By Bernard Hickey
Fonterra has cut its forecast for the 2014/15 milk payout to NZ$5.30/kg from NZ$6.00/kg as widely expected, but has increased its dividend payout range to 25-35c/share from 20-25c/share to soften the blow somewhat.
“The market is currently influenced by strong milk production globally, the impact of Russia’s ban on the importation of dairy products, and the levels of inventory in China," Fonterra Chairman John Wilson said, adding there had been some relief recently from the falling New Zealand dollar.
Fonterra confirmed a NZ$8.40/kg milk payout for the already completed 2013/14 season and a 10c per share dividend, which was better than the slight fall that some economists expected.
“Under the current market conditions, there is further downside risk. However, the forecast reflects expectations that prices will increase in the medium term,” Wilson said.
Economists estimated the drop of more than NZ$3/kg would reduce revenues to the dairy sector and the wider economy by around NZ$5.5 billion or over 2% of GDP. The New Zealand dollar dropped more than half a US cent to 80.75 USc. Economists said the forecast assumed a 30% rebound in milk powder prices to US$3,500/tonne by the end of the season from around US$2,700/tonne now.
"Recent auctions have implied a milk price in the mid-$4/kg MS mark as opposed to low $5/kg MS," ANZ Rural Economist Con Williams said.
Fonterra CEO Theo Spierings said the estimated dividend range reflected the positive impact of a lower forecast Farmgate Milk Price on product margins and significant volatility in commodity prices.
“A lower forecast Farmgate Milk Price reduces input costs in our consumer and foodservice businesses. In turn, we do expect to deliver increased returns as a result of a recovery in margins on our products," he said.
“In addition, stream returns for Non-Reference Commodity Products such as cheese and casein are currently making a positive earnings contribution, but it is still very early in the financial year," he said.
“With volatility in commodity prices, a wide range of outcomes are possible in relation to stream returns. The wider dividend range reflects this volatility, and at this stage of the financial year, it is not realistic to be able to accurately forecast the final result for the year within a narrower range.”
'25% will struggle'
Dairy industry group DairyNZ said most farmers would cope with the lower prices as long as there was not another drought, but around a quarter of farmers may struggle to pay their farm working expenses and interest payments.
“Our real concern is maintaining profitability across the industry if milk prices remain low for the 2015/16 season," said DairyNZ’s general manager of research and development, David McCall.
“We expect farmers to make a determined effort to control farm working expenses this season, with an average budgeted reduction in farm working expenses of around 40 cents per kgMS to $4 per kgMS," McCall said.
“Our surveys show that farmers will reduce their spending on bought-in supplementary feed, fertiliser and repairs and maintenance, which all increased in 2013/14," he said, adding farmers should think about the next five years and whether their systems can handle such fluctuations in the payout;.
“Our analysis shows we are just within the long-term bounds of the trends for average dairy company total payouts – and if you can’t survive those, then you need to look at your farm system and what to change. We know there are dairy farmers who operate low-cost farming systems that are able to make a profit with a $5 Farmgate Milk Price," he said.
Federated Farmers Dairy Chairman Andrew Hoggard said losing the 70c/kg would hurt and that a quarter of farmers would be loss making. He said he was optimistic about the payout rebounding above NZ$6/kg for 2015/16.
"Farmers will be kicking capital works into touch and will be pruning herds to rid themselves of any passengers," Hoggard said.
"What we know from DairyNZ is that two-thirds of dairy farms have working expenses of between $3.25 and $4.75 kg/MS. Of course when you start paying back the bank manager, the average cash costs on-farm head up to $5.40 kg/MS."
Conspiracy theory
New Zealand First Leader Winston Peters suggested that Fonterra may have delayed the announcement to benefit the Government.
“Questions need to be asked by New Zealand voters on why they were not informed about this serious decline before Election Day,” Peters said.
“The drop in payout is a $5 billion hit to the New Zealand economy and 2 per cent off nominal GDP. It appears the government and Fonterra joined forces to keep the facts hidden from voters?," he said.
“And why did Rabobank, a leading rural lender, wait until the first working day after the election to release a survey showing that almost half of our dairy farmers expect the performance of farms to worsen in the next year and that rural confidence is at a two-year low?"
Spierings denied Fonterra had delayed its result to suit National, saying it always released its result in the last week of September and National had simply chosen an earlier election date than normal.
"We have not moved an inch," Spierings told Guyon Espiner on Morning Report .
