ASB has lopped 40 cents off its 2014-15 Fonterra milk price forecast, and ANZ is suggesting dairy farmers will receive an unwanted Christmas present in the form of a reduction in Fonterra's own forecast payout.
These comments come after dairy prices fell 5.2% in New Zealand dollar terms, and 3.1% in US dollars, in last night's GlobalDairyTrade auction. Prices are now at a five year low.
ASB senior economist Chris Tennent-Brown described the latest auction as weak where it mattered.
"All up the Global DairyTrade price index fell 3.1%. The prices of key products whole milk powder (WMP) and skim milk powder (SMP) both fell over 5%."
"This fall was on the back of earlier signs of life, with WMP up nearly 5% over the two auctions prior. Those gains have now been wiped. Casein prices also fell over 12%, in addition to the significant WMP and SMP falls. Bucking the trend were Anhydrous Milk Fat (AMF), butter, Butter Milk Powder (BMP) and cheddar, posting rises of between 1.4% and 6.1%," Tennent-Brown said.
"Overall prices are now down nearly 47% in annual terms. The falls for WMP and SMP are larger, both having declined over 50% since November 2013. Last night’s fall was also the 17th out of the last 19 auctions."
On top of this Tennent-Brown points out the price falls come with Fonterra having reduced auction volumes in an attempt to boost prices. Fonterra’s forecast auction volumes for the 12 months ahead has fallen by 14% since June.
"But the market isn’t buying. Fonterra’s milk production remains up over 4% for the season to date (and 6% nationwide). There is still plenty of milk to go around."
Based on all this, ASB has cut its milk price forecast by 40 cents to $4.70/kg of milk solids. This new forecast features a much more protracted recovery in prices, Tennent-Brown says, adding ASB still expect prices to rise during 2015.
ANZ's economists, meanwhile suggest dairy farmers now appear set to receive an unwanted Christmas present, with Fonterra likely to cuts own 2014-15 forecast milk price from $5.30/kg.
"Given the required run rate and the view of a later recovery our current forecast is for a $4.85/kg milk solids milk price in 2014/15," ANZ says.
"That means the December board meeting could be a doozy again this year. Last year there was a dramatic cut to the dividend and hike in milk price. The opposite could well occur this year, especially with some GlobalDairyTrade product recently being sold via other channels for an extra premium and the persistent weakness in milk powder prices versus non-reference products. Not that the share price has been jumping for joy, but something worth watching," ANZ's economists say.
They also noted persistent weakness in milk powder prices had "cemented" farm-gate prices in the low $4/kg milk solids in the past four auctions.
"Given that this is the peak sales period this will weigh heavily on the outlook for the season. We believe a stronger turnaround won’t be forthcoming until the middle of next year for several reasons. Farm-gate prices have not adjusted materially lower in Europe and the US as yet, meaning suppliers are not receiving the signal to cut supply; lower grain prices are also helping Northern Hemisphere margins; Russian sanctions are continuing to rattle the market as evidenced by the one-way traffic for skim milk powder prices; demand in some key markets remains lackluster; and we’ve seen good seasonal conditions in New Zealand and Australia so far," ANZ says.
Westpac has a $4.80/kg 2014-15 forecast, and BNZ a $4.90 one.
29 Comments
Its an oversupply issue, not Russian sanctions, which will just encourage more local development.
Then there is the falling demand in the USA.
USDA milk demand, off 2% in August, the first drop since early 2013,
Read more at http://www.philly.com/philly/blogs/inq-phillydeals/Milk-prices-Collapse…
cowboy, if it hasn't already happened in your area, get along to the GMP evenings Fonterra is running. We found it to be very informative hearing from a person who has been on the trading/sales desks, about the sales strategy of Fonterra. Fonterra's Aaron Atkinson was more than willing to engage the robust discussion that resulted from farmers questions. Consequently it was a very informative meeting.
Colin, I don't expect Fonterra's sales team to tell me how to run my farm and so I don't, nor have any wish, to tell them how to run their sales strategy. However, I do like to be informed/educated about how and why they do what they do and have the ability to inform/educate them on how their decisions impact me on farm.
Having Fonterra senior employees front up to farmers for a two way sharing/understanding of information is a positive, and not having directors at these meetings is even better. :-)
Media has written about Russia. http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=113…
actually since I _own_ shares in the company I do expect to have a say and be in a position to criticise poor performers.
Fonterra, however do not own or contribute any capital to my farm or operation, so I wouldnt expect them to have much say... however that doesn't stop them. I'm told how to fence waterways (or else), how long I can have for pickups, what water I can use, and a whole bunch of other things in their supplier epic (used to be a booklet but it's recently growing to be a epic, probably trilogy before soon).
When I see their employees front up to declare to me in person, especially at an expensive formal event, I condier it a complete insult. If they want to be involved in consultation, then certainly lets put some discussion on the table and get the facts out. But if they're there to dictate terms... sent me the bullet point email, I've got better things to do with my time than sit around listening to them and being ignored, and they've got better things they should be doing with the money. If they want help running things better, I happy to help, it's "our business" - the modern word is "DevOps".
As for having senoir staff there? Don't they have better things to do?? Those guys are in chrage of Mega buck decisions and they're playing tea parties with _the_shareholders_!!! not even the customers, which might win us a little profit. When your best people are smiling at the shareholders it normally means your company is on the rocks!!!!!!!!
