Category Archives: News

Source: Stuff

A mixed bag of results from the GlobalDairyTrade auction overnight saw dairy prices fall for the seventh consecutive time.

The price index fell by 1.3 per cent and the average sale price dropped 0.1 per cent to US$2409 ($3447) a tonne.

Butter, butter milk powder and cheddar increased while both skim and whole milk powders fell.

Anhydrous milk fat suffered the biggest fall, dropping 8.9 per cent.

Analysis firm AgriHQ decreased its 2015-16 Farmgate Milk Price by 14c to $5.50 per kilogram of milksolids following the auction.

Waikato Federated Farmers president Chris Lewis said international traders and buyers would have to get the message soon that New Zealand’s dairy production would not be dramatically increasing in the new season.

“You have to wonder when the worm will change direction.”

People in the food business needed to buy dairy ingredients to make a dollar and Lewis predicted that some time in the next few months they would “have to put a stake in the sand” and start buying again.

He also took solace because this latest fall was the smallest of all of the seven drops that had occurred so far. The Northern Hemisphere was starting to hit its peak production and he expected to see a more positive result in the next few auctions when that milk flow started to drop off.

Fonterra offered just 10,000 tonnes of whole milk powder, the least amount made available this year to date.

ASB rural economist Nathan Penny said this was probably the biggest let down in this auction.

“We were expecting a bit more of a bounce but we didn’t get that so that’s sort of slightly disappointing.

“Traditionally this auction is the smallest auction of the year. It’s getting down to the point where production is lowest so you’d expect when production is low at this time of year, that is reflected in auctions and you’d get a bit of seasonal movement in prices.”

Penny said the end of the season has surprised markets somewhat with a stronger than expected performance.

“We had the drought but that was very short and sharp and over March, April, May production recovered and increased versus last season. This has meant there has been a late flush and markets hadn’t factored that in,” he said.

ASB predicted the current season of milk to last another month or two, after which dairy prices should start to lift.

The last time prices lifted at the auction was March 3, 2015, when the index crept up 1.1 per cent.

It also predicts production in the new season to be lower than the same time last season.

“We do need prices to lift so if we’re keeping a lid on production this new season, prices will lift and that should help farmer incomes more than if they would increase production,” Penny said.

The quantity of whole milk powder is expected to rise from July, which AgriHQ dairy analyst Susan Kilsby said would make it harder for dairy prices to lift.

“It will become harder for prices to recover as the volume of milk powder on offer increases as the new dairy season progresses,” she said.

A drop in the New Zealand dollar last week following the official cash rate cut was good news for farmers.

“A weaker New Zealand dollar is welcomed by our dairy farmers as this improves returns at the farmgate and helps to reduce the impact of the very low milk prices,” Kilsby said.

The kiwi currency remained stable overnight, at US69.91c and A90.27c on Wednesday morning.

It was trading at US69.96c and A90.11c late Tuesday afternoon.

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.

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.”

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.

Source: Stuff

OPINION: It seems to me that Fonterra cannot pay its suppliers a decent milk price two seasons in a row.

Is this stating the obvious? Last season the company was paying its farmers a whopping $8.30/kg milk solids, then making it into value added products that less customers could afford while pinching its own value add profit margins in the meantime.

Are they still trying to sell these same expensively made value added products on a market overflowing with surplus milk pushing the prices down further? Is that why, notwithstanding the occurrence of some weird international economic event, two consecutive years of a high milk price is almost mutually exclusive?

Is that why the current milk price and dividend are so low? And does that mean there is a chance it might flip back to good later this year?

This is probably over simplified, but I am racking my brains to come up with an effective strategy to get through next season.

Do I beg the bank for a handout to get me through the next few months with no cash flow, but with all the expenses the beginning of a new dairy season brings? Do I buy in some supplementary feed and hope like mad there is enough money in the milk price to at least break even in a quest to guarantee the cows a decent start to the season?

Or do I impoverish myself and see if I can defer some lease payments until I have a cashflow and tighten my belt so hard, which will mean not fixing and registering my vehicles that are both off the road, not getting the milking machines checked or replacing any rubberware?

Well I could live with that, but the cops and the Fonterra shed inspector probably can’t. Of course I couldn’t afford any supplementary feed either and start my cows off on grass only, which will set the stage for the rest of the season and expose my cows condition and reproductive results to the vagaries of the weather.

It’s a hard choice but one that will probably be made for me by the bank manager who I am waiting to hear back from.

Either of those strategies could be the way to go. The latter will be tough on me and my daughter and the cows and leave me with egg on my face should payments prove to be better than expected.

All the belt tightening will be for nought, as being able to afford supplementary feed later in the season is a waste of time if your production levels are low, reflecting the low input (either by too many cows not getting enough feed or, if I cull, not enough cows to maintain feed quality and no resources to do it mechanically.)