(Updated with detail, market reaction, farmer reaction, comments from Winston Peters, reaction from Spierings)
123 Comments
Oceania, result cruelled at the hands of colesworth.
When less is less: Which is lesser the return from Australian assets, or the value of Australian assets..
He said Fonterra had been forced to absorb much of the price rise because competition from supermarket private label products as well as finite disposable income from consumers curbed its ability to pass on costs.
"They [consumers] can't just increase their disposable income to continue to consume their products," he said.
"In Australia you have the situation where you have a significant increase on your cost side and in the domestic market you have a competitive situation with … the private labels, which put a lot of pressure on what you can pass on to the market."
Mr Paravicini's comments came after Fonterra's net profit for its entire business tumbled 76 per cent to $NZ179 million ($A163.03 million). The company attributed the plunge to "constrained margins" in its food service, consumer business and non-milk powder products.
Read more: http://www.smh.com.au/business/fonterra-forecasts-fight-over-dairy-as-milk-prices-sour-for-farmers-20140924-10lglx.html#ixzz3EH5w6qzr Q: how long is too long?
But Mr Paravicini said Australian farm gate prices, while set to dip, wouldn't fall as much as New Zealand's.
"New Zealand is independent of Australia. Obviously the world market has an influence on Australia but Australia is also geared around cheese, not just whole milk powder.
"It's also a fairly domestic market to some extent, therefore you have to look at the competition, what the largest processors are paying.
"Right now, the short-term is weaker prices but we remain quite bullish in the medium term that these prices will recover."
Mr Paravicini said Fonterra grew its share of Australia's milk supply pool, which was stagnant for the year, by 6 per cent. (surely not by paying up?)
Sounds like the Oz pool is heating up.... AUD $6.00 equals NZ$?
Australia’s largest dairy processor Murray Goulburn (MG) has moved to reassure suppliers today about this season’s milk price.
The move follows Fonterra’s downgrade in New Zealand of its forecast price payout to farmers there.
In a milk price update, Murray Goulburn managing director Gary Helou said MG was maintaining its opening price and full-year forecast at the weighted average available milk price of $6 per kilogram milk solids.
There is worse news if you look beyond the media statements and into their accounts:
https://www.nzx.com/companies/FCG/announcements/255604
They are paying dividends from equity. Equity continues to shrink despite one presumes injections of captital from the issue of new shares. (change in equity - 214 million for the group, -166 million for the parent)
This year they have even rearranged their Statement of Changes in Equity. Instead of being 2012 to 2013 to 2014 as per normal and last year, this year it is 2013 to 2014 followed by 2012 to 2014.
And with a repeat of the 2013 year's Transactions with equity holders in their capacity as equity holders instead 2014's.
From the financial statements, statement of changes in equity includes the dividend paid out:
https://www.nzx.com/files/attachments/201019.pdf
Page 5 (7 out of 72).
And the farmgate milk price includes dividend per share on page 3 of this one you put up:
Hi Henry.
I have looked into the dividend figure a bit more. Over the 2013-2014 season Fonterra had 1,597,834,000 co-operative shares. No shares were issued or redeemed for the year (I found that a bit surprising given milk production increased 8%). A $0.10 dividend per share therefore requires just under $160 million.
Using changes in equity figures from the parent (that is what Fonterra suppliers own as shareholders) they show payment of a $336 million dividend. That payment is $176 million more than required.
Where did that $176 million go?
I am aware of one simple possibility but I doubt anyone would like the answer.
the shares get sold/bought to/from the Fund (for the non-suppliers) or other similar holdings, this means no issues or redemption. 176 mil covers some of the capital works they've been doing in NZ to go WMP (instead of butter) holdings.
that and they have to hold a cash pool against more customer requirements (eg change in infant formula rules) so that pool will be somewhat depleted this last 2 years.
Henry, I too picked up the earnings per share/dividend payout. The payout of 100% of earnings per share is a departure from past practice. Will be interesting meetings next week I think.
Personally I expect more downside in payout so aren't counting on todays 2014/2015 prediction. Its the 2015/16 season that farmers really will feel the brunt of this years reduced payout.
If they shift the timeframe to 2 years then the shares are double the capital for a year.
It's a dubious accounting trick used to disguise just how bad a year actually is by merging it with a previous good year (and/or asset holdings). ie the 2 yr spread shows good asset growth from overspending ... but also shows good margins from the previous years revenue.
It used to be unethical in accounting because it created a view that didn't reflect accurately on the business' performance. Mordern tax and shareholder accounting it is done because it's not actually legislated as illegal so therefore ok.