Anyway senoir staff, normally can't speak to anything important anyway - its too commercial sensitive, and when it comes to the detail, they're not deep enough in the process to really know where things are at. And if things are pretty they wouldn't tell you anyway, _they're_not_authorised_to_do_so_!!!
I'm really hoping we see a bit of a sea change with this new person, Leonie, on the board.
Getting rid of silly TV channels and expensive "state dinner" dictation to the mobs, more focus on business process and decent business yields.
Reduce Fonterra's overspending with capital it doesn't have, stopping them overgouging on debt (they're fine ones to point fingers at farmers!!), focusing on decent business practice and yields for their farm sources which are Fonterra's life blood, and for Fonterra operations themselves. And hopefully an end to the wall of yes-men that surround the directors and shareholder council.
cowboy I take it we have had different experiences at more recent Fonterra meetings. In the last two meetings I have attended it was patently clear the senior employees could explain the 'why' and 'how' detail of their particular area of the company far better than any director. ;-)
The Shareholders Council is IMO an eunuch. That is, they are impotent to deliver any real change. They appear to be there for the benefit of the Board, not the Shareholders. It started off as something quite different to what it has morphed in to.
Leonie on her own cannot effect a seachange on the Board. But I believe that there are on the Board other existing directors who have similar sentiments to her, and collectively they will be much harder to be ignored and in time we will see some changes.
Russian has replied to USA/Canada/Norway/EU/Australia sanctions by banning imports on produce, including milk and milk products from afore-mentioned countries.
The EU lose €11.8 Billion
USA lose €972 million
Canada lose €385 million
Depending on what proportion of the above is milk or milk produce, it still suggests that there must be a lot of milk sloshing around from the above countries looking for buyers.
The other downside of the sanctions may be that. Russia is now in the position of filling their own produce market (including milk) by pushing up their own agricultural and food technology.
They will have a wide open existing National market.
There's a saying: Be Careful What You Wish For
Gandhi said " Be The Change You Wish to See in The World"
The Quest Of The Grail Knight - "Parzival"
Parzival leaves the castle, to begin his quest ......
The gate was open and the drawbridge down. He galloped across, but when he got to the end of the drawbridge, someone yanked the cable so abruptly that Parzival was nearly thrown, horse and all, into the moat. Parzival turned back to see who had done this to him. There standing in the open gateway was the page who had pulled the cable, shaking his fist at Parzival. "May God damn the light that falls upon your path!" the boy cried. "You fool! You wretched fool! Why didn't you ask the question?"
.
"What do you mean? .. Question?" Parzival shouted back at the page. "What question?"
So, in the short term, it will be Belarus — already a major exporter to Russia — and countries such as New Zealand, Serbia, Argentina and Uruguay who fill the gap left by Finland and other EU countries
CO's link several posts above is to an article that includes the PM asking Fonterra and others not to export to Russia:
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=113…
I saw that. The infrastructure part can be best given perspective using a borrowed Dilbert strip:
Ok certainly, The PM will be compensating us for our loss of income, given just how badly many dairy farmers are suffering?
If a ready market exists in Russia, and we're having price issues Fonterra has a DUTY OF CARE to its shareholders, AND a contractual obligation to it's suppliers to sell to Russia.
It's not a choice, it's in the contact, it's the fundamental purpose for the incorporation of Fonterra.
As long as trade with Russia is not illegal then, given the financial pressure from surpluses elsewhere, Fonterra has the _obligation_ to sell to that market - especailly given that they are already a trading partner.
Put a sock in it..
Get with the real world...one where the real workers get little...but want more.
http://www.bloomberg.com/news/2014-11-19/china-wages-policy-backfiring-…
Then add it up and see the real picture. When bankruptcy looms over and over.
http://www.bloomberg.com/news/2014-11-20/distressed-debt-in-china-you-a…
What your customers want is a fair deal, for a fair days pay. But as usual Fonterra could not help but milk it...until the pips squeaked.
Why is cheese so expensive here.. Maybe the big cheeses need to get with reality.
You can only sell things for more on a rising market. Not that anyone is out of touch with reality here.. Far from it.
Read the first link.... What is happening? China is lifting minimum wages and factories are going to go bankrupt and lose competitiveness...
welll well well.. who could have expected that?
Don't I keep hearing from the experts that minimum wage makes economy go faster, and "good business" will thrive... are these booming business not competent??
feel free to reply with your apologies.
Here is a different perspective, last year fonterra in its wisdome introduced for the first time gauranteed price structures. Last year fonterra could not utilize all of the price/production structures at the time, egg on the face. Fonterra is the largest exporter to the dairy market.
Nz's total milk production is estimated to feed only about 100mil people. People do not just stop eating because they want too. All other countries dairy production protected from the international market because most is consumed domestically. Notice the offerings to the Global Dairy Auctions are very small quantities. Fonterra does not stock pile. it cant.
Where is the rest of the inventory? Presold to deals last year? back hander deals? Fonterra scaring suppliers into gauranteed price structures/quoters? Chinese byers trying to forge excessive demand and control supply margens?
Fonterra could make heaps more by purchasing a couple of supertanker planes fill them with milk and fly them to china you would turn over $5 /l and the product would be such a demand. We use to have asian international students all they drank was milk about 3l ea per day they all said the milk in asia taste like crap. You could do this with water too asian city water is recycled about 6 times, unpalitable. This would be a 24hr turnaround save heaps on expensive powder factories.
Just one cow cockies thoughts.
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