Monthly Archives: May 2015

Farmers face ‘brutal’ time as Fonterra cuts price forecast

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Source: Stuff

Federated Farmers have predicted the next six months will be “brutal” for dairy farmers as they cope with tight cash flows following Fonterra’s announcement of a cut in this season’s milk payout price to $4.40 per kilograms of milk solids.

Fonterra has announced an opening forecast farmgate milk price of $5.25 per kilogram of milk solids for the 2015-16 season, slightly higher than commentators were predicting.

This does not include the forecast earnings for the 2015-16 financial year.

However the co-operative at the same time reduced its forecast farmgate milk price for the 2014-15 season to $4.40 per kg/ms, down from its previously announced forecast dividend range of 20-30 cents per share.

The change amounts to a forecast cash payout of $4.60-$4.70 for the 2014-15 season that would be paid to a fully shared-up farmer.

Chairman John Wilson said the revised forecast reflected the reality that global commodity prices had not increased as expected.

Federated Farmers dairy chairman Andrew Hoggard said it was disappointing to see the drop in the 2014-15 return. Cash flows would be tight for the next six months at least, with the advance rate beginning at 70 per cent of the forecast farmgate milk price – an opening rate of $3.66 per kg/ms.

“It confirms what we already know, and that is that the next six months are going to be brutal,” Hoggard said.

The advance rates Fonterra pays are just $3.66 for June, July and August. It is not until January that the advance rate hits $4, but farmers will not receive that payment until February.

Hoggard said the message was the same to farmers as it had been for months.

“We all know there is volatility, now we’ve been rudely awoken to it. Farmers need to focus on the long term, and make sure they’ve got support,” he said

Rabobank economist Hayley Moynihan said the prices were “largely as expected”, reflecting the fact any recovery would not occur until later in the season. She said Rabobank was standing behind farmers.

Wilson said world markets were over-supplied with dairy commodities following good growing conditions in most dairy producing regions.

“This is a tough season and we will continue to keep our farmers informed as the season draws to a close given the current volatility,” said Mr Wilson.

The forecast farmgate milk price change for the current season will mean a further revision to the advance rate schedule of monthly payments to farmers.

Wilson said the forecast farmgate milk price for 2015-16 was based on Fonterra’s best view of long-term global dairy supply and demand.

“We can expect prices to recover going forward, and to see a rebalancing of supply and demand over the season. However it is more difficult this early in the season to determine exactly when this recovery will lead to a sustained price improvement,” said Wilson.

ASB economist Nathan Penny agreed with Hoggard that the Reserve Bank would cut the official cash rate in September and October. Penny is predicting it will be cut by a total of 50 basis points.

Fonterra chief executive Theo Spierings said the long-term fundamentals of global dairy demand were strong.

“Our forecast for the new season takes into account a range of factors including global milk production forecasts, the economic outlook of major dairy importers, current inventory levels and geopolitical events,” Spierings said.

“Given the season we are coming out of, we are absolutely focused on improving farmer returns and driving the co-operative’s performance,” he said.

Meanwhile the Greens have called on Landcorp to stop converting forests to dairy farms or risk doing serious damage to the rural economy.

“Landcorp needs to stop the dairy conversions until they can show how undertaking more conversions stacks up economically in the face of the lower forecast milk price. All the information that we’ve seen so far suggests that, in fact, dairy conversions may be hurting other farmers financially,” Green Party MP Catherine Delahunty said.

Landcorp is in the process of converting 25,700 hectares of forest to dairy farming in the upper Waikato River catchment area alone, at a cost of $87 million.


Chinese take milk battle to Fonterra

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Source: Stuff

Another Chinese dairy factory is setting up shop in Waikato and taking milk straight from the farm – at a time when our largest co-operative appears vulnerable.

Hong Kong based company He Run International Investment Ltd has announced it will build a $70-$80 million dairy factory in Otorohanga that will produce 25,000 tonnes of infant formula a year as well as specialty products like cheese.

Kiwi minority shareholder in the factory David Carey says farmers will be able to supply from 2016 when it kicks off production.

The price farmers will get for their milk will be “competitive” he says, although he added that He Run “did not want to be seen to be competing” with other dairy companies in the region.

