The latest GDT auction has been, with very little to report except it seems to be a ‘business as usual’ auction. Overall prices increased by +0.6% with the individual products below.
- Butter index down -1.9%, average price US$4,725/MT
- Cheddar index up +1.8%, average price US$4,826/MT
- SMP index up +1.7%, average price US$3,102/MT
- WMP index up +0.1%, average price US$3,400/MT
The only really major concern is the continued fall of butter. With just the odd sign of resurgence, butter has been on a steady decline since February when it hit the heady heights of $US$7,086/MT. The biggest looser here will be Yili/Westland with their role as a dominant player in that field.
Westpac have mentioned that the result is perhaps the due the weakening of the US$ and therefore product being a little cheaper in US$ terms. They point out that this also means there is some downside risk give the volatility of currencies at the moment.
Perhaps the best news on the international market is that China is (finally) starting to loosen their grip of society regarding rules around covid. Just goes to show that even in authoritarian countries, protesting can lead to change (occasionally). The China leadership probably have finally realised that they have run out of options, at least ones acceptable to the general population. The loosening of restrictions has come almost 3 years to the day after the initial outbreak of covid. How the time has flown (not!).
The relaxing of covid restrictions should mean that the Chinese food service sector starts to increase turnover and this should flow through to New Zealand products. A lot will depend upon what stocks have built up.
On another positive note regarding China is the news that China has had the world’s greatest improvement in air quality. China's annual average fine particulate matter (PM2.5) concentration has fallen by about 56% from 2013 to 2021 and sulphur dioxide concentration has dropped by 78%, according to Manila-based NGO, Clean Air Asia (CCA). No doubt this is in part due to covid putting the brakes on much of the economy but at that level other changes are also in play.
New Zealand had a -6% drop in emissions in 2020 as a comparison. China is not out of the woods with covid yet though, as despite the relaxing of rules China’s vaccination programme has been surprisingly ineffective. Authorities have set a vaccination target for 90% of people over 80 years old to have taken at least one dose by the end of January 2023. This leaves room for some major outbreaks to still occur especially with the omicron variant. New Zealand has had a +90% uptake of the primary programme (2 doses) and 62.8% of those over 65 have had their second booster shot (4 shots) and even with this we are still getting 7,000 cases per day. Given the control China has had on its population a surprising difference with vaccination rates.
Palm kernel risks
On a different note, those who have been pushing back on the use of palm kernel as a stock food will have welcomed the report that has come out of the University of Canterbury. Farmers who use it have been warned as far back as 2010 that over feeding can lead to the risk of over-dosing in phosphorous. However, the UC study has found that the risk of over-dosing is even higher than thought before and across more than just phosphorous. It also potentially extends beyond livestock to soils. In a press release from the Centre for Integrated Biowaste Research funded by Strategic Science Investment Funding from Ministry of Business, Innovation and Employment, they say:
“New Zealand imports approximately 2 million tonnes of palm kernel expeller (PKE), a waste product of palm oil processing, from Indonesia per year to support our dairy farms. At current prices, this costs approximately $800,000,000 per year”. “The chemicals contained in the PKE can significantly affect our soils and animals, both positively and negatively. “PKE may alleviate some micronutrient deficiencies in livestock and provide contaminant-free phosphorus into our soils. “However, some chemical elements may cause nutrient imbalances in animals, as several elements exceed maximum tolerable levels for animal feed.” The media release concludes: “An assessment of the effects of PKE on the sustainability of our agricultural systems is urgently needed.”
So, potentially there may be some upsides in its use as a fertiliser but that likely an expensive way of achieving this - unless it can also be used as a stock-food.
Risks and black swans
A final thought on what the big influencers on markets and supply chains to watch next year is a pretty easy one this time around (with current information). Russia and its (hopefully) failed in its attacks on Ukraine are the big one. How Russia (or Putin) deals with the ignominy of being pushed out of the Ukraine plus losing its place in the world as a super power will be an interesting watch. It may not be a positive result if Putin decides to throw his ‘toys out of the cot’ and go down with a bang. Hopefully wiser heads can prevail in Russia and have a calmer (inevitable) transition of leadership and let the world get on with business again.
The China issue likely will be a smoother one and is already starting to show some upsides to the world economy. Hopefully this can continue and they further open up themselves to the global economy. This may counter some of the Russian influences driving us towards furthering a global downturn.
One thing we have learnt over the last few years is that thinking you know how the next year or two are going to progress is fraught with uncertainties and who knows what other ‘black swans’ may fly out of all of this.
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12 Comments
I would assume it is a win for the individual farmer, though I would say some are caught up in the chase for more production, and ignoring the input costs. Just like any other business.
But as a country, by the time you account for excess nitrates, carboc and methane, marginally profitable doesn't cut it. I wonder what the drop in production would be if we dropped pke?
Here are NZ's PKE imports with this information sourced from the USDA.https://www.indexmundi.com/agriculture/?country=nz&commodity=palm-kernel-meal&graph=imports
You will see that in recent years they have been averaging about 1.8 million tonnes per annum.
I have been working on the basis that this is about 7% of total feed supply for the NZ dairy industry.
I also have previously estimated that, because of the specific way that PKE is used in shoulder seasons and drought, in the absence of PKE, total dairy production would drop by about 10%.
MPI estimates that dairy exports will be worth approx $23 billion this year. Their figures tend to be higher than Stats Dept but that is because the Stats Dept does not understand some of the exports associated with the dairy industry.
So, in broad terms PKE contributes about $2.3 billion to exports.
At farm level, PKE contributes about $1.8 billion for a cost of about $800 million. Both costs and returns can vary considerably from year to year and this is why farmers are regularly doing their sums.
I emphasise that PKE is a very important tool of risk management within pastoral dairying where every season is different.
I question whether the research referred to in Guy's article was totally objective.
KeithW
You'd imagine that if PKE had negative effects on cattle we would have seen it by now - an excess of phosphorus would likely cause metabolic disease or maybe alter bone mineralisation causing fractures. Both things that can't be overlooked. And since our soils are P deficient and you have to add it, that doesn't seem a problem either.
The main metabolic effect is that high use of PKE in the immediate pre-calving period can lead to an increased risk of milk fever. This has been known for a long time. I don't believe many farmers would be using PKE at that time which is known as the 'transition time' for feeding. This period is very important for both clinical and sub-clinical milk fever. It is the most important time of the year to 'get things right' in relation to feeding and it is one of the skills that defines good farmers. I don't believe the University of Canterbury press release made a contribution to objective science. Rather, it is an example of publicity-seeking behaviour divorced from objectivity which we see too much of. In this case, the science paper itself is OK; it is what the PR people then did with the press release that I object to.
KeithW
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