This is not great news for the country. Speaking to an ASB Bank Rural Manager recently he told me if I recall correctly that the average debt of dairy farmers was about $2 million and that they needed a payout of $5.05 or thereabout to pay farm costs including interest,labour and drawings of $70,000.00 for personal spending but that did not include cover for unforseen maintenance costs such as repairs to the tractor. Can anyone put more light on this point. Farmers have obviously already dug in and are not spending frivolously as proved by very poor retail conditions this year.
Gordon - don't fall into a dim witted bankers analysis using average debt levels !
Eliminate those with no or very low debt - then look at those with higher debts and see how they will fare at current payouts.
Dealing in averages in these situations is most misleading. Farmers need to segregated by levels of debt and then analysed individually.
I think you will find many with high debts are in dire straights.
If only those with very low or no debt are able to operate.... without dividends on the capital (ie assets) then they are subsidising an uncompetitive practice AND not paying the share of tax for their operations.
I don't know what market segment you operate in - but as an example,
If I have a person demanding $18/hr for a $20/hr task I might hire them if they're good.
BUT
If that same job, and someone comes offering to do it free, or for $5/hr then we risk collapsing the economy, and going back to the situation where women were employed in massive factories working for cents an hour.
So if a farmers is demanding $30/kgMS then yes they should fail.
But to say you need no or very little debt to survive and $5.30 is therefore ok, is undercutting the market because proper respectable (eg 3%, around +/- 1% over retail savings return) returns on assets is expected.
Proper debt level is 20 - 45% of capital. The numbers are well known to educated financial people (ie Debt to Equity level, Return on Assets percentage) so it's not like it can be called unusual or complicated.
I think the problem with working out what "proper" debt levels should be depends on the return on your capital value. I know a few of farmers ( in sheep and beef) who have fallen into the trap of borrowing too much because their land has been given a high valuation and their bank manager will lend them the money, but their incomes aren't high. I know a farmer who has a 3.5 million dollar farm(no debt) that he is struggling to make a living off.
that's the trifecta though.
Debt:equity capitalisation:revenue, and of course equity and capitalisation are closely related
and why we have to make sure the asset is valued in light of it's revenue generation.
and yes in asset is highly valued because it's revenue generation by operation is low and it's capital gain is high - eg Auckland houses, then you get growth in the non-earner portion of trade value. A "farm" becomes something which is traded on land value (eg houses, stocks) rather than on human use (eg security for workers paid wages, dividends paid from profits). It gets to the stage of land ownership as security, as we have already in the Forestry Industry, and the production value is so low c.f. property trade value that working the asset for it's production value is no longer worthwhile. We see this in high end art (buy the orginal, hang the copy), and in property holding (not banking for future buyers, but the empty buildings because it's cheaper to speculate (or use as security) than the cost of refurbishing and dealing with tenants).
This is also why NZ should be asking why RBNZ supports LVR, but refuses to give serious refusal weight to loans vs income (actual or projected)... as income for an un-used empty asset is zero
The problem with insolvency for the banks is the risky dairy farmers only need to be the top 10% at most 20&%? So if 10% of these farms go toes up and have to sell at a big loss the banks would be in deep doo doo due to leverage?
Everything looks like one big house of cards....
"very poor retail conditions" of course and worse to come. I man high petrol prices (worse as NZD falls back?), high rates, high power prices and all with many households not getting a pay rise to cover these costs, glad Im not in that sector.
regards
Makes the Lab/Gre extra spending ideas look less likely also if they were elected.
There was a good post at Kiwiblog yesterday on voters thoughts from a stuff article:
'Consumers voted with their wallets at the weekend.
National was a vote for good economic times but a vote for Labour-Greens was risking bad times, according to a bank survey.
The latest Westpac McDermott Miller survey of consumer confidence shows 46 per cent expected good times for the next three years under a National government.
But under a Labour-Greens government just 14 per cent would have expected good times ahead, while 40 per cent would have expected bad times.
“The stark contrast in expectations of good economic times over the next three years under the two putative governments must have been a major factor underlying the return of a National-led government,” McDermott Miller managing director Richard Miller said.'
In these still trying times people trust Key/English over Cunliffe/Parker/Norman to keep the economy better.