“The industry standards for New Zealand are much, much higher than other countries, and that’s why [farmers] are getting paid a premium for [their milk],” Carey says.

He adds that “the [Chinese] investors are tied to a huge chain of supermarkets, and they’ve got their own brand but they do want a very, very good supply of New Zealand dairy products”.

While farmers are signing up to new milk contracts now, He Run had been talking to suppliers for some time, and Carey confirmed it already had a line up of farmers wanting to provide milk.

“People have known for some time and already we’ve been approached by numerous farmers saying ‘hey, when you get going, can you please contact us?'” Carey says.

The factory will be the third Chinese-owned operation announced in the Waikato in as many years, with Waikato District’s $212m Yashili infant formula plant ready to kick off production in October, and Allied Faxi Food Company having just announced the contractors for its $10m ice-cream and frozen cream factory in Hauraki District.

And it’s unlikely to be the last investment of its kind in the area.

Hauraki District Mayor John Tregidga travels regularly to China, and says there is “absolutely” hot interest in New Zealand.

“There is definitely a lot of interest from our contacts in China at looking at further investment in New Zealand, and not just Hauraki, right round New Zealand.

“We’re talking to government agencies in Beijing…I do believe that there are other investment opportunties that they are definitely looking at.”

He says he is “quite confident” Kiwis will soon see more investments by Chinese players here.

His fellow Mayor in Waikato District, Allan Sanson, says he is also aware of other Chinese investors checking out the Waikato.

New Zealand Trade and Enterprise general manager of capital Quentin Quin says in the last five years “the China New Zealand relationship has come alive”. Over the past two years, around 90 business visits – almost one delegation a week- had passed through the country from China that it was involved in.

More dairy factories could provide a challenge to Fonterra if – like He Run – they chose to head straight to farmers for supply.

Already the co-operative’s suppliers are feeling the pain after losing money on shares, and for many of them, the payout this year. While Fonterra says 87 per cent of the country’s dairy farmers are still on board, companies such as Open Country Dairy and Tatua have waiting lists of farmers wanting to join them.

The newest producer has also arrived in town just as Fonterra’s special status under the Dairy Industry Restructuring Act is under scrutiny. Should its proportion of New Zealand’s millk supply fall under 80 per cent, rules governing its operation will no longer apply – potentially thrusting the New Zealand’s dairy industry through its biggest change since the co-operative was formed.

Attempts to contact Fonterra chairman John Wilson were unsuccessful.

Waikato University’s Professor of Agribusiness Jacqueline Rowarth – herself a Fonterra sharesholder – says the new factory marks a significant moment for the New Zealand dairy industry.

It will spark fierce debate on whether Fonterra should be bound by special rules, which saw “the guts of it hucked out” by competitors who were free to operate as they wished.

Rowarth says because of that, there is “increasing a feeling that actually Fonterra should let it [supply] go to below 80 per cent and then they would lose quite a lot of their restrictions”.

“That might be overall a better thing for the country,” she says.

However, it would also likely mean farmers a good distance away from Fonterra factories might have to start paying for milk pick up, and would change the way the co-operative worked, she says.

All three factory builds also follow several food scandals involving Fonterra, including a tainted milk scandal in 2008 in which six Chinese infants died, a scare over lethal bacteria poisoning in 2013, and a 1080 poisoning scare earlier this year.

He Run has confirmed the food scares are partly behind the new factory in New Zealand.

Otorohanga quick facts

Hoi Fung Holdings Limited 70 per cent owner of He Run International Investment

David Carey, Russell Bayley and Hamish Putt 30 per cent owners

$70-$80 million build

Employes 50 people

Produces 25,000 tonnes per year

Initially 20 per cent of output will be organic

Exported into eight countries, and New Zealand

Build prompted by food scares.


Fonterra shareholders urged to stay loyal in spite of Chinese-driven temptations

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Source: Stuff

A Fonterra shareholder has encouraged his fellow co-op farmers to remain loyal to their local, as Chinese investors throw more options on the dairy table.

Hong Kong-based company He Run International Investment is the major shareholder in a new dairy factory planned to start taking shape in Otorohanga in August, and is ensuring “competitive” rates for suppliers.

