Monthly Archives: January 2015

Jan 20
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Dairy prices rise at Fonterra auction

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Source: Stuff

Dairy prices rose again at the GlobalDairyTrade auction overnight, on the back of an increase in the value of milk powder.

However, prices still have to increase a long way if Fonterra is to achieve its payout forecast.

The 1 per cent increase is the third rise in a row at the fortnightly auctions, and follows a 3.6 per cent jump two weeks ago.

Whole milk powder, New Zealand’s largest dairy export, rose 3.8 per cent offsetting falls in several other categories including anhydrous milk fat which was down 5 per cent.

Butter milk powder was down 6.4 per cent and cheddar was down 4.3 per cent.

Rennet casein rose by 3.3 per cent, skim milk powder rose by 1 per cent and butter was flat with a 0.1 per cent increase.

Volume was down again with the quantity sold falling by more than 6 per cent to 31,326 tonnes. Despite the overall increase prices are just over half what they were this time last year.

AgriHQ has lifted its Seasonal Farmgate Milk Price forecast by 20 cents to $4.40 per kilogram of milk solids, below Fonterra’s forecast of $4.70/kg.

AgriHQ analyst Ivan Luketina said the increase was mainly due to increases in dairy futures pricing since the previous auction a fortnight ago.

“Although milk production in NZ is well past its seasonal peak, milk flows are still high at this time of year, so it’s hard to see prices rising quickly in this market environment without something significant tipping the supply and demand balance,” he said.

“That may yet come, however, if the current dry weather pattern persists in key dairy producing regions of New Zealand.”

Yesterday ANZ slashed its forecast for Fonterra’s farm gate milk price this season to $4.35/kg. In a note following today’s auction, ANZ economists said milk powder prices needed to rise by an average of 3.2 per cent at each auction until July for Fonterra to meet its $4.70/kg forecast.

“Last night’s auction was encouraging for whole milk powder, but outside this price action remained poor for the other products,” ANZ said.

“The run of good results for milkfat products looks to have done their dash as they have caught up to offshore prices from other sources and skim milk powder prices were little changed.”

The dairy co-operative achieved a record milk price of $8.40/kg last season.

Jan 11
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Kiwi Dollar Up Against Aussie After Dairy Price Jump

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Source: BusinessDesk

The New Zealand dollar rose after lower volumes helped push up prices at Fonterra’s GlobalDairyTrade auction overnight. The kiwi touched a fresh post-float high against the Australian dollar as investors favour the outlook for the local economy.

The kiwi increased to 77.92 US cents at 8am in Wellington, from 77.28 cents at 5pm yesterday. The local currency touched 96.22 Australian cents, its highest since the Aussie was floated in 1983, and was trading at 95.95 cents at 8am from 94.97 cents yesterday.

The New Zealand dollar outperformed its peers overnight after prices rose 3.6 per cent at the latest dairy auction as volumes fell, stoking optimism about a recovery ahead for New Zealand’s largest commodity export after a 48 per cent fall in prices last year. The kiwi was also bolstered by reports China is speeding up work on 7 trillion yuan of infrastructure projects to revive slowing growth, boosting optimism about the outlook for New Zealand’s largest trading partner.

Bank of New Zealand currency strategist Raiko Shareef said much of the New Zealand dollar’s record-breaking run could be put down a lack of liquidity in typically quiet Christmas-New Year trading and that the real test would be next week, when markets are back in full swing.

“But I would not fully discount this move into higher territory,” Shareef said. “Being at a fresh post-float high is probably justified given how negative sentiment is around Australia and given New Zealand is in a better economic situation than many of its peers,” he said.

Shareef said the price action overnight put the differences between the two economies into sharp relief. The Australian dollar, with its high exposure to the energy sector, suffered, while the New Zealand dollar, with its exposure to improving dairy prices, strengthened.

However, Shareef said he remained sceptical about the likelihood of the Kiwi reaching parity with the Aussie.

“China’s news was enough to ignite the lift in the New Zealand dollar followed by falling offshore yields and a positive GDT overnight,” ANZ Bank New Zealand Agri economist Con Williams said in a note.