Tomorrows news,
Watch out Red Meat Industry. The spruikers are trying to grab the money and blow the wind up your nethers.... but as you all know a major drop in accepted Farmgate Milk Price _always_ sees massive farmlot dairy operations cull massive numbers of excess stock, which causes a following drop in low quality meat price - and following on, creates a suddenly surplus in available/spot grain prices (so feedlot meat farmers keep extra animals).
This one-two punch results in a (just past) surge from previous high milk price sucking up feed, pushing up grain prices, and thus creating high red meat prices from feetlot meat suppliers only keeping necessary animals.
The drop in dairy, results in price drop in bottom end Red Meat values,
Then a drop in medium qualtiy prices, that follow the grain curve.
Then the extra meat animals stablise the grain surplus, pushing grain back up...and so the feedlot folks start their process kills. but the excess animals crashes the red meat price again.
So be very cautious Red Meat folks.
Those in debt will spend as their bankers command. Which will amount to not much given this unforgiving hangover of obligation of liability to others.
waymad, advance rates as from payment due on 20 November are being cut from $4.80 to $4.00 for the rest of the season, if that is what you are referring to. So yes, it will have an impact on cashflow this season. But better that than having clawback by Fonterra of overpayments. ;)-
yes, the latifundia. sharecropping and tenant farming.
The Aristocrats increasing owned the valuable land, with small owners being pushed off their holdings by rising costs (set by the bureaucracy, and headed by the aristocrats). The farmers and labourers often having no other higher value speciality, ended up being hired back on to those farms. But the system is less efficient (as there's a boss to delay and veto important decisions) and why bother working so hard on someone elses land....
Empires may rise and fall, but the land remains.
from the governments side though, they also try to keep people working. Easy if government directly pays them, and spends into particular parts of the economy it can predict (ie houses, supermarkets).
Also they end up fighting their own fiscal policies, because increase in private enterprise means higher velocity of money...which creates much higher GDP (and other markers) and looks like inflation increase (when it's economic growth)..thus the rules they set mean that RBNZ will act to destroy the inflation (ie destroy the jobs and businesses created.) but because the indicators are poorly set, it won't be obvious whats happening
and the urban folks aren't going to care. (Remember their prices don't go down with the failing payout..... hmmm). Most will see it as "just desserts for greedy farmers"
The amusing part is that mmost Urbanites will see it as a reason that farmers should de-stock, and the consultatnts and experts will be telling everyone to "produce more, more efficiently" to overcome the cashflow issue (because , you know, farmers don't want to maximise production or be efficient, in good years; or just as standard practice.......)
Exactly cowboy. The price urbanites pay for milk, cheese etc don't go down at times like this. Farmers arn't to blame obviously, as they a not getting the price they recently did. So you have to think there is an increased surplus somewhere, and just who is getting that ?
It is really good that you are looking at yourself as a business when you refer to your costs going up......however the ambiguity is in what a business is vs what a real cost is. Labour and wages etc are a cost to production so that could/would place you not in the business sector but in the costs section of the economy if you're an employee. I won't get into how productive your employment is for that is another issue.
You should be very grateful that in NZ you are well looked after in regards to Employment legislation that provisions many benefits.....which are a cost to business......
I'm sure you don't really mean that you have no sympathy for people with lots of debt......at the end of the day those people who have taken on much of the debt especially in agriculture are still part of the back-bone of the NZ economy. Agriculture debt has given NZ its standard of living......if we didn't have it we could possibly look like some of our neighbours in the Pacific Island countries.....
Steven you can buy many dairy products in NZ that come from around the world and that is the free market working at its best.
A quick look in my fridge shows parmesan cheese comes from Italy.......Danish butter and some feta cheese.
I don't think you mean monopoly......I think you mean cheap favours (subsidies) for locals which would be the locals having a monopoly on pricing by some enforced method and not the open market.
Try comparing the Fonterra Halloumi cheese (a squeaky cooking cheese) against the real thing, to see why they are struggling in some markets. It looks right, sounds right, ... but tastes like plastic... Same as a couple of their other specialty products, got the externals spot on, but not the human factor.
I only eat the real thing Cowboy.....I can't stand most of the plastic crap that is commercially made!! I have a couple of places I buy holloumi from and while it is expensive it is worth it.
I also make my own from time to time....
They do have a bit of an arrogant attitude when it comes to consumer preferences......I'd rate a product like their holloumi similar to margarine vs butter. Just recently I bought a very good holloumi and I had some guests who were not wanting to eat it as they had only ever tried Fonterra's brand and hated it.........I succeeded in convincing them to at least try it......they are now converts which is good but makes you wonder how many people have been put off......