Otorohanga dairy farmer Bruce Collinson-Smith has been a Fonterra shareholder “forever” and said the co-operative was an asset that needed to be guarded.

“We can proudly say it’s our company and that’s the thing about it. We’re shareholders and it’s ours.”

Collinson-Smith said he hoped local suppliers would remain loyal to Fonterra, despite the drop in share values and a disappointing payout.

“It was just 12 months ago we had a record payout year, and it’s amazing how people can change attitudes in a year.

He admitted the new options may look tempting for farmers, but said there were “so many unknowns” with a new, offshore company.

“I’m really quite gobsmacked at some of the attitudes and short-sightedness of it, some people saying ‘I’m threatening to leave’, and I can’t understand it all.

“Sure [Fonterra] haven’t performed and with this organic milk factory, it’s an opportunity and people are down … but for rural New Zealand this is an employment opportunity, so it’s good for a town … but it will be disappointing for Fonterra.

“Sometimes it doesn’t perform but you hope it turns around and does perform.”

He didn’t like the fact unknown, offshore names were behind the company, and questioned why they chose Otorohanga.

“Who actually is behind the company, I don’t know who’s backing it and what’s their reason for it going down in Otorohanga. I don’t know of any organic farmers in Otorohanga.”

Kiwi minority shareholder David Carey said Otorohanga was chosen because of its water supply.

“We struggled to find any council which had the resources which Otorohanga had … water, gas electricity, the ability to take effluent in times of rain… without that and without the backing of the council we couldn’t do this operation.”

Waikato District mayor Allan Sanson said Waikato was the “post card” for dairying around the world which made it a natural landing pad for companies like these.

Sanson wasn’t worried about any competition to Fonterra, saying the Kiwi co-operative is geared to producing “faster” commodities like butter and cheese, which could be made quickly when billions of litres of milk were pumping through its factories.

He also said he the fact that the majority of profits would be heading offshore was no different to what was already happening at New Zealand banks.

“People need to get real about this.

“I don’t like to see profits go offshore either but at the end of the day the profit to the country is around the value added the employment and what it actually brings to the region and the country. ”

Hauraki District Mayor John Tregidga said the economic benefit of the factories was significant for small communities, and the Government had encouraged overseas investment.

“It’s a real good – not only economic boost, but also a confidence boost for our communities.”

“It not only helps job creation, but house prices, there is just a big flow on effect. It’s not only the increase in commercial rates that we’re getting from this but also anyone that’s moving into the area.”

Tregidga said development had just begun on 50 property sections in Ngatea, which was triggered by the new factory, and the factory would require a wastewater plant.

Tregidga said while more infrastructure as required, that could be managed.

“At the end of the day they’re buying milk off our local suppliers [such as Fonterra and Open Country].

“It’s big on export earning…where is the disadvantage? I don’t get it.

“The NZ government has been encouraging overseas investment and I’m absolutely supportive of it.”


Sustainability ‘comes from the heart’

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Source: Stuff

Farming sustainably “comes from the heart”.

It is done because it is the natural thing to do and encompasses all parts of Southern Bell Orchards, owner Frans de Jong said after his family-run business recently won the 2015 Waikato Farm Environment Awards Supreme Award.

“You do it because you have a passion. That’s why you do it.

“That means you work on a healthy environment to begin with, you work on a better soil, healthier animals and products with a longer shelf life. In the end you get healthier people, and I think that’s really important.”

The de Jong family also won awards for soil management, harvesting, innovation and water management.

Frans said he felt “overwhelmed” upon accepting the Supreme Award.

“To get one is amazing and to get so many is even more amazing.”

When the de Jong family took over the orchard near Matamata 11 years ago, the previous owners had used a lot of sprays, he said.

“We found out very quickly that it was not the way we wanted to do things. We wanted to have a really healthy environment around the plants and create a natural environment that looks after itself – and it can be done.

“If you use the correct nutrition, and you stimulate that with micro organisms in the system, you can get a better soil and you can get healthier plants and animals.”

