The Weekly Dairy Report: As yet, predicted payout little influence in dairy farm sale decisions

The Weekly Dairy Report: As yet, predicted payout little influence in dairy farm sale decisions

While the last week did bring some rain it will have had little affect on soil moisture levels, and now a large area of NZ is classified in serious moisture deficit.

Nathan Guy and MPI officials visited Canterbury last week to assess the seriousness of the situation, but as yet no official drought call has been made.

NIWA’s autumn predictions are for some rain, and a recent forecast suggests a change in the position of the high pressure system could bring moisture to the east coast of both islands.

The conditions have ignited strong interest in shares in North Otago’s irrigation expansion plans, with increased water out of the Waitaki river.

Advisers suggest that the break even price for purchasing supplements is 25c/kg dm, and urges farmers to do their feed budgets carefully as they plan for the months ahead.

The banks dairy analysts, are taking different approaches to the predicted payout with ANZ lowering it’s forecast to $4.35, while the others have kept theirs the same.

More positive increases from the latest global dairytrade auction with a 1% lift, and the low volumes offered did lift whole milk powder prices by 3.8%.

Volumes sold are 25% behind last years January tonnages, and reflect how sensitive the market is to supply, although NZ’s milk volumes have been predicted to fall with the dry to only 1% above last year.

Fonterra's  Guaranteed Milk Price scheme has been undersubscribed for the second year in a row, and the price will stay at the $4.70/kg ms level.

A large dairy farm in Culverden has sold at rates similar to a year ago despite the low payout, with the milking platform in the $50-$60,000/ha range and the balance in line with other dairy support sales, at $12-$14,000/ha less.

However numbers of dairy units sold has fallen in the 3 month period ending December compared to a year ago, but prices remaining remarkably resilient.

 

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30 Comments

ex UK:
British dairy farmers are being told to expect further falls in milk prices, prompting concerns that hundreds more may soon decide to leave the industry.
The Farmers’ Union of Wales (FUW) has warned that the ending of an EU quota system in April will bring greater volatility to the crisis-hit sector. The system limits what farmers can produce, but with prices falling drastically there are concerns that some farmers will seek to produce more milk to boost their revenues when the quota system ends.
http://www.theguardian.com/business/2015/jan/24/dairy-farmers-warned-milk-prices-fall-further
 

ex US:
Every state has some dairy production, but California and Wisconsin anchor the country's supply. The milk glut reached its peak in the Northeast over the holidays, when cooperatives asked farms to pour out some of their milk.

"It's something that no farmer likes to do ... it doesn't feel good to just dump it out," New York-based Northeast Dairy Producers Association board director Jon Greenwood said.
http://www.dailyfinance.com/2015/01/17/food-farm-dairy-woes-milk-price/
and
http://www.agweb.com/article/china-losing-its-domestic-industry-due-to-cheap-imports-NAA-fran-howard/
 

Pouring out milk (which isn't cheap to produce in the first place) is expensive and wasteful, and environmentally unfriendly.

It is much better to not produce it in the first place, better to avoid the "buttermilk lakes"  (or at least have huge drying equipment to process and store the excess).  Since it costs more to dump, it is more sensible just to get some farmers to stop producing so much and to keep paying them as if they had produced. This is because the coop still has to pay to dump, and the farmer has to pay to produce (especially in high input systems).

So it is a better deal to ask some farmers to just not produce.   
But in a coop that is unfair, as some farmers will produce and pay costs and work hard to get income, others will receive for milk they didn't have to produce (although probably the system will update just to pay them the profit, rather than full price).

So is it not better to ask all farmers to produce less, and pay all farmers a extra bonus of "non-produce" to cover what they could produce but the processor cannot sell.

This is how (and why) Quota systems were introduced in the first place.
[  We will leave out the discussion of tradability of Quota and Quota-partnerships (similar to our equity-partnerships) ]

But that is something that must be remembered, that Europe and places like the UK have huge "distibution company" size barns, farrowing of paddocks rules, and Quota systems solely to restrict the glut of production.

And when those come off, every un-economically minded Tom, Dick and Harry is going to be producing their butt off to have Fonterra like production and payout - and their consultants will tell them like they do on the front pages of the NZ farming rags that increase in production will make up in volume for what they lose in price margin.