Investors are favouring the New Zealand dollar over its Australian counterpart as the economic outlook appears more rosy on this side of the Tasman. New Zealand’s Reserve Bank has indicated it intends to hike interest rates further, compared with Australia where economists are starting to price in interest rate cuts. That makes the kiwi more attractive to investors looking for yield with interest rates in New Zealand already 1 percentage point higher at 3.5 per cent.

– with Jamie Gray

“The positive New Zealand dollar story has been enough to deliver post-float highs on this cross, which may temper further extensions higher as local sellers look to take advantage of the overnight move,” said ANZ’s Williams.

Still, he said the recovery in milk powder prices in the latest dairy auction isn’t strong enough to deliver Fonterra’s $4.70 per kilogram of milk solids forecast for the 2014/15 season. Skim milk powder rose 2.8 per cent while whole milk powder rose 1.6 per cent. AgriHQ estimates that would translate to $4.30/kgMS.

Today, traders will be eyeing ANZ’s latest Commodity Price Index, scheduled for release at 1pm, for a gauge of how other sectors are performing.

ANZ expects the kiwi to trade between 77.80 US cents and 78.30 cents today, while against the Aussie it will likely trade between 95.90 Australian cents and 96.40 cents.

The New Zealand dollar touched a 20-month high of 65.42 euro cents ahead of a report on Eurozone inflation tonight, which may signal the region is close to deflation, increasing pressure on the European Central Bank to step up stimulus measures. The kiwi was trading at 65.29 euro cents at 8am from 64.70 cents at 5pm yesterday.

The local currency touched a four-month high of 51.46 British pence, and was trading at 51.29 pence at 8am from 50.65 pence yesterday.

The kiwi edged up to 92.23 yen from 92.19 yen yesterday. The trade-weighted index advanced to 79.49 from 78.83 yesterday.

Jan 11
0

Falling Supply Boosts Dairy Prices

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Source: Stuff

Dairy prices have continued their turnaround, and analysts say a drop in production will help them rebound from a five-year low.

Prices rose 3.6 per cent at the GlobalDairyTrade auction overnight, boosted by a big jump in the price of butter.

The average winning price at the auction was US$2709 (NZ$3475) per tonne, up from US$2609 a tonne at the previous auction in mid-December.

The trade-weighted GlobalDairyTrade price index hit a five-year low in December after plunging 50 per cent since February, but it has lifted at the last two auctions with prices up 2.4 per cent at the previous one.

It is at its highest level since September.

Following the auction, AgriHQ lifted its Seasonal Farmgate Milk Price forecast for the 2014-15 season by 10c a kilogram of milk solids to $4.30/kg.

Fonterra’s forecast for the season is $4.70/kg, although auction prices will need to continue to rise for that to be achieved.

AgriHQ analyst Ivan Luketina said Fonterra had offered lower volumes of dairy products on GlobalDairyTrade this season than it had previously, and the lower volumes had helped to reverse the recent price declines.

“There was a slight reduction in the volume of whole milk powder offered from the previous auction, which also delivered a lift in price,” he said.

“The volume of skim milk powder offered was less than the previous auction, and the lower volume attracted a 5.9 per cent lift in prices for Fonterra’s offered product.”

ANZ economists said supply was beginning to adjust to lower prices around the globe and “near-ideal” weather conditions looked to have come to an end in some key producing regions.

“Indeed in New Zealand supply growth has fallen behind last year since December and a soft finish to the season beckons,” they said in a note.

“The use of less supplement, and dry conditions in parts of the South Island, has seen milk flows fall behind last year.

“These dynamics, along with a change in product mix and strong sales via other channels seems to be restricting supply through the GlobalDairyTrade platform helping turn prices from cyclical lows.”

Butter had a strong outing at the auction overnight, up 13.2 per cent, while buttermilk powder prices rose 10.5 per cent.

All categories saw price increases, with anhydrous milk fat up 6.8 per cent, rennet casein up 4.2 per cent, cheddar up 3.2 per cent and skim milk powder up 2.8 per cent.

Whole milk powder, New Zealand’s largest dairy export, had the smallest gain, rising 1.6 per cent.

Volumes continued to fall with 33,669 tonnes sold, down from 35,390 at the previous auction.