De Jong said the other aspect of sustainability to his business was succession. His son, Talbert, and partner, Emily Meese, have worked full time in the business since 2013 when Frans and wife, Tineke, started a 10 year succession plan and will own 50 per cent of Southern Belle’s shares within a decade. Frans and Tineke’s other child, daughter Simone works in tourism and marketing.

The 5.05ha property was bought in 2003 just before emigrating from the Netherlands. The de Jongs had never heard of feijoas prior to purchasing the property. These were being grown in the orchard, along with nashi, persimmon and blueberries. The de Jongs decided to concentrate of quality and volume and grow only feijoas in the orchard and capsicums in greenhouses.

The orchard is 3.5ha with the trees grown espalier-style for ease of management and harvest. All feijoa trees that were in the orchard when they purchased have gradually been replaced with new cultivars with a range of harvest times from mid-March through until June.

This year they anticipate producing about 20 tonnes, but in four years, when all the new trees mature, they estimate a crop of 60 tonnes. About half of their feijoas are exported.

The capsicum operation encompasses 3000 square metres of greenhouse space and includes a range of capsicum varieties. These are planted in August, harvested from early November through until early July and mostly sold on the local market. A small amount of cucumbers and chillies are also grown in the greenhouses.

The de Jongs enjoy the regular contact with customers that taking their produce to several farmers’ markets allows them. In addition to Frans, Tineke, Talbert and Emily, Southern Belle has four staff who work almost all year in the greenhouses, and up to 20 staff for the feijoa picking and pruning from March until July.

Frans worked in The Netherlands in analytical chemistry, eventually establishing, with a partner, a successful agricultural/ horticultural laboratory. He has also studied process technology.

This background and approach drove Southern Belle and is an integral part of the farm business, the Awards judges said.

Frans said it was logical to do testing.

“Measuring is knowing and I think spending a bit of money analysing something is money well spent because you’ll get it paid back 10-100 times.”

Frans had devised a greenhouse heating system which reduces their energy usage by 40 per cent and a unique closed circuit irrigation method which ensures no nutrients are being lost.

Careful and vigilant management and some biological controls introduced have significantly reduced the amount of spraying necessary.

They follow Albrecht soil fertility principles. Frans went to a Kinsey course and said he “really connected” with the concept, finding his chemistry understanding gave him a ready grasp on the topic.

“You are looking at the interactions between the nutrients in the soil. It’s about having an open mind and always trying to become better.”

Also winning big were Te Awamutu dairy farmers John Hayward and Susan O’Regan, who took out the Dairy Farm and Water Protection Awards.

“It’s something we’re really passionate about and we have worked a lot in the last three years on on riparians and wetlands,” Hayward said.

The couple milk 420 cows on a 140ha milking platform on their 245ha farm business Judge Valley Dairies. The couple had the ability to balance the drive for production and profit with environmental care, the judges said.

The property consists of 45 per cent flat, 40 per cent rolling and 15 per cent steep contour. A land use capability assessment was undertaken with the Waikato Regional Council last year. This had “been a really helpful assessment to have undertaken” providing insights that have formulated their way forward, O’Regan said.

The assessment revealed they had 123ha of cultivatable country, 34ha that should be protected from cattle and 10ha that is very prone to erosion and is best suited to planting out. As a result, John and Susan entered into a partnership with Comvita that in the next four years will see the company plant 20ha in high potency manuka, with the couple receiving a share in the resulting honey production.

The land will be retired from farming but the establishment of the manuka will mitigate erosion and reduce the overall nitrogen leaching factor on the property.

“It’s a win-win situation on land that was marginal in any event. The manuka deal turns it into land that is productive on two fronts and this use sits very comfortably with our views environmentally,” O’Regan said.

The couple have also worked closely with the council on riparian care and planting plans. In the past four years John estimates they have established about 5000 natives. A wetland covers about three hectares and a four hectare native area including a waterfall and significantly regenerating bush is stockproofed and protection by QEII National Trust covenant is being pursued.

Judge Valley Dairies is Hayward and O’Regan’s first farming venture together.Prior to setting up the operation Hayward was sharemilking in his own right and O’Regan was a barrister, practising in Te Awamutu.

