ANZ economists have cut their milk price forecast to $4.35 per kilogram of milk solids, well below the break-even point for many struggling dairy farmers.
The bank’s downgrade represents an approximate $6.9 billion hit to overall dairy revenue compared to last year’s bumper season.
Dairy prices have finally started bouncing back from the five-year lows plumbed last year, with a 3.6 per increase in the first GlobalDairyTrade auction of the year.
However, ANZ said that was offset by the largest increase in supply from major exporters in eight years, with increased pressure from Europe and a growing domestic milk supply in China.
While oil-dependent nations had been a key source of demand in recent years, the ANZ economists said they were already seeing some pull-back due to collapsing oil prices.
If the forecast proves to be correct, it would be the lowest since 2007’s payout of $3.87, and almost half last year’s record $8.40.
Federated Farmers national dairy chairman Andrew Hoggard said the ANZ forecast was just one view, with Fonterra’s $4.70 guidance still the number to watch.
However, he said it was a sign that dairy farmers needed to be wary and cautious of more downside to come. Read more »
The boom in the New Zealand economy has been led by massive dairy intensification. It is also the driver behind silly socialist projects like the Ruataniwha Water Storage Scheme where townie councillors have bought into government and Federated Farmers spin about the future being dairy and they are promoting economic models based on boom years that are unsustainable in bust years. Even so the proposals can’t work without massive subsidies or government grants even in boom years.
Yet no one has really stopped to question what the real long-term price of milk solids is, and if it is a sustainable long-term path to prosperity for New Zealand.
After last years boom prices there was not much consideration to what was going on world-wide, especially with the Chinese Market.
In the Sydney Morning Herald, their business editor wrote a good article comparing dairy in New Zealand to iron ore in Australia. I slammed it at the time, but have had a bit more of a think about it, plus some additional research over the¬†holiday¬†break.
Uppity Kiwis feeling boastful about their dollar approaching parity with the mighty Aussie might do well to stick to rugby for their kicks. Their China-driven boom is coming to an end as quickly as Australia’s. And they have less to fall back on when it does.
Meanwhile, reports of Gina Rinehart going long on dairy farms could prove as reliable a warning as many another billionaire diversifying outside his or her area of expertise.
The New Zealand economy’s resurgence has owed much to China’s demand for milk products and getting in early for a comprehensive free trade agreement with the Middle Kingdom.
Trouble is, China has been busily investing and encouraging others to invest in increased and globally diversified milking. Just as iron ore miners have ramped up production both from existing provinces and new projects from Africa to Mongolia, New Zealand’s farmers are facing increased competition from South America to Russia and all points in between, including Australia.
[…] ¬†¬† Read more »
Eric Watson suggests we have reached the maximum production capacity. ¬†We can not really make more. ¬†So what next?
New Zealand has led the world developing technologies to maximise output from our limited land resources. Unfortunately, I believe we are close to reaching the geoclimatic and biological limits of our “pasture-based” model.
The reality is, the gap between the maximum potential yield of New Zealand’s pastures and utilisation of this pasture has diminished to the point where little incremental growth in production is possible without alternative feed sources.
It is no surprise that continued increases in dairy production have gone hand in hand with significant increases in the use of imported supplementary feed stuffs, such as palm kernel which, with increased rates of applied nitrogen, contribute to nutrient loading on dairy farms.
New Zealand is caught between the necessity for economic growth and our obvious geoclimatic limitations.
As an isolated exporter of commodity dairy products, our opportunities to add to our export value without increasing volume is limited, but to maintain our market share we need to increase volume.
New Zealand’s dairy exporters have continued to explore opportunities for value-added products to increase our export values, but these initiatives are dwarfed by the impact of volume in the major commodity dairy products we export, and ultimately this is what motivates our farmers and the dairy industry.
The key here is the ability, or rather the efficiency, of ecosystems to convert nutrient inputs into product.
Forget Killer Cows, you are going to see Homicidal, mad as all hell psychopathic cows when they get wind of plans for them to wear nappies in Bavaria.
The other farm animals will likely die from laughter.
Bavarian farmers are angry that their famous Alpine dairy cows will apparently have to wear nappies under European Union environmental laws.
Johann Huber, whose family has farmed on the mountain slopes of Gmund am Tegernsee for over 400 years, has begun putting home made nappies on his 18 diary cows to avoid falling foul of an EU fertiliser ban.
Mr Huber said that his cow Doris had behaved well when he fitted her with a home made bovine nappy to prevent her dropping cow pats on the Alpine slopes.
“We have no standard nappies, they have not been developed commercially yet,” he said.
Nick Smith is getting all pus-faced and threatening legal action.
It shows he has been got at…and very unbecoming of a minister to resort to throwing around threats of legal action.
You either sue or don’t sue, you don’t whine about thinking about suing.
Conservation Minister Nick Smith has rejected allegations of political interference, after he was accused of “bullying” Fish and Game into pulling an advocacy campaign for cleaning up rivers and lakes.
Smith said he was considering legal action against Association of Freshwater Anglers president David Haynes, who made the allegations.
Haynes said Smith was highly critical of Fish and Game over the course of a Fish and Game Council meeting, held in Wellington this month.
“Nick Smith is very good at talking at and over people I think, and he was wading into them and they sat very quietly and listened to what he was saying,” Haynes told Morning Report.
“From my perspective they were very clearly being castigated, it could be construed as political interference – this was about telling Fish and Game to wind their neck in.”
The allegations were centred on a series of billboards, which called for greater protections to keep rivers and lakes clean.
Fish and Game is an independent organisation, which collects its funding through fees for fishing and hunting licenses.
It has statutory obligations to oversee fish and game management and ensure effective management of the country’s sports fish and game resources.