Or if I go for the former, riskier option and invest money I don’t have in preparing for the season in a positive manner and then the milk price doesn’t improve or falls lower then financially, I would have nowhere to go as unsurprisingly, banks are not an endless supply of money.

Business analysts are saying that the low milk price is great for sorting the men out from the boys and that a lot of monkeys will be leaving the ring and that is all well and good if they are European monkeys. It is not so good if they are New Zealand monkeys.

To be honest I am feeling a bit ape-like myself as my business is not robust and as a leasee rather than a land-owner my assets – cows and crappy machinery – are not seen by the banks as very good for leverage.

So that is what’s keeping me awake these nights.

Source: Stuff

Farmers are flocking to finance classes as they look to guard against more sudden changes in the dairy market.

Primary ITO adviser Liz Sanders said an increasing number of farmers had signed up to modules on cash flow, financial planning and reducing risk as part of the diploma in agribusiness management course since the forecast changed.

Exact figures on the rising popularity of the courses were not available but there had been substantial increases in both enrolments and inquiries, Primary ITO said.

“The diploma qualification builds farmers’ skill in key areas of their business like human resource management, financial planning, tax and investment,” Sanders said.

Bank of New Zealand agribusiness partner Emma Hennigan said farmers were generally more aware of how their business was positioned.

The drop in Fonterra’s Global Dairy Trade index had made financial planning more important than ever and farmers could avoid being ‘ambushed’ by market changes if they planned and managed cash flows, she said.

Dairy prices fell to 3.6 per cent at Fonterra’s latest Global Trade Auction this month – the third decline in a row.

Fonterra also slashed its forecast dividend to 20-30 cents per share last month, despite widespread expectations in the farming community that the figure would rise.

Hennigan said those who were studying the course appeared to have an increased awareness and confidence about what they could do to improve their on-farm finances.

Southland Federated Farmers president Russell MacPherson said financial management was an important aspect of any business.

Having a thorough understanding of finance was beneficial for farmers at all levels of the industry, he said.

“Upskilling farmers is very important, but finance is also a big part of our personal lives,” MacPherson said.

“If you’re a farm worker who has aspirations of becoming a sharemilker or a farm owner, understanding finance is a great starting point.

“It’s great that organisations are offering these courses.”

GORE COUPLE GROW IN CONFIDENCE

A Gore sharemilking couple say studying finance has made it easier to cope with the challenges of what has been a tough season for dairy farmers.

Bryden and Vanessa Rufford are completing a diploma of agribusiness management through Primary ITO, and say they now feel they are “speaking in the same language” as their accountant.

Vanessa said since starting they have been tracking their expenses and adjusting their budgets more regularly, making them more confident when making financial decisions.

“Looking forward, we can already see that next season is going to be even harder than this season,” Vanessa said.

“It’s important to talk to your accountants and your bank manager early.”

Having a greater financial awareness made their 175ha operation a stronger business, she said.

Source: Sunday Star Times

Maori leaders have mounted a bid for effective ownership of a share of the country’s freshwater.

This would allow them, and other with water rights, to onsell it to those who need water for irrigation, hydropower and other commercial uses.

Talks between the powerful Iwi Leaders Group and the Government, fronted by Deputy Prime Minister Bill English and Environment Minister Nick Smith, are at a critical stage after ministers rejected a nationwide ‘Waterlords’ settlement along the lines of the Sealords deal over Maori commercial fishing claims.

The Government is adamant it will not hand over rights in perpetuity to Maori – but it may compromise by allowing regional councils to do local deals with Maori.

Farmers are worried that there will not be enough water to go around if significant quantities of freshwater are set aside for Maori.

In a Cabinet paper, Smith points to possible “catchment by catchment” deals at a regional government level. The Crown has acknowledged Maori interests and rights in freshwater but their extent and nature is at issue. The Government may set criteria by which local iwi can get preferential access to water, catchment by catchment, Smith says.

Ministers and iwi leaders held a summit at Waitangi during the February 6 commemorations, in a swift response to an iwi- commissioned report proposing radical ways to deal with freshwater and Maori claims. The report, by research group Sapere, proposed a nationwide settlement, an end to 35-year renewals of water consents. and a move to permanent rights and a market in tradable water rights.

It argued the regime would not only be a boon for Maori but would add $2 billion to the value of power-generating assets, $5.5b to the primary sector and boost the overall economy, while helping reduce the effects of drought through more efficient use of water. It would also open the way for the Government to levy resource taxes on income from using the water.

But demoted minister Judith Collins has come out swinging against the plan, describing it as a cash grab that would hit consumers in the wallet.

Officials put the value of freshwater to the economy at $34.85 billion a year.

Kevin Ferris, who has dairy farms in the Waikato and Southland, has consent to use water in his dairy sheds. “We need water and if there’s a risk that the water’s going to go elsewhere, it’s going to shift the ability to finance our business, ” he said. “People don’t want a knee-jerk. We want to get it right. To me it affects every New Zealander, not just me.”

