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Food for RBNZ thought as global dairy prices sink 10.7% to 13-year lows; Farmers operating below breakeven; no end in sight; ANZ sees milk price possibly as low as $3.75

Food for RBNZ thought as global dairy prices sink 10.7% to 13-year lows; Farmers operating below breakeven; no end in sight; ANZ sees milk price possibly as low as $3.75

By David Hargreaves

The possibility that the Reserve Bank might cut official interest rates by as much as half a percentage point next week has been raised in response to another massive fall in global dairy prices.

And the country's largest dairy farm lender ANZ now sees the milk price paid to farmers this season potentially being as low as $3.75, compared with Fonterra's official opening forecast of $5.25.

This follows another disastrous GlobalDairyTrade auction overnight when prices fell 10.7% - the ninth consecutive fall and the biggest drop in over 12 months. Prices are now at 13-year lows.

The RBNZ is widely tipped to drop the Official Cash Rate (OCR) to 3% next week from 3.25%, but investment management firm Harbour Asset Management suggests in its latest commentary that the central bank might now look at going further.

"The weakening dairy price will be a strong signal on the Reserve Bank’s radar and the results of last night’s auction has immediately flowed through to market expectations. A 0.50% cut at the July OCR review may be considered by the RBNZ," Harbour research analyst Oyvinn Rymer said.

"It can be hard to fathom such big swings in commodity prices, which suggests that the strong prices enjoyed over the last few years have attracted sufficient investment in both dairy herds and processing capacity to swamp the global market with finished product," he said.

The outlook in the months ahead was "not great" with increasing dairy-volumes being offered at each auction as New Zealand ramps up production towards the annual peak in October and November, Rymer said.

"Unfortunately, it takes time to adjust production capacity and it could take some time still for the current glut of inventory to be absorbed by what looks like a soft global market for dairy products.

"Looking at the consumer side of the dairy market, Mead Johnson Nutrition, the world’s largest infant formula producer, announced overnight that its sales in the previous quarter were worse than expected (both volumes and prices went backwards) and subsequently downgraded its sales-forecast for the rest of the year. They also reported significant discounting in China of infant formula, which could be a drag on value-added strategies, including NZ companies, if this is a long-lasting shift in market-pricing." 

Meanwhile, Westpac's chief economist Dominick Stephens said he now expects the RBNZ to cut the OCR to 2% by the end of this year. Previously Stephens had suggested 2.5%.

"This will involve one reduction of 50 basis points - most likely in September, but possibly as early as next week's July OCR review. At the other three meetings, we would expect 25 basis points reductions in the OCR," Stephens added.

Aside from the big fall in dairy prices Stephens also cited the latest inflation figures as a reason behind his change of view.

ANZ now sees payout at low as $3.75

ANZ's economists, who have been right on the money picking the falling trends in the dairy prices, are now picking a potential range for the price paid to farmers of $3.75 to $4 per kilogram of milk solids in the current season. That's down from their previous pick of $4.50, which was a market low forecast.

At the other end of the scale, ASB's economists are sticking with their prediction that dairy prices will start to recover by the end of the calendar year, and they still go for a price of $5.

"We view the weakness of the last two auctions as temporary, relating to Chinese stockmarket and Greek concerns. Combining this view, plus expected further weakening in the NZD, we stick with our milk price forecast of $5.00/kg for 2015/16. In addition, the dairy weakness reaffirms our view that the [Reserve Bank] will cut the [Official Cash Rate, currently at 3.25%] to 2.5% this year," chief economist Nick Tuffley and rural economist Nathan Penny said.  

Fonterra's forecast for the recently completed past season was for a milk price of $4.50, compared with $8.40 in the season before when prices were riding sky high. The turnaround since has been dramatic. Not many weeks ago Fonterra's opening gambit of $5.25 for the current season was seen as a conservative estimate, now clearly it seems way over the odds and will need reviewing.

Fonterra's group director of co-operative affairs Miles Hurrell said the Fonterra board was next set to meet on August 7 "and this meeting is the next scheduled opportunity to consider the milk price".