Between them the couple have five children, Emily, George, Ben, Lilly, and baby Jack. The couple have a clear view on their responsibility as land users. They believe the requirement that farmers are specifically accountable for their outputs is inevitable.

“If we can set our business up sustainably, we will be on the right foot going forward and able to meet any such demands,” Hayward said.

The farm is targeting production of 215,000kg milk solids this season. The cows are managed in two herds. The friesian herd are calved in autumn and the rest the jersey herd are calved in spring. John and Susan purchased the first property of what became their business in an equity partnership in 2008.

They have since upgraded its infrastructure to include the construction of a 30-aside herringbone cowshed. In 2012 the partnership purchased the neighbouring drystock farm and integrated it into the first property. This season, John and Susan will move from equity share to full ownership.

North Waikato dairy farm owners Peter and Judi Buckley and their sharemilkers Stuart and Lichelle Morgan won the Land and Life Award, which recognises the people side of the farm business and the catchment improvement Award.

The Buckleys own Loch Carron near Te Kauwhata. This 103ha farm has a 67ha dairy platform and is situated adjacent to Whangamarino, a 7000ha area included on the Ramsar Convention’s list of ‘Wetlands of International Importance’.

The location overarches all farm management and planning. The property has a nearby 12ha runoff and is low-lying with deep peat covering about 1/5 of the farm. Utilising and maintaining four large flood pumps goes with the territory on Loch Carron. Daily vigilance and a keen eye on the weather forecast, especially for heavy rain events, are key factors in the smooth and economic operation of the farm. Most of the farm is below the water table, which is deliberately raised during each summer. This allows safe summer grazing and ensures the peat stays intact.

The Buckleys also established a 4.5ha wetland eight years ago in conjunction with a neighbouring quarry.

Buckley said they would not have been able to achieve the environmental gains on their farm without the partnerships they created with the Waikato River Authority and the quarry.

“Partnerships and achieving the environmental results we have got is huge to me and I look out there at the wetlands sitting right beside us – about 50 metres from the back door, we get a lot of enjoyment from it.”

South Waikato dairy farmers Hans and Anita Nelis were winners of the Farm Stewardship Award for their 380ha, 970 cow operation encompassing two properties at Tirau and Waotu. Three of their six children are currently sharemilking the family farms.

“There are no handouts, we give them the opportunity but we won’t give them any money.”

“Part of our commitment to sustainability is in succession planning, that is important, and we are proof it can be done, even with high debt levels,” Hans said, who also feels a strong duty to the dairy industry to support the 50:50 sharemilking concept.

The de Jongs will hold a field day at Southern Belle Orchard on May 21.


Dairy farmers go to rural trust for support in high numbers

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Source: Stuff

Stressed-out Manawatu dairy farmers have been seeking the help of rural support services in high numbers as they try to cope with low milk payouts.

The Rural Support Trust, which helps farmers in times of hardship,is the busiest it has been since the devastating 2004 floods.

Trust member Chris Wall said during the floods the trust helped hundreds of people with feed for stock and stock movement, as well as helping people cope with the stress caused by the high water levels.

“Now we are perhaps helping 20 to 30 people and mostly dairy farmers – they’re under pressure, with things such as financial analysis, legal advice or they might go to a counsellor or go away for a weekend,” Wall said.

“We work undercover, it is confidential. If people have to leave the farming industry – we try to help them exit with dignity.”

Federated Farmers Manawatu/Rangitikei sharemilker chairman Richard McIntyre said many dairy farmers and sharemilkers were feeling the pinch.

He said new sharemilkers had bought cows during last season’s high prices, and were facing tough times as the milk payout was less than many had budgeted on.

A sharemilker often owns cows and pays for milking costs, while sharing the milk income with the land owner.

“For some sharemilkers it has been very tough. It comes down to their circumstances. The volatility of cow prices has been huge and it has eroded their equity. A lot of sharemilkers are having to increase their overdraft on lower equity.”

McIntyre said one example involved the wife of a Raetihi sharemilkerwho had been forced to go with their children to live and work in Palmerston North at her parents’ home, while he was at the farm.

It was the only way they could make ends meet at the property, McIntyre said.

“There’s the financial stress, and then the personal stress of having to live apart.”