I had exactly the experience you describe. My chef put together a really nice dish and use the Fonterra Halloumi since I'm a Fonterra supplier. We were both very disappointed, and it did take convincing to retry, and it was one of the cheeses that convinced me that Cheddar isn't the only cheese (three flavours? mild, colby, tasty)
they'll turn into the old cheese and butter mountains. the type of thing that forced quotas to be put in place in Europe/UK (the quota for allowance to sell turned out to more valuable than the products themselves which is an interesting (and probably compulsory) lesson in economics.
traditionally excess NZ milk gets turned into Butter. It's easiest to store and cheapest to make. But what to do with all the buttermilk...there would be lakes on it lying around stinking the place up.....
If there was a more versitile product. One that was more flexible than butter, didn't require constant coolstores, aged better... preferrably with lower water content by volume to aid in efficiency of storage and handling..... I wonder if Fonterra might consider building more Whole Milk Power driers to deal with a possible increased surplus ....
Maybe you haven't read this article Andy R..........
http://www.investigatemagazine.co.nz/Investigate/13025/dirty-politics-g…
That's the biggest problem with Winnie....
Too many conspiracies : Winnie, you need collusion to have conspiracies.
Occams Razor tell us we've got two top schemers travelling in the same mutally advantegous direction, they don't need to collude to take advantage of a mark (ie NZ population).
I think if Lab/Grn looked like it was going to show well, we would have seen the Friends of Highly Populated Countries being more concerned, and their buddies in the Food Processing Industry launching early news to shake the tree.
No collusiion required.
NBR headline: UPDATED: Reduced Fonterra payout forecast depends on 30% recovery in dairy product prices
Not paywalled;
http://www.nbr.co.nz/article/fonterra-slashes-2015-milk-payout-530-kgms…
"Song noted that China imports around 80 percent of its dairy products from New Zealand at present, but in the future, "it must be diversified, in a bid to guarantee supply and stabilize the prices.""
Called it. heh. So China was the big saviour? It will take everything we can make? We're in good with consumers etc in China? I would like to see some resignations from the experts over the last 12 months that authored those articles.
Cowboy on Song as ever, has us with thoughts turning to May past - not sure if you were one of the several commenters otherwise linked plus utubes below for your benefit - be well
He said China would like to reduce that level of dependence on a single country and New Zealand needs to be aware of that.
that November pre-Brisvegas meeting should be newsworthy
Not sure how to feel about this. Should I laugh or cry.
According to RBNZ dairy farm debt is $32 billion
From available stats there are just over 10,000 dairy farms NZ wide
That means the "average" debt carried by the "average" farm is $3,200,000
Assuming there are still some family owned farms around carrying no debt at all, then the other farms must be carrying a load more debt
Debt free farms should be OK
Dunno about the heavily indebted units
RBNZ is happy to tell us how much debt there is but doesn't tell us how many farms carry that debt
Will the government bail them out?
icon, you may have missed this one where a couple of us chipped in.
http://www.interest.co.nz/node/70112/rural%20news
don't forget the sharemilking arrangements
and for more background
http://keithwoodford.wordpress.com/
Thanks Henry - I did see it at the time - but my eyes glazed over
Cowboy's direct variable costs of production before fixed overheads, are just over $2 per kg, so it's worth it for him to produce even if Fonterra's payout falls to $4 making waymad's low-order cost of $2.50 in range
That gives me some perspective
The assets I'm paying for are worth 2.4million.
Recent foot injuries are going to require extra staff, as I'm going to have to go part-time.
The breakdown of tractor (gearbox) and ute (engine) aren't going to work with $2/kg.
neither is the interest I have to pay.
At $2.50, I'm on minimum wage (at best) that's a lot of skill and risk and effort to ask from someone paid less than your average fastfood counter person or supermarket checkout operator.
no. production is not a good figure to work from.
Like those bandits that grab a cheap poor farm, pour on stock from high production farm, then pour in expensive feed, then hock it off as 1100 - 1800 kgMS/ha production.... and the poor sap who buys it finds the production has been purchased.
Also means the stick in the mud farms, like the one I'm working on ... with equipment 40 years old and failing, look great. Even though production per hectare is typically 800kgMS/ha (poor). It has been operating using chemical fertilisers to lift production to 970-1020kgMS/ha class 1 (extremely good) at the cost of soil damage. the assets are all paid for but needing replacement. so even low production looks great and effective.... but it's just low hanging fruit for takeover when replacement costs ("depreciation debt") is taken into account.
