The latest Global dairy trade auction followed a very similar pattern to the previous action with overall trade slightly up with a +0.5% lift.
However, whole milk powder, the key product from Fonterra’s perspective down again with a -0.7% drop to US$3,269; that is still a reasonable margin over the US$3,000 which is generally considered the base to stay above.
Fonterra has increased its WMP offering by 4,000 tonnes over the next 12 months and this comes on top of a previous 4,000 tonne lift last month meaning the total offering for the next 12 month period is over 627,000 tonnes. The lift appears to be driven by a change in the balance of product coming out with less cheese hence more WMP. Fonterra may be using the opportunity presented by the lower production numbers from other producing countries to move some product and not risk pushing down prices (much).
The impact of DFA joining the GDT is not being seen as yet, another plus. The winner on the day appears to be butter up +3.5% to US$5,544 a 52% lift since the low on November 20th 2018. Apparently Chinese consumers have discovered hot cross buns and they go well with butter. An irony is Westland Milk rely heavily on the butter trade and future benefits now may not go back to co-op shareholders.
Fonterra’s share price while having a small rally going to $4.30 continues on its longer term trend downwards which began on December 2017. At that point it was sitting at $6.68.
The decision of the Government not to pursue a Capital Gains Tax will come as a relief to most farmers. It may save a lot of extra work for farming families with their accountants and lawyers trying to work out what were going to be the most suitable option to bring the younger generation into farm ownership. But it is still a problematic area at least the current ‘rules’ are understood.
The decision not to follow the Tax Working Group's advice will have been purely politically pragmatic. Some commentators are still predicting a CGT by stealth with perhaps the time frames around the bright-line test (selling a property for gain within 5 years) being extended. It has already gone from two years to five last year.
Perhaps more of a surprise was the decision to can, for now, any notion of water or fertiliser taxes. With the CGT and these taxes behind us focus now is likely to turn back to the issues of Climate Change and this is where the big bucks may start to be discussed. The Green Party having lost one of their foundation ‘planks’ will be looking to get some points back on the board and while they publicly have been accepting of the CGT decision behind the scenes, they will not be happy.
Dairying has been getting some unwelcomed attention in the Capital with activists (a relatively small group) pouring milk onto Parliament's steps in a protest to try and raise water quality standards in New Zealand.