Ian Mackenzie, a Canterbury farmer and Federated Farmers’ spokesman, said the Government needed to be careful not to solve one grievance by creating another. “New Zealand’s water is already allocated so the only way the Government could allocate further water to iwi is if they build more water storage infrastructure.”

Waikato Federated Farmers president Chris Lewis said many catchments around the region were already over-allocated. “There’s no more to give out . . . You can’t allocate something when there’s not enough there.” Waikato iwi were already well-organised with water and had what they needed for their enterprises, he said. “They have got the water they need and they have applied for it like everyone has: industry, farmers, city councils, district councils.”

Smith and English this week told the Sunday Star-Times they rejected key elements of the Sapere report, including the removal of the 35-year limit on water consents. “Both industry and iwi want that shifted to rights in perpetuity and the Government will not, ” Smith said.

The Government’s view was that nobody owned water, neither the Crown nor iwi, and it was a public good. “There is not going to be any national settlement or allocation, or any sort of iwi by iwi exclusive rights. We have been making that very plain to them, ” he said.

English insisted freshwater claims would not spark a foreshore and seabed-style controversy like the one that engulfed the Clark Government.

Some councils have preference in their plans already. For instance, in Nelson there is an agreement between iwi and the council about how it will allocate surplus water from Motueka River.

Smith said the Government was reluctant to switch from a consents-based regime to the rights-based trading advocated by Sapere, but did not rule it out at a local level, pointing to existing trading schemes in North Otago and Taupo that are allowed under the Resource Management Act. Asked if some existing rights could be removed from farmers and given to iwi, English said: “I simply don’t know the answer to that.”

A spokesman for the Freshwater Iwi Leaders Group would say only that the group “continues to engage with the Crown on Iwi freshwater rights and interests.”

Lawyer James Dunne, a partner in Chen Palmer, warned of a possible uninformed public backlash in light of the controversy over the Foreshore and seabed issue.

Source: Stuff

The infrastructure to support a herd wintering barn can add up to 70 per cent to the million-dollar plus cost of basic construction, a new study of the financial and environmental impact of barns has found.

The DairyNZ-AgFirst study of five South Island farms with free stall barns found additional costs around machinery and farm infrastructure added 10-40 per cent to the overall cost, and if the cost of additional cows and dairy company shares were included, the capital required increased the cost of the barn by 25-70 per cent.

AgFirst consultant Phil Journeaux said the basic construction cost of the barns in the study ranged from $1.2 million to $3m.

The study concluded that investing in a wintering barn delivered a feel-good factor for the farmers, but the outcome was not necessarily profitable.

It showed that inclusion of a barn without intensification of the farm system may reduce nitrogen losses, but at a significant cost.

With good management and intensification of the system, the investment could be profitable but this was dependent on the milk price, feed costs and initial capital outlay.

But intensifying the farming system to make the barn profitable risked eroding environmental benefits, the study found.

However, the farmers had generally invested in barns for farm management reasons, such as reducing paddock pugging, better utilisation of supplementary feed, better control of grazing management and feeding and shelter for livestock in adverse weather, better working conditions and reducing the cost of wintering cows off-farm.

Financial and environmental reasons were well down their list, said the study report.

In most cases, the introduction of a barn had resulted in more cows and higher feeding levels.

DairyNZ senior economist Matt Newman said in general, farmers with barns were trading some of their climatic risks for financial risks, particularly in servicing increased borrowings and sourcing appropriate supplementary feed.

The results showed three of the farms were making money in the sense of returning a positive internal rate of return, but only one farm, in Southland, had a positive net present value, meeting the 8 per cent discount rate.

This was deflated for inflation and tax.

The base discount rate of 8 per cent is a Treasury guideline rate, based on the “government opportunity cost of capital”.

All of the case study farmers said they were highly satisfied with having a barn, apart from any economic considerations.

While some of this sentiment could be due to having made a multi-million dollar investment, they had no wish to criticise it, the report said all the farmers had spoken positively about the ease and flexibility of management provided, especially in adverse weather; better working conditions (not picking up calves in mud, wading through muddy paddocks); more content cows; less treading damage to pastures.

One farmer, when asked about the cost of a loafing area in the barn complex, had said: “Bugger the cost, I wouldn’t do without it”.

The capital value of a farm was not necessarily proportional to the investment in a barn, real estate experts had suggested.

For example if a $2m barn was built on a $10m farm, the property would not necessarily be worth $12m.

Newman said overall, the decision around investment in a barn tended to be either/or.

“Either you make money out of it or you reduce the environmental footprint of the farm.

“It is difficult to achieve both.”

All farms but one in Canterbury, and to a lesser extent, one in Southland, showed little change in nitrogen loss from pre-barn to post-barn, said the report.

Stage two of the study is under way in the Waikato.

In this stage, nine Waikato barns, of a different type to the South Island structures and including Herd Homes, will be studied for economic and nutrient loss impacts.

The final report with full results will be finished by the end of next month.