"We are constantly monitoring the global situation and continuing to look at all the factors that impact the milk price across the current season, which has just started.

"The global dairy market currently has a big imbalance between demand and supply. This is a global issue, not just a Fonterra one.

"There is a lack of demand globally (particularly from China and Russia) and a huge surplus of supply from NZ, Australia, the EU and the US," Hurrell said.

The New Zealand dollar was dumped overnight, down by about a cent against the American currency and has continued to fall. It was a short time ago trading at just over US65c, down around US2c in 24 hours.

ANZ senior economist Sharon Zollner said ANZ had warned that the forthcoming dairy auction could be “brutal”, and "that description turned out to be apt".

"There was nothing good to say about it. Whole milk powder prices -13.1%; skim milk powder -10.1%; butter -9.5%; cheddar -13.9%; casein -8%; anhydrous milk fat -10.6%.

"The volumes on sale are set to rise over coming months as New Zealand supply comes on stream, but demand, particularly from China, is conspicuously absent.

"ANZ was already bottom of the market with our forecast of a $4.50 milk price; we now expect $3.75-$4.00/kg MS, but it is a guessing game where the bottom might be. Even more pressure now comes on Fonterra’s response, including its restructuring plan and dividend performance. No surprises for guessing the NZD reaction..."

'Ugly before, horrendous now'

BNZ senior economist Doug Steel was also of a view that "there was absolutely nothing to like in the dairy auction overnight".

"If you thought dairy prices were ugly before, they are horrendous now," he said.

"We estimate aggregate prices are at their lowest level since 2002. This for NZ’s biggest export product that accounted for nearly a third of goods exports last year and nearly a quarter of all exports. It will hit NZ’s economic growth, lower the terms of trade further and widen the current account deficit. It heaps more pressure on the RBNZ to cut interest rates. The RBNZ do not publish a GDT forecast, but judging by other indicators it looks to us that dairy prices are around 16% below where the RBNZ had factored into their June MPS."

Steel said BNZ economists had already lowered their 2015/16 milk price forecast to $4.70, but the "very poor details" in the latest auction had prompted them to lower their forecast further to $4.30.

"A lower NZD is helping at the margin, but the degree of decline in international prices continues to swamp the currency effect on milk price as the market suffers from ongoing supply expansion, soft demand, and trade embargoes.

"$4.30 represents our best estimate of the middle of a very wide range of possible outcomes when the season’s figures are finalised in over 12 months’ time. This is well below the cost of production for many NZ dairy farmers and low prices for two seasons in a row will be a major challenge for all farmers."

'Farmers can't breakeven'

The AgriHQ 2015-16 Farmgate Milk Price has decreased to $4.22 per kg milksolids. That’s down 83c on a fortnight ago and $1.27 lower than a month ago.

AgriHQ dairy analyst Susan Kilsby said: “NZX Dairy Futures prices have dived since the last GDT event, suggesting market participants are now taking a much dimmer view towards a price recovery. This was the biggest driver of the latest decline in the AgriHQ 2015-16 Milk Price.

“Farmers now face two consecutive seasons of extremely low milk prices. The majority of farmers can’t breakeven at such a low milk price.”

Kilsby said a  $1/kgMS drop in the milk price equates to approximately $2 billion less income for dairy farmers.

“Farm debt levels will rise. Rural communities will suffer as farmers reduce spending to the bare essentials.

“It is difficult to anticipate a quick recovery in prices with the volume of product on offer forecast to increase.”

Westpac drops forecast

Westpac economists dropped their forecast price from $5.40 to $4.30.

"We’re aware that some other analysts are pitching their forecasts even lower than ours," Westpac senior economist Michael Gordon said.

"For clarity, we should note that our forecast is based on an average exchange rate of around US65c. Obviously the currency hasn’t traded down to that level yet, but we expect it to fall to 62c by year-end, and based on our assumption about Fonterra’s hedging strategy, an average of 0.65 over the course of the season is achievable. But, as with every assumption that goes into the milk price forecast, there is still substantial uncertainty around this."

Gordon said the causes of the ongoing slump in world dairy prices were varied, "but there’s one popular story that we’re sceptical of: the seasonal upturn in New Zealand’s milk production".