There's a reason I'm no longer leasing this dairy farm, and we're selling it.  I'm thinking that there's a great chance of buying it, or one similar, when everyone chases the prices.
The oens who survive, will be cheapest feed and labour, with biggest margin - or those subsidised but that subsidy will be need to be big...

cowboy 4 u (oldish)
http://www.cnbc.com/id/102027224#.
play the vid, see 1:00 to 2:00. - let them eat grass. against your line of premium product selling below cost of production.
 

ex Ireland:
In its (USDA) latest outlook for dairy markets in 2015, it has foretasted for Chinese imports of WMP to decline by 12% as China’s economic GDP growth is expected to slow from a projected rate of 7.4% this year to 6.5% in 2015.
http://www.agriland.ie/news/chinese-set-buy-less-dairy-2015/
 

I think the overproduction price crash will offset the slower Chinese growth, and that the Chinese will slow warehouse filling but not nearly as much as indicated.

ex China 
http://www.chinadaily.com.cn/business/2015-01/29/content_19434481.htm
The Ministry of Agriculture plans to offer more subsidies to dairy farmers who have been suffering from plunging milk prices
 

subsidise their dairy farmers?   Isn't that against the clauses in our FTA, considering they've continuously invoked the higher tariff rates in the contract that were there for "emergencies".

Sounds like the Tiger is deciding to ignore the rules it agreed to.

The world is in for a deflationary period that could last for years. Cheap money from the Fed's ZIRP has created a monster over production problem, low interest rates are  destroying capital, Fonterra and the government make out its a short term problem,don't believe it.The production capacity is sitting there and the moment prices rise so will production and we will being the whole cycle again.  If we had let the market rule in 2007 it would have saved a lot of pain, now we are in for years of overproduction, dairy farms don't just disapear, farms will get sold new owners with lower capital costs will come along, its going to take years to sort out this mess. There is no option better than dairy, existing dairy farms will not be turning to beef and lamb.
 Just think about how the US ethanol progam is faring with low oil prices?
 
“China is slowing down, that’s why,” Marc Pauchet, an analyst at Braemar ACM, a ship broker in London, said of demand for Capesize ships, the biggest tracked by the Baltic Exchange. “The cargoes are simply not there.”
 
http://www.bloomberg.com/news/articles/2015-01-29/shipping-gauge-falls-t...
 
Russians, Argentines, Cows Are Squeezing U.S. Wheat: Commodities
 
http://washpost.bloomberg.com/Story?docId=1376-NIHE2P6KLVRA01-03KVJK600S...
 
 
 
 
 
 
 
http://dairybusiness.com/dbc-story.php?id=76031&title=DairyBusiness-Update:-January-28,-2015
 
Fluid Milk Sales – YOY Sales Continue to Decline
Nov ’14 U.S. fluid milk sales continued to decline, falling 5.1% YOY and 1.7% MOM on a daily average basis. The YOY decline was the second largest in over a year on a percentage basis while the October – November decline in sales was the first in five years. Monthly fluid milk sales have declined YOY for 19 consecutive months, with an average YOY decline of 2.8% over the period. YOY declines in fluid milk sales are on top of historically weak demand last production season. ’13-’14 annual fluid milk sales declined 2.9% YOY, which was the largest annual YOY decline on record.
 
http://www.attenbabler.com/u-s-commercial-disappearance-update-jan-15/

I agree, though how long it will last remains to be seen.  Typical commodity cycle.  I have seen it before, just about every agricultural industry in NZ has had at least one good dose of BOOM/BUST.  I've been saying it for years, totally predictable if you're not an economist.  Everyone seems to act as if busts aren't possible, which is just crazy.  $60k per hectare, good luck to them.

But we have never seen money with almost no cost searching for yield and flowing into new,risky ventures. The level of over capacity in most industries is at record levels and this goes double for commodities.

I'm expecting a big bust, that money will be gone, and all the jobs.  I remember when kiwifruit were all the rage, and orchards were going up everywhere, then a few years later they were all gone, now it's all about dairy and grapes (in NZ) or Aucklands real estate. 

There are so many vineyards going in on the West Coast USA that plants have been unavailable for 2 -3 years and a min 2 year waiting list for any new orders.

Yet I can get decent wine or bubbly for bugger all :) and most of that is tax. 

Some Hawkes Bay friends and some Southern vineyards ripped their's out couple years ago  as the processing companies cancelled contracts on them.

Re the news hounds at Forklift Action dot com......

