The Weekly Dairy Report: Market volatility remains and dairy dependence on China exposes NZ to greater risk

The Weekly Dairy Report: Market volatility remains and dairy dependence on China exposes NZ to greater risk

Pasture growth forecasts are inching upwards as soil moisture levels and sunshine hours improve,  but temperatures still sit below average due to the occurrence of many heavy frosts and wet conditions.

Managers are adapting as best they can, as they cope with the rigors of calving and the new financial climate, but were buoyed by last weeks auction result which suggested we have finally reached the bottom of the dairy price decline.

While no-one is predicting the crisis is anywhere near over, the price lifts even with the restricted volumes, were welcome, and if these gains continue in the dairy futures market, a small seed of optimism will emerge about future prospects.

The Chinese sharemarket crash threatens to undo the feather of optimism from the auction price upturn, with the dairy future markets turning back again overnight, and Fonterra's investment in  Chinese dairy company Beingmate losing over $200 million dollars in value from this market adjustment.

Evidence is emerging of some of the tough decisions operators are making, which have included job losses, non renewal of sharefarming contracts, owners back milking, and most commonly, a big cull of poor producing and late calving cows that reduces the stocking rate and lowers the reliance on the use of supplementary feed.

Fortunately they have been able to sell these animals into a buoyant beef market minimizing the capital loss, as meat processors welcome this late flow at a traditionally quiet time of year.

There will be big negative spinoffs for the rural economy as this retrenchment will affect the rural towns and businesses that service the sector, and sheep, beef, and cropping farmers will be looking how to fill the gap this downturn has caused.

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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15 Comments

Here's the PC mad Nats introducing Chineese style law into NZ: http://www.stuff.co.nz/national/politics/71447449/new-health-and-safety-... . Remember the Nats persecution of Mr and Mrs Berryman whilst they were hiding themselves from responsibility for the deaths of 14 youngsters at Cave Creek - Cockies Beware!

Just another case of govt treating small business like they are foreign corporates Ergo
http://www.fedfarm.org.nz/publications/media-releases/article.asp?id=187...

Under John Key's prudent economic management, dairy farmers would be far better off selling their farms to the Chinese and then putting all their money into houses in Auckland and even leaving them empty.
They would get a 25% tax free capital gain and at least 4% rental return if tenanted.
And no work would be required!
Such is how this Government's policies work!

"John Key's prudent economic management" is an oxymoron, the moronic economic philosophy driving continued economic mismanagement of the neoliberal govts everywhere. Let's sell assets (because govts should not own assets and our backers need those profits), let's replace prudent govt asset managers with incompetent ones and force them into unwise financial decisions, thereby proving that govts can't run SOEs, let's take the sale income stated to be earmarked for national infrastructure and put it into offshore banks that are funding offshore infrastructure, etc, etc, etc. Loved hearing yesterday that some of Air NZ's wholesome profits are going to all their mates who bought 49% of it. Ideology driven economics comes through again...not.

The spinoffs of this dairy cull could be far reaching. A large kill now will minimise the kill come autumn. These late cows being culled have beef calves on board. Where are the rearers going to find the whiteface calves to rear. Yearling dairy heifers are hitting the market with gusto. They could most likely end up being fattened for local trade. In 12 months time will there be a shortage? There are stories going round of whole herds heading to the works. Sharemilkers walking away. Multiple farms doing away with half the cows, shuttind down a cowshed and milking out of only one. Bringing home the young stock from grazing. Lots happening out there it would seem. But also quite possibly just a few stories making the rounds making it seem worse than it is.

How dry was it in NZ for the 97-98 El Nino? (was it?)

yes it was,

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=1245

and what did farmers have to do to get through it? 2015-16 el nino's is looking like it might beat that, if so what will farmers face? mass culling?

"Dr Jim Salinger, senior climate scientist with the National Institute of Water and Atmospheric Research, said the weather was a confusing mix of heat and rain and 1998 was one of the most dramatic years in New Zealand climate history.

In contrast to 1997, when temperatures were cooler than usual, the national average temperature for 1998 was 13.4 deg C, 0.8 deg C above the long-term average set between 1961 and 1990."

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=1245

0.8dec and this one might be, even more?

bound to end well...

But this information would be vital to indicate "where to put dairy farms and where to plant vineyards."

Livestock should be kept west of the ranges free from drought conditions... manawatu, taranaki undervalued farmland compared to more expensive but drought risky cantabury, waikato and northland.

Taranaki is amongst the most expensive dairy land in NZ. Always has been, it just doesn't get the attention in the media like the Waikato etc.

Mills said prices for dairy farms in the sought-after Waimate Plains exceeded $80,000 a hectare last season. One farm topped $80,000/ha and another five or six fetched more than $70,000/ha.

http://www.stuff.co.nz/business/farming/dairy/69477715/Taranaki-dairy-fa...

Which could link to the Rabo bank article here yesterday.

From memory the summer was hot and very dry ,but it did break early in comparison to 07/08, the main problem was facial eczema with the mild wet autumn
Grass growth was ok going into the winter , I think also the asian crisis happened about then too so banks were very jittery

Fonterra is getting into cheese, no hang on, milk powder, no I think it's cheese.

Asia's growing taste for New Zealand cheese is driving Fonterra to increase its capacity to process milk into cheese products.

http://www.radionz.co.nz/news/rural/282534/asia-says-yes-please-to-cheese?

Consents lodged for Fonterra's Studholme plant upgrade
http://www.stuff.co.nz/timaru-herald/news/71463735/consents-lodged-for-f...?

Asia Mmm... Interesting that it appears to coincide with Russia signing or about to sign off Fonterra to send products there..................

d p

as long as it tastes better than their UHT milk