"There are several problems with this story. First, production in New Zealand picks up at the same time that Northern Hemisphere production tails off, which helps to smooth out supply at the global level. Moreover, seasonality is as foreseeable as things get in this market, and buyers should be able to adjust their tactics accordingly, which would help to smooth prices.

"One reason to reject the seasonality story is that it offers false hope: the idea that prices will improve once we get past the ‘hump’ in New Zealand’s milk production. We believe the causes of the current weakness in prices are rooted elsewhere: a sustained oversupply of milk in the Northern Hemisphere, and soft demand in key markets such as China and the Middle East. These are the factors that will need to turn around before we see a sustained improvement in dairying returns."

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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Lower the interest rate to ease their debt burden!

And buy more more houses with greater leverage at the same cost?

The RBD now has to watch the dollar, too low and inflation could swamp NZ my pick is you might get one or two cuts tops then they will hold firm to ride it out.
its not their concern if debt laden farmers fall over

Paradoxically a lower inflation rate actually causes deflation and a higher interest rate causes inflation. Mind blowing I know but I'm not holding my breath for most people to understand why.

lower inflation causes deflation?
I think you need to edit this comment

Rubbish, of course it is the RBs concern.

a) If enough farmers go under and farm prices drop the leverage all banks have and the high LVRs make the bank insolvent. Hello OBR event and we are in deep deep doo doo. Now it maybe that only 15~20% of farmers have the crazy LVRs but 1/2 of that % going to the wall is probably enough to cause a bad hair day. Meanwhile all the money farmers now dont have in the rural economy is going to impact small businesses and council finances (and they have way too much debt as well).

b) The problem is if the OCR doesnt go lower large sectors of our economy will be in deep doo doo. Just as an example I am looking at a special mounting bracket, older stock here in NZ $169NZ, newer stock just coming in >$200, ouch. The problem is if no one buys its bye bye businesses and jobs.

Now I dont disagree on the house speculation problem in Auckland is crazy, but that is a problem that our Government is still refusing to address, yet could.

Fiddling while Rome burns IMHO.

Average debt, $7800 a cow and you expect a happy outcome? Farm debt expected to rise as farmers borrow to cover losses. Who's going to front the interest, the government?
I was talking to a friend who has a dairy farming friend with 68 mill of debt and was losing $2 for every kg he produces, now it's got worse, it's ok as long as his farms are worth 80 million but what if they are only worth 10 million? He wants to borrow some more money how about you lend him some, and how much interest would you like sir %1 ?

Local banker says they will capitalise interest for twelve months and then, unless the debtor can resume payments the bank will be asking for debt reduction ! Better sell that apartment in Queenstown now I'd say !


Dairy is 30% of the countries exports and forestry has collapsed too, we still have numerous farms being developed in the South Island along with massive irrigation schemes.
Who would buy a dairy farm at a satisfactory price for the bank? We need to drop production %40, the other options need a land price more like 4k an acre not 20k.
Then the cost structures have ridden up on the coat tails of the dairy boom, they won't fall. Think of all the investors, like ACC, and Landcorp. This will have huge ramifications for the country.
When TSHTF local banks managers opinions are not worth a dime.

The point is that, with core debt so excessively out of order there is little that the banks can really do. An interest holiday or a rate cut will do nothing to improve the farms accounts while these revenue numbers persist. We are looking at a major revaluation of land and the associated losses that will burn everyone to some degree.


I wonder if national will start telling everyone ACC is now not fully funded when the value of their investments falls 10%

Then there are the ones like this $700k loss expected and not meeting environmental standards.

So where will the $s come from to get it up to std? ie will the bank(s) really be prepared to throw large amounts of $s into a losing case for what 2? 3? years?

there was a reason my target was lowest real cost of production, not higher productivity or higher production.

also rates etc.

68 Mill of Debt Andrew. !!!!!! Your friend has been trying the old option of borrowing big (huge) and hoping it works out. it's like being a leaf in the river. It has worked for many, but there are literally many bodies resulting from that play.
There will be more than a few dairy farmers who will not come through this alive.