[…] ¬†¬† Read more »
Udder Bliss: One Cow, Three Cats and Some (Very) Fresh Milk
¬† Read more »
Killer Cows are rampaging again.
The Herald reports:
A man has been flown to hospital with head injuries after he was kicked in the head by a cow in Hawkes Bay this afternoon.
The Lowe Corporation Rescue Helicopter crew was called after the 18-year-old man was kicked by a dairy cow at Ashley Clinton.
He was taken to Hawke’s Bay Regional Hospital.
Gareth Morgan has taken time out of his hectic schedule of giving hand-jobs to dictators, running losing soccer teams and hating cats to write a good piece on bludging farmers in the NZ Herald.
‚ÄėExternality‚Äô is just a flash way of Gareth saying ‚ÄúBludging‚ÄĚ and any sensible right winger expects costs to fall on those who incur them, not on the rest of us. Not paying your true costs is clearly bludging no matter what the ratbags at Federated Farmers reckon.
We have what economists call an “externality” – where the actions of a producer create costs they don’t pay for but leave others to pick up the tab. Until those costs are sheeted back fully to producers, in this case the farmers, their personal profits will be inflated at society’s cost. And of course the higher the profits, the more new dairy farms get set up, making the problem worse. A circuit-breaker is needed.
A sensible ‚ÄúNO BLUDGING‚ÄĚ Policy would solve a lot of these problems.
The lack of a decent regulatory regime is the reason bludging farmers keep bludging off society, so the real ratbags are politicians who incentivise bludging.¬† Read more »
Michael Pascoe writes about the NZ economy in the Sydney Morning Herald.
It‚Äôs bad enough losing the rugby, but in 2014 Australians will have to suffer Kiwis getting uppity about their economy as well.
While our economic growth is stuck around 2.5 per cent, there‚Äôs talk New Zealand could be doing double that by the middle of the year.
For so long the poor cousins across the ditch, it‚Äôs the Kiwis‚Äô turn to ride the China resources roller coaster, with all the fun and fear that can engender. The commodity is different but the fundamental story is much the same as the China boom that lifted Australia over the past decade.
What iron ore and coking coal did for Oz, milk powder is doing for New Zealand. Forget the clich√©s about New Zealanders and sheep ‚Äď it‚Äôs cows that are making Kiwis feel good now, as well as the All Blacks having an undefeated year.
And they are feeling good. An ANZ bank survey this month found NZ businesses the most confident they‚Äôve been since 1994. House prices and wages are rising and consumers are spending more ‚Äď the government is expecting consumption growth of 2.8 per cent while Australia struggles to manage 2 per cent.
New Zealand‚Äôs terms of trade are at their highest since 1974, giving the average Kiwi sharply stronger buying power. It‚Äôs not so expensive for Kiwis to visit the relatives in Australia ‚Äď but the land of the strangled dipthong is no longer a cheap holiday for Australians. The Kiwi dollar started the year above $1.26 to the Aussie. It‚Äôs finishing at $1.09.
Milk powder prices are up by more than 50 per cent this year and China has overtaken Australia as New Zealand‚Äôs biggest trading partner. Fonterra, the world‚Äôs biggest dairy exporter, can‚Äôt keep up with the demand and¬†finds itself caught by its cheese and butter operations holding back overall performance.
The impact of Chinese demand for milk solids is also behind the never-ending Warrnambool Cheese and Butter takeover saga. It must sadden those who saw productive Victorian dairy farms turned over to tax-driven blue gum plantations.
Its all about protein…and we are best at producing it, whether it is in milk or meat. Pascoe trips up though and quotes Bernard hickey who is more often wrong than right in his prognostications.
But the extent of New Zealand‚Äôs reliance on a single commodity and a single customer worries some. New Zealand Herald commentator Bernard Hickey¬†makes the point that the country‚Äôs second-largest trade partner, Australia, also is reliant on China¬†and that Kiwis carry much more debt than when they last depended on a single market ‚Äď England. He didn‚Äôt use the term ‚ÄúDutch Disease‚ÄĚ, but it was there between the lines.
Just as China has encouraged a greater diversity of iron ore sources, it can be expected not to rely indefinitely on NZ. The Middle Kingdom also desires to increase and improve its own dairy capacity, but faces water limitations for what is a very water-intensive industry. (That‚Äôs why those soggy Kiwis are so good at it, despite suffering what they thought was a drought last year.)
In the meantime, the $NZ40 billion rebuilding of Christchurch will provide its own increasing stimulus for the NZ economy. The Reserve Bank of New Zealand is expected to start increasing interest rates in 2014. It‚Äôs already attempting to cool the housing market through macro prudential means ‚Äď a move the Reserve Bank of Australia admits it‚Äôs watching with interest. And rising rates should further support the Kiwi dollar.
While our Treasury forecasts Australia‚Äôs unemployment will nudge up to 6.25 per cent, New Zealand‚Äôs is 6.2 and falling from a high of 7.3 last year, twin factors that can be expected to reduce the usual migration flow. Australia has done well out of its Kiwi migrants. Given the direction of the New Zealand currency, we might have left it a wee bit late to stock up on five-eighths and sauvignon blanc.
Yet there‚Äôs always a silver lining. The last time Kiwis were this chipper was 1994 ‚Äď when the Wallabies won the Bledisloe Cup with ‚Äúthat tackle‚ÄĚ by George Gregan. Maybe a richer New Zealand also is a softer one.
The National Party should be ashamed of the huge subsidies being paid to dairy farmers in the form of a free right to pollute. The National Party is a party of free enterprise, not a party of corporate welfare, and the biggest bludgers of all are dairy farmers.
Bludging dairy farmers are using a subsidised right to pollute to make a profit while wrecking our waterways. The latest report from the Parliamentary Commissioner for the Environment shows just how much socialism is going on.