Synutra France is currently building what it claims will be the world’s largest milk powder production plant in Brittany, France. 

 

By 2015, the new plant will produce up to 300,000 T of milk powder annually for the Chinese market. Egemin has been chosen to design and implement a turnkey intralogistics system for the new plant of Synutra France, a French-Chinese producer of milk powder. 

 

http://www.forkliftaction.com/news/newsdisplay.aspx?nwid=15393

 

by way of background:

As previously announced, under the partnership agreement  between Synutra and France's Sodiaal, the drying facility is intended to manufacture powdered milk and fat-enriched demineralized whey for the needs of Synutra. Over the course of 2013, Synutra received key regulatory approvals and construction permits and the project also received the internal credit approval within Bank of China for the construction period financing. (quoted as 100, 200 & 300 T capacity).

 

http://files.shareholder.com/downloads/ABEA-4M7DG8/3912275514x0x784209/DA77C910-87FA-4BDE-A1D6-BC33F0438445/201409-SYUT_EN_Investor_Presentation.pdf

pages 3, 6 & 7.

 

http://www.synutra.com/index.cfm

 

Sounds like a white elephant to me.

No, "Cheap money from the Fed's ZIRP has created a monster over production problem,"
I dont agree with this, manufacturers have not been investing, its a collapse in demand, the Fed's response is just that a response and not a cause.
Now we could argue its a price signal but I doubt it...a manufacturer isnt forced to over-produce. they produce becasue they see an opportunity and Id suggest not a margianl one.
I find it interesting that the right wing blow hards blame everyone but themselves for their lack of vision.  They are deluded IMHO.
"US ethanol" was always a back hander to the US farmer, it made no sense in energy terms the EROEI was at best 1 to 1. It also forced up commodity prices, simplye a human and ecological disaster.
 

They were hoping for a magical breakthrough to make Ethanol a worthwhile alternative, and to reduce usage on the home-side fields.  If the foreigners all use up their oil, then the US stocks are black gold and a WMD.

"magic" sounds too much like faith, believing in the non-existant. The EROEI is about 0.8 to 1, ergo it costs more fossil fuels to make than if you just poured it into the tank.   On top of that for our present economy we need 8 to 1 so they were/are praying for a magic 10 fold increase, fat chance.   NB I think even the latest techniques are 1.2 to 1.4 to 1 and they are still in the lab, still 6 fold off.
When we get to the stage that foreigners have used it all up, we wont have a global wide society anyway. Personally I think the USA would be one of the first countries to descend into the second dark age long before that circa 2030 or before 2050 anyway.
 
 

 the issue of foreign ownership is complex and best considered on a case-by-case basis.
http://www.stuff.co.nz/the-press/news/65621748/more-of-nzs-farmland-in--foreign-hands
In its decision summary, the OIO said Southern Pastures planned to operate the properties as part of its South Island portfolio and "will increase performance through shared efficiencies, additional capital expenditure and sound farming practices".
raises the issue of economic benefit and whata laocal unable to do, aside from show the coin..
refer:
https://opencorporates.com/companies/nz/693137
 

ouch, what is of concern, is not just the lost future product, but how much OPM Fonterra has spent developing that market, just to blow it on a blink

Can't be, our "experts" told us that China can take all the milk and mega-tons more.  
Indeed, wasn't there a "rumour" that our gubbermint want us to increase milk production and export (to where?)

If your article is true, are the experts being fired yet?

$4.40: Synlait Milk has revised its forecast of the market milk price for the "FY2015" season down from $5 a kilogram of milksolids to $4.40 per kgMS.
http://www.stuff.co.nz/business/farming/dairy/65668727/synlait-slashes-milk-forecast-to-440
 
can the $ fall quick enough, does no.1. best buyer neeed show up at GDT this week, how much WMP gets to China outside of F, GDT and NZ respectively...
eyes up for tomorrow night.
 

fx will help - but next year (due to hedging)....
http://www.farmingshow.kiwi.nz/on-demand/audio/john-wilson-chairman-of-fonterra-32/
we're thinking of retiring to live in Hope
http://en.wikipedia.org/wiki/Hope,_New_Zealand
 
 

pleasing yes
https://www.globaldairytrade.info/en/product-results/
however on reducing volume both mth on mth and yoy.
https://www.globaldairytrade.info/en/product-results/download-historical-data/?cb=1422988040573
maybe $4.70 might work yet (still in the race anyways).