helped by lower feed costs, and substantial commercial farm investment in
China.
 
· Below-trend growth in global dairy consumption (2013-2018E CAGR of 2.0% vs. longrun
average of 2.5%) with a more moderate income stimulus with Asia being the key
source of growth. We expect lowest demand growth amongst major countries in EU,
Russia and Japan.
 
· After a short-term bounce due to ongoing Chinese production shortfall, WMP (whole
milk powder) prices trend back towards US$3,900/tonne as the world adsorbs greater
milk supplies. The short-term risk to this forecast is probably to the downside due to
lower feed costs.
 
· A shift to a feed-based marginal producer, like the US, with higher production costs.
This creates a floor in global commodity prices and sees continued spread of private
label and discount retailers of everyday dairy products with raised price sensitivity
associated with structurally high (versus long-run average) farmgate milk prices.
(think through what this would mean)
 
· A gradual recovery in the cheese price, relative to WMP, due to stronger US demand
and new processing capacity skewed towards milk powder in key exporting countries.
 

There are quite a few interesting statements in those bullet points. Are these from the GS report? I'd like to see the premises for their models. Perhaps you could provide a link to this GS report so we can read?

mais ou menos, if not a client look webwise maybe.
 

"(think through what this would mean)"

Increased political and lobbying pressure instead of straight-on competition, in order to force other peoples' product off market or at least push production costs up

the crowding out yes
and the degeneration /decay of branded product value/worth of those product/brands sold through the supermarket channel....
 

ouch.  looks like the "dutch roll" method of effluent handling is going to be illegal in the US.

Modernisation of the Chinese farms....ouch for them... however the Chinese farms doing that will have the backing of emergency legislation by the Party, so unlikely thingts will be too tough.  more than likely they'll use it as a write-off and then come back with high automation and low cost - not that their's is a cost-plus operation anyway....

$20 for milk .  wow.

That's not how the Liberatarian/Socialist agenda works.  You have all the trimmings that a consumer could want...but you use the law and standards system to force it on to all suppliers so it's "fair".   Many others are just driven by the greed, whichis fine if you're in the upper quartile for wages...

worst part is it blocks new entrants and good solid basic products from competing.
eg try and find a basic cellphone that does phone & txt these days...nope they're so dirt cheap it's not worth the cost of manufacture BUT no way they'll let a newcomer launch a product like that on a city-net + backbone hub system

F The RBNZ comments are from a risk view of a group of lending banks perspective. What they did not address was
Layers of on farm cost: Cost of production compared to other global ss areas and the farm input price/govt./compliance/environ. additional costs and inflation rate thereof. If there was only one thing, this is it - whats its all about.
 
To have a highly indebted borrower takes an enthusiastic lender, 10% of the group have always been well/over geared/ and could be bust for nonfarm op reasons etc.... , if these folk inlude a number of the XXXXL scale corporate types, then it points to lending terms of the lender.
There are still people that take as much as the bank is willing to lend, and that the legit basis of going sharemilking.....
 
Matt, Your last comment make prove right, but not really for the reasons given. But lets not under estimate the banker determination to gear up the population of low geared/high equity farms (for they will be thinking, gee only 10% :) ).... And wishing to lend themselves out of difficulties, cause who pays if it really craters... lol... Is the answer more debt - keep the loan, find a better borrower plus a little something on the go through?... 
I never...
 

F.   Sadly many in finance and economic sectors don't believe that is true.  The more education they have the more they "know" it isn't true.    If the costs go up, then it's the business persons fault, and they will be replaced by a business person who is better skilled.

Yes they really do believe it.
Some even see the business failures as a good sign that "all the poor performers are dropping out of the market" and "will be replaced by more productive performers".

This is because that is what is taught in that economic model.

they see such things as "freeing up opportunities for better business people and passing on the savings to the consumer"

This is the fallacy of the infinite ability to improve.  And goes hand in hand with the broken window fallacy (that as long as money is spend then economic advancement is happening).

1. thats what happens when you assume,
http://www.stuff.co.nz/business/farming/dairy/65179972/chinese-report-nz-farms-a-bargain
 

At the time of the takeover, Synlait's independent directors Barry Brook and Stephen Howse advised minority shareholders to accept, saying the offer price was higher than a valuation from consultancy Grant Samuel of between $76m and $82.3m.

 

and then

 

The takeover price valued Synlait's equity at $90.7m, but in accounts published on Christmas Eve, Milk NZ said the value of the net assets as of last June, three months after the takeover completed, was really $131.8m.

 

how so?

 

Gary Romano, chief executive of Milk NZ's owner Pengxin International, said it was a requirement of the Overseas Investment Office that foreign buyers had to show purchases were made through a competitive process. Milk NZ had the assets revalued after the purchase "and the valuations came back with an uplift".

 

2. what a final chapter for those minority shareholders..
 
give whats hapened with similar:
http://www.cnbc.com/id/102335855#.
 

What do you think of this bright sparks suggestion of 'freeing up' Fonterra directors time, so they can devote more to their various other directorships?
 http://www.stuff.co.nz/business/farming/dairy/64891643/garry-reymer-proposes-radical-change-to-fonterra-body