This is because they've always operated at a low retained earnings level to keep profitable in tough times, and paid back debt in the better times. This meant they've never really kept the operational debt, and reinvestment high enough to keep up modernisation - looks great profit wise - until the rules start to change and then we find the reserves aren't there. (ie a yield of 2% was thought good...until you realise the asset is 30% below what it should be)
Hi Cowboy,
What chemical fertilisers are we talking about ? Just out of interest of course to much of a good thing can be bad but all plant nutrients are taken up in inoganic forms. Are you referring to to much N regarding leaching and hence associated lowing of soil pH and nitrofication of groundwater. But pretty sure fertiliser in general unless misued wont cause soil damage? Pretty hard to farm without inorganic fertilisers...
I've shifted to Agrissentials and then to Kiwi Fertilser.
Organic matter acts as a buffer system. It absorbs water, processes Nitrogen, retains nutrients. this is because it's plant waste and micro-biological organisms. Chemical fert is like a government dependent single level dwelling, they all sitting there waiting for The Man (government or farmer) to bring around the next batch of food/resources. I'm working on building biomass through biologically friendly farming (biotech, as opposed to organic).
The biomass feeds on itself, organisms require water to grow, they require Nitrogen, phosphates, sulphur and bunch of other things - but it's like a block of multilevel dwellings, all working and feeding into each other. My soil holds twice the water, is ponding resistant (like a sponge), but leach resistant (like a Property Investor with tax money... :) )
Reliance on N, especially in Ammonia forms, tends to kill off some of that biomass. Which gives great grwoth for moment (like a Chch rebuild). But you can't keep relying on that to keep sustainable activity, and you can't just keep paying for external inputs (eg N) as pressure to keep prices low will always be on the business - therefore the wise business person allows for that pressure.
So we have to replace what we take out, but by using more biologically friendly forms and application rates we lose less (business leakage), pollute less, and reduce cost through that mechanism. eg maximising suppliment returns by managing waste is a challenge .... but like using more efficient LED lights when I change to solar PV panels, if I have good soil action then the advantages of effluent management are far increased.
It does take some learning and observation, and many "experts" only say what they're told to and what the neighbours do, so you really have to be willing to objectively observe and test what your soils are doing (and whether your crop/pasture mix is actually suitable)
I'd say it is possible, you calculate the real cost of grown grass in NZ, it's not cheap. I assume there are plenty of half empty ships heading to China from Europe everyday that could stop in Sudan on the way past. The days of NZ being a low cost dairy producer are gone.
if low cost dairy producer days are over then NZ is in for a terrible shock.
Fonterra and MPI have been crowing for years about "best quality product" but the payout proves that they aren't able to get the necessary returns from such management policy (and I've been worker in a few companies that either collapsed or all-but-collapsed through such Executive level failure)
NZ doesn't have the connections or political ability to rebuild significant higher value export, nor do why have the manufacturing ability to build equipment to do the work on scale.
We don't have the internal economy to redeploy that level of GDP through internal work.
And since milk powder, whether high expense quality, or run of the mill generic, all ends up in the same commodity sale with little brand differentiation (price wise) if elected or employed politico's start thinking of moving away from low cost model then the NZ economy is going to go the same way as Georgie Pie...
These guy's say they can still make money
AJ, usa wise do you think this 30 cents is correct?
Fieldays chief executive Jon Calder is going on the nine-day trip, and said lessons in keeping costs down would be a major focus.
''We have got around a 30 cent per kilo cost advantage over them [USA] at the moment.
''The concern is if we don't get it right, we could make capital investment and we could lose that cost advantage really quickly.''
http://www.stuff.co.nz/business/farming/dairy/10548689/Dairy-delegation-heads-to-US
- aside from paying $10/hr to guest workers and running the shed 22hrs/day
Just a little ego boost for those involved. Wisconsin has such a huge dairy pollution problem, perhaps thats why they choose the place.
I have a good friend who is a vet there, huge barns, huge cows and massive production. He told me the environment damage is real and massive.
http://e360.yale.edu/feature/as_dairy_farms_grow_bigger_new_concerns_ab…
http://www.jsonline.com/news/wisconsin/proposed-dairy-farm-raises-pollu…
I'd imagine the cost advantge is a moving target, fuel prices are back nearly a dollar a gallon in the past few weeks. 60% of all farm workers in the USA are undocumented illegal immigrants. California had two inches of rain last night and its pouring now,we could get another 4" tonight.