The problem is if its over 5% of them then the impact on NZ's banks could be enough to cuase an OBR event.

Yet this private debt level was considered "sane" by all those involved...

KH - How much of the debt would be problem if one takes away the Governments and bureaucracies needs?... after all it those two groups and their constant demands that sinks everything.......

Your list Andrew shows the magnitude of the disaster!

Scroll down to find whats happened to your pension.

Ask farmers in Southland about some of the FarmRight farms. Is FarmRight persuing kiwifruit syndicates because it is losing management contracts on it's farms in an increasing number?

NZSuper did the same thing to a Childcare center company.
Really have to ask myself if there was a outside link to the NZSuper people. The small guys get help going public, NZSuper pours in huge amounts of taxpayer pension money, upgrade everything, open many more centers, the company borrows heaps on the inflated capital and new assets.
NZSuper waits, does nothing to see that the places are operating well (or even individually sustainable, even after pouring in upgrade money) and then sells down it's holding (but not at a profit). Leaving stumbling large company with no liquidity or management for that level.

This is one for you AndrewJ, from down your way. The land I would think they're looking at is orchards as they'd have the water rights?

Dairy Products managing director, Chris Berryman, said it would purchase more than 200ha of croppable flat land - preferably irrigated or consents in place - within a 30-minute drive to Napier/Hastings/Havelock North.

Hmm I wonder if Shanghai Pengxin have everything crossed that their bid for Lochinver gets turned down??
I wonder if they are still keen to pay OTT odds for farms in their bid for a billion dollars worth of dairy farms. Rate that's going they will end one hell of a lot of land. They might just be able to supply all the milk China needs, all by themselves.

Westpac were forecasting 5.40! Just shows how much guessing is done by so called economic experts.

The strategy:

The only cure for low price is a lower price.

EU and US, hopefully, will tight their production soon.

Only in your dreams will the EU and U.S. tighten production. It's full steam ahead, increase production to make up for lack of demand in order to protect market share. Same story with the oil price. I better load up on precious metals to protect me from making more money.

No, they'll increase subsidies directly or indirectly, put those pesky Kiwi farmers out of business first

no point pushinig price below cost of production.
government is pushing to raise the costs of dairy production, more investment in modern sheds, spend more of gadgets and internet, upgrade your wash water, upgrade refrigeration, push up wage prices, more overhead in calculating wages and staff issues, more money and time into equipment certification.

Y'know... I have heard anything recently from that Professor from Massey who couldn't understand why more farmers didn't invest in Technology. Maybe he could exp-lain how that works on negative cashflow for several years.
Or Doc mike joy could explain just how keen majority of consumers are to pay the price required to cover green dairying (all goes in same vats). When it comes to putting money where their mouths are majority consumers can't afford environmentally friendly initiatives, and as we're about to find out you can't farm "wishes were horses"


The overseas 'investor' now has two wonderful tools. Actual farm values will plummet and the exchange rate is newly favourable. Why not buy up the whole country ?
It's the end of the family owned farm.
We can expect Mr Key to say 'At the end of the day there is no problem' and 'there is nothing that can be done about it'

because the country is overpriced

Hang on, NZ exports milk, meat, tourism, education (more like immigration through the backdoor) and more recently also real estate.

This is because NZ, like big brother AUS, has been complacently relying on established sources of money rather than investing in modern industries that could sustain the high standard of living people have become used to.

Face it: if NZ would not be selling off its substance, i.e. land, houses, the right to live in NZ (education-immigration), then how could it possibly pay for a first world standard of life? NZ does not have a Germany that foots its bills like is happening for Greece. Kiwis would actually have to compete in a fast global economy and win in a few markets at least. It is not doing so, it will not do so, so the sell out will continue.

You are 100% correct!

NZ, still a small country, can afford to do that?

also because government - and more importantly it's Expert Advisers, none of any of those responsible or exposed to consequences, aren't even bright enough to know a difference between selling trade items and selling capital, especially in , as you say, a moving market.

Many foreigners aren't that dumb.

over investment, over production and land over priced. Correction is here.

