Guest Post: Never make predictions, especially about the future

Tetra-pak-mn

Casey Stengel was a talker.  He could also ‘walk the talk’.  He was a very successful baseball player and coach who was nicknamed “The Old Perfessor” for the wisdom of his quotes.  One of his wittiest was, “Never make predictions, especially about the future.”

Even well-informed and experienced analysts get their predictions wrong sometimes. A few years ago the leading milk product packaging company Tetrapak made the prediction that dairy prices, internationally, would continue to rise well into the 2020s.  Their graphs showed no blips, just a steady widening of the gap between supply and demand leading to increasing prices. Tetrapak had put together a group of very smart analysts who had developed a reputation for having a credible grasp of the world dairy scene and an ability to understand trends and changes.

Of course, they didn’t see the Russian boycott coming but they may have been able to better understand the removal of restrictions on production in Europe and factor that in because history shows that the Irish, French, Dutch and Germans can all ramp up production very quickly with their access to high quality foodstuffs and the various subsidy support measures they have as a rural industry.  

The other factor that Tetrapak’s analysts misread was that markets change much more quickly than expected given the right circumstances. Only a relatively small amount of the milk produced around the world is traded internationally so small changes in production, either up or down, have a dramatic effect on international prices. With virtually no records on amounts of product in store, especially in China, predicting price changes and when they will occur is fraught with danger.

Right now there are questions being asked about whether stocks are running down more quickly than was thought possible a few months ago. Once the market considers that stocks are moving forward, buying will suddenly spring to life and prices will surge.

Underlying demand at consumer level continues to rise even though the figures are down from the high of 3.2% growth in 2014 and 2.0% in 2015. Most estimates for 2016 are for demand to hold at 1.5% to 1.6%. This is critical for New Zealand dairy farmers for, although production is up in Europe and the USA, that supply will retreat over the Northern summer/autumn as their lower prices bite.

In summary, the drastic fall in farmer returns over this season could turn around a lot quicker than was expected even a few weeks ago when the market was predicting there to be two seasons of very low returns. In fact, there could be good news for farmers before the end of the calendar year.

For the rest, it is also positive. Dairy is a huge player in our economy and we all benefit from the cash that those involved generate and willingly spend in the community.

For John Key and National looking for something positive to take them into election year, the timing may just be a godsend. Just remind me of Stengel’s quote again?

 

-Guest submission, name withheld by request

 


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  • murrayirwin

    Love that quote – must use it at the next sales random number generation meeting…!

  • johnnyB

    We should also beware of predictions by those who have something to gain out of the result. Tetrapak would have been eager to paint the rosier picture of long term demand as a major player in Dairy Plant construction and expansion.

  • Woody

    Almost off topic, but today I talked to some traders at Mystery Creek (Fieldays) who have been pleasantly surprised by the positiveness amongst the farming fraternity, particularly dairy farmers. Enquiry and attitude has been cautious but strong is the message I received, notwithstanding an acknowledgement that spare cash is not in abundance at the moment but major investment is still needed in the short to medium term to survive.

  • Superman

    The way history gets revised, a more apt quote would be (don’t know who said it) “The future is certain, it’s the past we are not sure of”.

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