Wall said the trust encouraged people to get in touch.

He said some support people went door to door, but he thought many rural people would not admit they couldn’t cope.

“The trust waits until people contact us. Keep an eye on how you are, your family or your neighbours. we need to hear from people.”

Federated Farmers Manawatu/Rangitikei president James Stewart said there was a bit of a “gloomy” feel around dairying at the moment.

“We know there will be ups and downs in the industry, so don’t let it get you you down. Keep communications open with your bank, farm adviser and professionals that can help. Let them know what’s happening in your case.

“Remember real wealth comes from the provinces via exports and we are an export dependant economy.”

Wall said sheep and beef farmers were used to dealing with wildly fluctuating incomes and were able to cope more than some dairy farmers.

“But at the moment, beef prices are high, wool prices have lifted and lamb prices are about the same. So we are mainly seeing dairy farmers who have to cope with lower payouts. If payout are low next season, then there will be more dairy farmers needing help.”

In the meantime he said he doubted there would be many conversions from other farming to dairying with the milk price at rock bottom.


Milk price slump a two-year setback

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Source: Stuff

It will take at least two years for Andrew McGiven’s dairy farm business to recover from the current slump in dairy prices.

The sharp fall in prices had eroded any profit made from last year’s record payout, the Waikato farmer told about 30 farmers at a field day on his farm on Wednesday.

McGiven’s projected income had halved from $1,809,786 ($8/kg MS) in 2013-14 to $967,000 (4.20/kg MS) for 2015-16. The drop was due to the milk price fall, his decision to employ contract milker Graham Wallace and the time lag that occurred for supplementary feed costs to fall in line with the payout drop.

McGiven’s 135ha business is a farm used as part of DairyNZ’s tactics for tight times campaign to provide advice on coping with the low payout.

He would hit his $300,000 overdraft limit on June 1. It had been on a downward spiral since January-February of this season.

“It’s been a sudden and sharp drop.”

He has also shifted to a winter milking system, which compounded the debt situation.

Adding to the pressure was the latest GlobalDairyTrade result, which saw international dairy prices fall 2.2 per cent. The auction is the final sale before Fonterra updates its forecast for the 2014-15 season and announces its opening forecast for the 2015-16 season on May 27.

Fonterra will also reveal its advanced rate. Once that is known, McGiven said he would then add those rates into the budget and sit down with his bank manager to determine what their requirements would be.

He planned to take a large part of his overdraft and put it into a term debt. He also ceased principle debt payments three months ago and is only looking to pay off interest.

“Essentially it’s going to set us back two years in our refinancing plan and any profit we made last year is probably going to be eaten up this year and it’s going to be at least a two-year turnaround.

“The banks have indicated they are happy enough with the plan going forward and are going to back us, which is good to hear. We’ll just keep plugging forward and hope for those GDT prices to lift. That’s what’s going to make or break us in the end.”

DairyNZ North Waikato regional leader Phil Irvine told farmers to go through each itemised cost in the budget to work out if anything can be reduced.

He also urged farmers not to forget to review their drawings, or personal expenses.

“Put aside $1000 a week to live on and then decide what to do after that.”

Most of the farmers attending the field day said they would be in a negative or a break even cash deficit for this season. One was still hopeful the forecast would pick up this season.

Farmers had to go “back to basics” and look to grow as much grass as possible to feed their cows because it was the cheapest feed source. If the El Nino weather pattern was correct, farmers had to be prepared and either de-stock or switch to once a day milking, another said.

Others also predicted it would be a two year turnaround for their farms to recover, provided the milk payout lifted.

Irvine said the next few months over spring would be tough because of the fall in retrospective payments. These are payments from milk that is produced this season but is paid to farmers over the winter and early spring.

A Waikato farm producing 100,000kg milk solids would only receive about 18-19c per kilogram of milk solids in these payments from Fonterra.

Last season those payments came in at about $1.90/kg MS, he said.

“That’s why the bank balance is going to be pretty lean this winter and spring,” he said.

He said the average Waikato farmer milking 330 cows would have a cash deficit of $46,834. For a 50:50 sharemilker milking 337 cows, that deficit came in at $44,845.