Hay prices are way back now the Chinese are not buying. My friend just got some hay at $180 a ton and he budgeted $400.
I would have thought the huge local market gave them an edge we could never compete with, although they say NZ WMP is being imported at present, undercutting the market and will eventually cause prices here to fall. The States in the West is where I would have though the low cost production growth is.
From what I've read the USA is not a major problem, its the EU who is going to cause the problem. USA milk production up %5 ,gain prices locked in, so untill that grain is used up these guys are better off feeding the cows and making the milk.
In the EU the production potential is much bigger I think they are up %6. Its the EU that will cause us problems.
perhaps our biggest problem is what we percieved as our biggest strength, Fonterra.
The USA has some big problems, the world economy has big problems. I think the wests failure to be to pay workers enough to consume without credit is a major.
I'm not confident about the States getting out of its problems unscathed.
I'm not convinced that the huge build up in dairy production in NZ was market driven.
This is just what they are admitting to.
http://www.bloomberg.com/news/2014-09-25/china-foreign-exchange-watchdo…
Anyway, I learn more off you than you do off me :-)
Remember all those farmer trips to Uruguay, that became a great lesson for many of us.
" NZ WMP is being imported at present, undercutting the market "
Hmmm and why is Fonterra selling at such a low price then :( :(
Hope things go ok with weather, that's pretty big plains over there to get 4" rain...
The trip to Uruguay before my time, and been working on farm since I started (no time for overseas trips, aint no GenX/Y er...)
Its two weeks old.
Exports accounted for 7.7% of January to July cheese production and 11.2% of butterfat output. But the U.S. may become a net importer of both products later this year. USDA’s Dairy Market News reports that butter cargoes from New Zealand and Australia “are in the process of coming to the U.S.” It is not unusual for the U.S. to import butter or anhydrous milkfat (AMF) from New Zealand when the U.S. butter market stands at a premium. However, imports from Europe are rare. European butter prices are typically higher than U.S. prices, and over-quota tariffs of 70ȼ/lb. serve as a further barrier to entry. But this year the chasm between U.S. and global butter prices is so wide, it easily overwhelms the tariff. The Daily Dairy Reportnoted this week that the U.S. can import just over 15 million pounds of butter this year under its quota allocation, but there isno reason to stop there. At $3/lb., U.S. butter holds a $1.34 premium to the Dutch market and it is $1.495 higher than butter in New Zealand. Under the North American Free Trade Agreement, the U.S. can also import AMF duty-free from Mexico. Our neighbor to the south is likely to import AMF from New Zealand in order to free up domestic supplies that can enter the U.S. without paying the tariff. http://www.milkproducerscouncil.org/updates/091214.pdfOne of the (many) burning memories was going through Buenos Aires was watching super rugby in spanish.
the joint would be much the lesser without your thought
agree about Europe, bunch of tricky tricksters
from what gather gearing up is more materials handling and landfill mgt, over and above the livestock.
mind you travel in the us heartland, not for the faint of heart
https://www.youtube.com/watch?v=81eU8Rq7j58
David C, Gareth et al. Would you look in to the swede cow deaths in Southland and see what you can find out? I hear that it is MyFarm farms that are the only ones really affected. If this is so, then that would suggest it is a management/operational issue within the company. Tens (if not hundreds) of thousands of dollars are currently being spent on looking in to causes etc of this situation. If it is a MyFarm issue, I have serious issues about levy/tax payer funds being spent basically at the behest of a privately held company. Word is they are looking for an avenue to litigate for their problems. If so, it shouldn't be at mine and every other dairy farmer's expense. Then again they are not that well liked in Southland, so it might not be the facts at all.
capital cost is effectively written off in China. New builds and factories are seen as places built to supply a labour opportunity for workers, rather than a capital investment to be recovered. They still cost but the mentality is opposite.
In the West our governments make private enterprise the enemy (via tax and legislation demands) and spends it's nest egg money on public services such as parks and other consumptive lifestyle choices (copying the amazing infrastructure in Greek roads)
In China the government tries to harness private enterprises (via control and supply of labour/protective legislation) and spends it's nest egg on public services that boost the private enterprise. Supporting businesses, backing up cheap money for investment loans (as opposed to the West where the worker is expected to pay for housing from their own troubles, and factories have to get private/banking support. In China the State takes an interest to see the Workers have these facilities available, the State operates as an enabler/facilitator. That's why it's absolutely imperative to have a well connected "mentor" and contacts in the Chinese bureaucracy, to make sure your efforts are supported by the State.