The assets bubble needs to burst. Lowering interest rates is only delaying the inevitable. Cancel as much debt as you can while you can or sell now that the loss is not that big (and better if you sell to overseas buyers with overseas capital/debt).

Fonterra will be lost.

3 employees for every dairy farm.

did Fontera not learn from investing in a chinese company before that they had no control over

Do they have a choice?? We have been told at meetings for a while now that the 'investments' in China is what we need to do in order to secure access to the China market.

I have wondered if the cost of our 'investments' equals the profit we receive, which would indicate China is actually a neutral market and simply a place to dispose of product. If that is the case we may as well just donate the product to humanitarian causes and save the costs of running a business in China.

No, anyone who has invested in China, or seen what happens to 99% of foreign businesses who create assets in China, said whatever you do; Do Not Feed the Tiger.

At the current rate pressure will be for Fonterra to liquidate it's Chinese assets, into a deflated Chinese market. I wonder who saw that coming.....


Curiously, in almost every other sector, government policy is to assume that stakeholders are motivated primarily by self-interest, and should generally be ignored.

In this industry, the self-interest of Fonterra and its executives- a state close to ego-centricity or megalomania - has been given free reign by government and its surrounding acolytes, and so allowed to lead the country up the garden path, economically, in trade policy and, not least, environmentally.

Fonterra has imagined, and persuaded others to believe, that it is a world-class business, capturing unique and substantial sources of added value for increasing and sustainable national benefit.

It is merely a raft carried along uncertain rivers by commodity cycles and forces out of its influence or control. And out of the bits and pieces of this raft New Zealand hopes to build national wealth.

Wonderful post. The quality of the submitted articles on is not what it once was, but the quality of some of the individual commentating remains second to none.

And another cargo cult goes down the tubes. How long will the dupes stay out on the fake runway next to the wicker plane, trying to wave in the imaginary customers?

Sooner people get over the delusion that profitability stems from having a boardroom, and CEOs, and a marketing department, and nice carpet in the reception area through some kind of dark business magicks the better.

much of Fonterra moves has been a "do it or we'll use legislation to force you".

Henry was appointed by government to make sure that NZ dairy Process was opened up to finance investors. He got a "Sir" out of "services to dairy for it" despite the majority of farmers saying no. But the truth of it is, without real public pressure, NZ government would have just slammed down the DIRA the same way Nz is going to slammed with TPPA.
Every time it's do "clean streams accord" or we forced up.
Upgrade effluent systems or government will just prosecute everyone and fine them.

Why do you think Fonterra is so uneconomically obssessed with it's "role as NZ ambassador" outside of NZ. Sure there's perks and power, but it's also the gun in their backs from no-risk, no-responsibility, hands-are-clean political forces.

What effect does the lower dollar have on farmers income in the end ?
The milk price may drop but our lower dollar will give more NZ dollars into the farmers hands.
Somebody do the maths for me.

Already did them in the 90 @ 9 review this morning ...

"In US dollars, overall, prices are down -10.7% from the last auction two weeks ago, down -25% from the beginning of the year, down -42% from this time last year.

In New Zealand dollar terms the falls are not as fierce but they are significant all the same; down -8.7% from the last auction, -12% from the beginning of the year, and -22% from this time last year."

What ever way you slice it, dairy revenues are at least -22% lower year-on-year in local currency. That is significant in anyone's terms.

Thanks David for the info. It doesn't look good.

The downside of the falling dollar is that i imagine some farming costs that rely on imports will be going up?

fuel, fertiliser. that's pretty much else. and both are things that are budgetted tightly by there nature.
name anything else? that's why ancient economies required agricultural to bootstrap themselves, they needed commerce and economies that didn't need imports or export logistics to be sustainable.

What about imported feed - I am thinking palm kernels? That has shot up from pretty much nowhere 10 years ago:

Would not be cheap I imagine? Don't a lot of the more recent conversions on more marginal land rely on this as a supplement?

depends on the system. Several people went off palm kernel when it wasn't producing milk as well as it's ME energy said it should, AND there were significant issues finding metal and unidentifiable things in it

I guess it'll make paying down debt cheaper for farmers, if they're smart enough to do it. Or at least make it easier for them to manage bridging finance.