ASB rural economist Nathan Penny noted that production by Fonterra farmers was still up about 4 per cent in the season to date.

ASB is predicting a milk price this season of $4.70 per kg, the same as Fonterra’s forecast.

“That said, we do expect production growth to slow through the summer and autumn,” Penny said.

“In that sense, markets will take more convincing that the milk supply growth is indeed slowing, before they start bidding up prices in earnest.”

 

Jan 11
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Fonterra MyMilk Subsidiary Plan Sparks Fears Among Farmers

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Source: NZME News

Shareholder says plan to let farmers supply milk without buying shares ‘shifts goalposts’.

Fonterra’s plan to allow non-members to supply it with milk has sparked fears that it could end up eroding the group’s co-operative base.

In mid-December, Fonterra moved to shore up its supply base by forming a subsidiary – mymilk – to take in more milk without suppliers having to buy shares in the co-operative.

The initiative is aimed at farmers in the high-growth provinces of Southland, Otago and Canterbury and may involve others in the North Island over the next 12 months. As it stands, mymilk will be limited to providing 5 per cent of supply.

Up until now all suppliers have had to buy shares in Fonterra in order to supply the co-operative, but with mymilk farmers will be invited to apply for one-year contracts, renewable for a maximum of five years, without the obligation to buy shares.

Fonterra said prices paid to mymilk suppliers would never exceed the farm gate milk price set by the co-op, and prices could be up to 15 cents lower.

The Fonterra Shareholders Council, noting that Fonterra’s share of milk collected nationally had fallen from 96 per cent since its inception in 2001 to 87 per cent today, said it was “broadly supportive” of the plan.

But one Fonterra shareholder said the co-op had “shifted the goal posts” with mymilk and had not adequately consulted its farmers, in sharp contrast to the exhaustive consultation and voting process that was required to bring in the Trade Among Farmers share trading scheme late in 2012.

Part of the reasoning behind mymilk was that it would enable Fonterra to maximise usage of its southern plant, which it is already in the process of expanding. But the shareholder said the reason there was extra capacity in the South Island was that farmers had opted to sell their Fonterra shares to supply other entities who don’t require their shares to be bought.

“Fonterra is effectively losing the race because suppliers are going elsewhere,” she said.

“Fonterra is shifting the goal posts because they are not winning the race and what is happening is the rest of us suppliers who did not abandon Fonterra are actually going to be subsidising those suppliers who can come in without buying shares.”

Federated Farmers Waikato provincial president Chris Lewis said farmers were questioning the plans.

“Shareholders are asking where the co-op is heading, and I think it’s a fair question,” said Lewis, who does not supply Fonterra.

“You have got to give Fonterra credit for trying something to make sure that they are competitive and that they are the first choice for New Zealand farm owners.

“I just hope that they have got a solid business case where they can be competitive enough without offending their shareholders who are fully shared up,” Lewis said.

“In some cases farmers have paid millions of dollars to buy shares and they have borrowed that money, so I guess there is tension there with shareholders saying ‘Why have all this money borrowed if I can get the same prices without having all those shares’.”

Miles Hurrell, Fonterra Co-operative’s group director of co-operative affairs, said there would always be discussion within Fonterra’s large shareholder base.

He said they spent “quite some time” talking on the farm to various shareholders about mymilk.

“Once they have talked through the detail and the rationale behind the initiative, they understand and come on board,” Hurrell said.

“To remain globally relevant we have to ensure that our number one asset – New Zealand milk – is secure for the long term.

“It is a stepping stone, so it is supporting the existing shareholders by ensuring we bring in milk to the co-operative for the long run.

“We are certainly of the opinion that a fragmented industry is not in the best interests of New Zealand as a whole and we see that the strength of the co-op is paramount,” he said.

Hurrell pointed out that mymilk suppliers will not have access to its farmer initiative, Farmsource, which will have additional benefits rolled out this year.

“You only have to look at the number of new entrants to our industry – in the last five years in particular – to know that it is evolving and that Fonterra needs to ensure that we are doing the best thing in the interest of our shareholders,” he said.

Lewis said Fonterra should be congratulated for trying to ensure the co-operative remains competitive, and that it remains the first choice for New Zealand farm owners.

“But in the end, the market will decide.”