And since the labourers aren't fighting The World, their cost of living is way below our Living Wage cost. So employers pay less, pay less tax, pay less specific overheads. They do pay more in "commission" in the form of appropriate gifts to those who help arrange funding and mentorship.
It may have changed since I had to deal with Chinese businesses.
There were landlords, so there was some form of ownership but most common people don't pay much attention to it as most people "rent", often from companies they work with.
(that's how I discovered what I did as one of our peeps was getting some CD's made...only to find the factory around the corner was knocking off very cheap copies. some of the copies ended up on the black market, but interestingly enough he started noticing sudden drop in quality of the official product. The contractor said it was hard to protect IP in his country and he would see what they could do (nothing). A bit more digging showed that the same landlord owned both factories).
So I get the impression (as my ambassador connected friend won't discuss it, but did discuss many other things) that (a) land owners are "rich", (b) they're well connected, and (c) it seems to be a kind of leasehold arrangement with expectations of land guardianship and social development in return for serious levels of "government assistance" (money, oversight, etc).
Kind of reminded me of the old British Baronry system, where the Manor was in charge of the local countryside, in return for rents, but it was all (commissioned) royal estates.
Updated with Fonterra's denial of a conspiracy with National to delay the result until after the election.
Spierings denied Fonterra had delayed its result to suit National, saying it always released its result in the last week of September and National had simply chosen an earlier election date than normal.
"We have not moved an inch," Spierings told Guyon Espiner on Morning Report .
Not many sharemilkers or farmers in their first 15 yrs with boats. How many other business owners with over 4 million dollars of holdings have boats?
How many employed and business people have a bach or second house? Many baches are family deals and have been in the family since grandparent times.
The new vehicles are often done for reliability. There are no bus runs or other public transport service, and you're not going to spend the time hiking the 4 - 200 km into town for groceries, equipment, or emergencies. Many sharemilkers and workers (managers, labourers) are second or multi-hand vehicles..... so again how many $4,000,000+ businesses (turnover easily over $1,000,000 per annum) have staff vehicles or fleet vehicles that are new? True, they should look at fleet lease for the write off, but the business only tends to have 1 maybe 2 road vehicles, and often one of those isn't a commonly held fleet vehicle (ie expensive for the lease company to handle and service).
So is it clear thinking that has you complaining? or jealousy/petty-envy?
"old money". My great grandfather was those people until he pissed off the wrong people further up the feed chain.
Get out and about, ask for sharemilkers, new starts, people been building up for 10-15 years, not 50 years of cheap costs and time to pay down any debts.
If I was a property investor and my parents gave me a dozen houses as a starter then I too would look like "horse country" despite economic operations. It's only folks like my G.GD that screw up that fail.
So to see the real impact you have to get out where the action is, check the tyro circuit. Otherwise you end up like the DairyNZ and other idiot advisors talking like everyone has a personal money tree
I live out in the country and on nice days there are numerous large boats being towed by owned by farmers going out for a fish. I don't begrudge them that as they work hard and they have to put up with market fluctuations and climatic difficulties that us townies don't have to endure.
and like many townies towing boats they either have family money, damn good luck, or have many years of career and asset development behind them.
What do we think successful farmers of 20-40yrs SHOULD look like? living in peasants shacks?
My measure is the return on asset, and comparable tax that should come from that endeavour - sure we all need food, but surely the food shouldn't be priced so cheap that production gets shortcuts. That's a market contortion if ever there was one. And in the end those shortcuts catch up.
Better a more level system, that way we can assess true cost of production (and there fore, of living) see that food prices are properly recovered - and that will allow proper taxation balance.
Buying a farm is a huge financial commitment, you take on risk , reinvest most of the money you make, work long hours, do everything a team of people does in a bigger company. After twenty or thirty years of this you become an overnight success. If you want a comparison start your own business in town, don't complain how much your getting paid.
Check out the margins on N...
The merger talks between fertiliser groups Yara International and CF Industries to create a $27bn agribusiness is another sign of how the shale revolution is changing the face of industry in the US.Both companies are leading producers of nitrogen fertiliser, of which natural gas is a crucial component. The deal comes as US nitrogen crop nutrient producers are enjoying a huge boost in profits thanks to low-cost shale gas.Chicago-based CF reported gross margins of 52 per cent last year in its nitrogen fertiliser division, compared with a 9.4 per cent margin for phosphates.
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