My sources tell me Fonterra has been caught with its trousers well and truly down on its currency hedging and it is locked in for a not insignificant part of the season. So while the lower dollar will help eventually, it isn't going to help Fonterra suppliers for a while yet. OCD was affected by hedging but didn't lock in as long as Fonterra.

I asked that question a short while ago, my belief is they should have sacked the forex hedging ages ago and by at the current rate but they're to smart for that. While over the years Fonterra and its predecessors have done alright on a upward dollar but never picked a downward one. Of course it's "commercially sensitive".

Expand your networks redcows. The information is out there, you just have to ask the right people. ;-)

Fonterra have always got by on volume and there overseas operations. The only time it was a problem was during GFC but most of their collegues were writing themselves excuse notes at the time too so it was business as usual.
The business model has been built on solid volume, basically that as a large company they will always be sub-par in performance but they would be "making it up" on mega-loads of "bread'n'butter' level trades, so not having to worry too much about about missing a few great deals.

But do remember a low WMP might suck for farmers, but it means the rest of Fonterra Group gets to buy cheap.
If anything this is a good wake up call for "chubby" to realise it is vunerable and farmers suppliers, and Fonterra's business, is not "everything farming and anything we want". That they do actually have to focus on profitability, pay down some of those debt's that they've let creep up year after year.
I don't doubt Fonterra will survive, and I hope that we'll see a leaner fitter Organisation at the end of it ... one where staff won't be so quick to believe foreign or government assurances.

Fonterra's hands



I like your analogy Workingman.
It is curious to observe that most senior executives exhibit sociopathic behaviour. Google "CEO sociopath psychopath". Fonterra is an example of self adulating excess. Too big to fail.

Maybe a coincidence but right now we have a government that has done nothing regarding AKL or foreign property investment (non productive).
China removing capital flow limits. Most will go to property (internationally).
Dairy price dropping with China no longer stockpiling.
NZD drops so cheaper for foreign "investors".

Long game vs Short game.

Watch this interview last northern winter with Key and just how bullish he is about agricultural exports it gives you an insight into Govt polices

David, why do the media report what Susan Kilsby says? She could be a danger to farmers mental well being with her wildly fluctuating guesses on payout.

Commodity prices in real terms have been headed sharply down with intermittent bubbles since The Economist started tracking whale oil and linen back in the mid 1850's.

We have nailed our exports to the commodity mast and now we are getting what many have predicted - namely continuing falls in real prices.

The issue as always is not so much a demand as a supply response. Australia has exactly the same problem with iron ore - and still they bring on massive new capacity e.g. Roy Hill as if there were no connection between supply and price.

This is going to get real ugly with huge implications for the banks up to their necks in farm debt. Once returns fall below your cash costs of production without any debt financing - then the farms are basically worthless.

Watch this space !

That's always been the case with the industries though. Stockpile raw materials at good rates, to stop suppliers using tight demand to push up prices, encourage suppliers to overinvest in production/productivity/infrastructure with increasing orders, then pull back when own inventory outprices it's kpi, the numbers work out at that point the predicted increase in supply would suddenly devalue the stockpiles, AND with full stockpile inventory the processors can't buy the upcoming dropped price, so the market corrects in that saw-tooth pattern. All this was well described with farmgate milk hit $7 (to drop back hugely) and again at $8.
It's mathematical, it's mechanical.

and yes commodities have been pushed down in price AND in value, against consumer wages, disposable income, inflation, sovereign loan levels. If you track the drop in commodity value, you will see you get a trend that is the inverse to the average capital gain rise in housing (baring special interest such as Auckland, (as it's powered by loose "beads-n-blankets" for land of poor interNational policy.)

Bottom line; the farmers brought it on themselves, with the very willing help of the banks. 2008 I did a year on a diary farm. It was an eye opener. The first time ever to reach $4.50 a kilo for Milk Solids (MS). The boss couldn't stop smiling. Two weeks prior to the payout being announced, but widely expected, all the farm supply costs went up???! I became aware that Fonterra were investing in place like South America and China, and selling their technology including process and production as well as bio tech to any one in the world who would buy it? So now we are surprised there is a glut and resulting crash - WHY!? The banks encouraged farmers to borrow against increased values of farms and supported people buying farms, which are in reality a business, without considering any down side! Again why are we surprised? They brought it on themselves. The banks will be the primary farm owners in the country if the Government stop foreigns buyers stepping in, as they socialise their risk and retain all the upside. season....

Maybe you should ask Fonterra if it got the farmers permission to take the technology and processes?

As for farmers bringing it on themselves......pretty harsh really.......considering all the enforced costs farmers get lumbered with.........the government, bureaucrats and non-farming people all see it as their god-given right to interfere in the business of farming........compulsory capital expenditure increases the purchase price of any land..........then there are the compulsory annual expenses increases!

There is a large group of people who actively set upon farmers to increase their costs at every avenue (both capital and annual on-farm expense) this same group is also highly critical of the debts that farming has...........these people and their activity have partly contributed to the debts and expenses!!

Yep one season, I gained enough understanding to be able to follow it since. And I have asked a few farmers about Fonterra, they were blithely happy so long as they were getting good payouts, and got quite rude when it was suggested that the prices might drop. I got asked by one diairy farmer why the last Fonterrra CEO was getting paid $5 mil a year. I reminded him that as a Fonterra share holder the CEO was working for him, and it was up to him and his fellow farmers to control the Fonterrra board. That other comment - Fonterra is not the farmers and Farmers are not Fonterra - Fonterra is a Farmer owned cooperative! Again they brought it on themselves! From the perspective that I looked at it, the business model that most farmers operated on was unsustainable, and essentially based on hope and denial. They brought it on themselves, and the banks helped! Both should have known better.

he's got the basics right. At $4.50 for a smile he was probably working for old money, as that was still below what upcoming business owners were predictiing - at the time Fonterra was still trying to sort capital notes, peak notes, etc to get in the FIRE business.
That's why they wanted to pull a "PostOffice/Spot/telecom/spark" or Electrocorp (with split of generation, transport, and marketing) where they can split off all the cost heavy "product delivery" away from the far more profitable "value add"/"speculation" environment (and wages adjusted to fit). that was why the first proposed Fonterra Company format that Fonterra got told to drop

DH, why only 50 bpts? And manufacturing continues, year after year to expand but to hell with all that new future stuff, lets just rig the dollar to suit the10,000 fonteras. Like I've said afore - go the whole hog, make money free like George Harrison and Ringo Starrs' "Magic Christian" (they wallowed in dung like cockies - life imitating art). Then fonteras can capital-gain farm the land with gay abandon, we can have dairy farm prices starting at 1 Trillion Dollars, no problem.

This may be well-known information to others, but I was wondering if there is any reason that milk prices at supermarkets etc. have not fallen despite massive falls in international dairy over the last year? Is it just the result of a monopoly or is there more to it?

milk prices in foreign supermarkets hasn't moved much either. It's called a cartel when there's "more" to it :)

Dairy and Housing are TBTF in NZ.

And it all crashes down,
You lose your crown,
You point your finger,
but there's no one around.

Just want one thing
Just to play the king

The US brought its economy back to pink health with zero % interest for the last few years, with QE supplementing ...can we do the same here, please ?

not much to add here, other than that Jamie reports on all commenters comments..

as noted a couple of days ago
Australia's dairy industry is on the cusp of a golden era of prosperity, financial analysts say, and the much-talked-about boom to supply dairy products to China is well underway. Some experts even contend that this new "dining boom" will rival Australia's recent mining boom.

Australian must boost milk production: analyst: Some Australian fresh milk has been selling in China for more than $9 a litre, but Australia's major dairy companies believe China's increasing affluence and Westernisation will see products such as cheese and yoghurt also grow as valuable exports.
But to meet this voracious demand, Mr Harvey says Australia's dairy industry must rapidly grow its annual milk production, which currently stands at about 9.4 billion litres.

Broadcast: 14/06/2015 4:40:39 PM
PIP COURTNEY, PRESENTER: First up: Australia's dairy bonanza. Last year, dairy exports from our shores to China doubled to almost $500 million and some analysts believe the imminent free trade agreement with China will bring a golden age for dairy that could even rival the recent resources boom. Here's reporter Tim Lee.

MICHAEL HARVEY: You're looking at getting investment from Asian companies to actually provide the industry here with access to the markets through marketing and distribution capabilities. But what you're also getting then is the expertise coming from the Asian economies back into this region, plus capital to build the new facilities, but more importantly then tie up the supply chain.

MICHAEL HARVEY: China's the world's largest importer of dairy products. A lot of what they get comes only from New Zealand at the moment. But there's obviously this growing preference for China to be able to diversify their suppliers. There's obviously an opportunity to service this large dairy market from Australia given the FTA, which should come into force by the end of the year.

Why Mr Henry, that sounds kind of familiar...

Well, not to bang on - exporting is a full body contact sport etc...

Here you can see the Oz backgounded view of commodities, more important than the money, is to tie up the supply chain - can be described it as market share/having the customer.

Explains the noted blood sport F is having with Europe and USA sellers in the contracts market.

Therefore he sees nothing wrong in calling gdt yesterday a blood bath with on farm production investment needing to slow/stop/reverse, and at the same time champion the great need for Oz to produce more, by increasing on farm production investment/loans (read the supporting comments by Fonterra Oz head).

From what we have heard ex HK. F needs be leaned up, so that in the eyes of the buying customers, the buyers think they are being well treated. - also noted as China wanting to diversity away from F.

"Nearly 11,000 in-calf dairy cows arrived by sea, bound for Fonterra-owned farming hubs near Beijing.
The Fonterra-owned cows left New Zealand in late July and as the company looks to expand its operations in China more animals are getting ready to head that way.

"It's actually a win-win. It's helping grow the industry and create more demand for New Zealand milk," farmer and Fonterra director Ian Farrelly said."

Good one - not

Oh, bloody hell.

"It appears there's been almost literally a mountain of milk powder in warehouses around China, more than people thought so it might take a bit longer to work through," English said

See with Directors like that who needs competition.

China farms, China milk, China cows, (no problem with the china staff), China tech, China assets.

paid for by NZ shareholders.... to compete directly against the one product that NZ shareholders produce.

And fonterra Farmer Director thinks _that's_ win-win.

Let's hear where that Farmer DIRECTOR thinks NZ shareholder suppliers are going to get _any_ benefit from this arrangement.

Win and Win - I think its the the same Farrelly that was part of "Dumb and Dumber"

Will we see 3 year 3.5% fixed mortgage rates by the end of 2015?

If we do, we have massive problems. But given the attached chart....we are probably headed for problems that we may be unable to deal with, wherever mortgage rates are. China's dairy imports have collapsed, and more competitors to New Zealand enter that market every day....

How can we be heading for problems with 3.5% interest rates ? many countries have been at near zero for years. Home owners are going to need lower rates if our $$ keeps falling to offset higher fuel and other rising costs. We are a major importer as we now manufacture next to nothing, this is the biggest problem for future growth and job creation. NZ is becoming a one hit wonder with just Dairy, if this takes a dive we have no plan B.

" many countries have been at near zero for years" Precisely! And where are they today except staring at artificially supported asset prices? ( stock market and property - there's your inflation that should have been controlled!). Low, artificially engineered interest rates, ( the risk factor has in effect been removed) ARE a sign of 'problems' if not outright panic and fear. New Zealand may now be headed in that direction too, and had we kept the risk factor embedded in the price of money ( ALL of us!) then perhaps we wouldn't have had an extended period of malaise? We can't know that, but we do knwo where we are today, and lower and lower interest rates are two things (1) Not the answer! and (2) a sign that problems are about to get worse.

Right now, it's not the interest rates or the falling dairy prices that's worrying me the most... There are bigger issues at play worldwide, and the information isn't being made available to the general public.

steven - I know you'll be interested in hearing what I found out yesterday and today, but can't post it on the board due to the sensitivity of the information.

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