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FARMERS WEEKLY – farmersweekly.co.nz – May 27, 2019
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Farmers hang on for better days
TOEY: Farmer patience with Fonterra is wearing thin and rightly so, farmer Melissa Slattery says.
They are definitely listening to their farmer shareholders. Simon Topham Farmer pretty difficult to get it right on a single figure.” But Slattery said this season’s drop is very disappointing. “The mid-point of $6.35/kg MS means millions of dollars to dairy farmers.” Farmers will be redoing budgets. As for share earnings – “It means capital tied up. Of course they are not a good return on investment.” “And dividend earnings, who knows what that will be in October? I’m not counting on anything. “We all know there’s work to do in sorting Fonterra’s investments and strategy and getting the return on our investment but how much more hardship can farmers take while they wait? “Everyone is questioning their investment now. “Patience is getting a bit thin and rightly so,” Slattery said. “In terms of this season’s pull back to $6.30-$6.40 it is a surprise,” Horowhenua herdowning sharemilker Richard McIntrye said. “Most of us have budgets done up to the end of the season and to lose 9c now in this surprise drop at this stage when the analysts talked it up 20c does impact heavily on the budget.” Next season’s forecast range at $$6.25-$7.25 is more palatable. “I would much rather Fonterra under-promised and over-delivered and that’s where it looks as though we’re headed for next season. “I would be more concerned if they came out at $7. Previously that would have happened so, really, this forecast now is cautious and prudent and I respect that.”
GDT dips slightly THE Global Dairy Trade index has dropped for the first time after a record 11 consecutive increases. The GDT price index was down 1.2% at last week’s event, driven largely by a decline in prices for whole milk powder and milk fats. WMP average prices eased to US$3180/t, with the price index down 2.1%. Though offer volumes leading into the event were unchanged on the previous event prices likely reflect buyers having adequate
short-term cover, with milk supplies coming online in the northern hemisphere, NZX dairy analyst Robert Gibson said in a note. SMP average prices lifted slightly on the previous event to US$2529/t, with the price index up 0.5%. Milk fat average prices decreased. Anhydrous milk fat average prices decreased to US$6140/t with the price index down 1.4%. Meanwhile, butter average prices decreased to US$5297/t with the price index down 3.2%.
OKAY: Sharmilker Richard McIntryre says Fonterra’s results are not the end of the world and he is happy enough with the milk price. The advance rate is lower than McIntrye expected and will create cashflow problems. “The advance rate at $3.80, based on $6.75, is a little less than expected and will affect my cashflow. “I will have to have a chat with my bank manager.” But it’s not the end of the world. “It’s good milk prices. Anything at the mid $6 mark is good but having said that we need to get that to counter the increasing costs in running our farm businesses.” Southland dairy farmer Simon Topham sees plenty to please him in Fonterra’s third quarter financial results. While disappointed this season’s forecast payout is at the lower end of the range Topham is delighted the co-operative is taking decisive action on some business issues that have plagued its performance and lingered for too long. “That is positive in my point of view. “It is the basis of the dividend and where the business is at and needs to change, so it is good to see a move in that direction.” Topham milks 500 cows at Hedgehope, southwest of Gore, and says the payout, while disappointing, is the mathematical quantum of international dairy prices and the exchange rate. He is proud to be a Fonterra shareholder and supports the changes and the improved interaction with shareholders. “They are definitely listening to their farmer shareholders,” he says. His commitment to Fonterra and co-operatives in general was strengthened by attending this year’s My Connect conference run by the co-op and by the upheaval in overseas dairy markets and the state of the industry in Australia. “NZ is in a positive position and I am grateful we have got a co-operative. We only need to look across the ditch at Australia and see farmers are struggling.”
Chinese farms might be sold FONTERRA’S seven wholly owned Chinese dairy farms have joined the assets under review, chief executive Miles Hurrell says. More than $1 billion was spent establishing the two farm hubs with more than 30,000 New Zealand-bred cows. They have made regular operating losses disclosed since 2015. Fonterra has proven, highquality, model farms to produce fresh milk for Chinese consumers. “However, this does not necessarily mean we need to have large amounts of capital tied up in farming hubs,” Hurrell said.
The joint venture with Abbott for two more Chinese farms is not under review and those farms could supply Fonterra’s fresh milk customers if needed. In the interim report in March Fonterra said China Farms made a loss because of lower production, added effluent and animal management costs and increased feed prices because of trade disputes between the United States and China. The plan now is to grow threefold this year the proportion of milk going into consumer brands and food service from 5% of output to 15%.
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DAIRY farmers are not happy with Fonterra’s performance setting this year’s milk price at the bottom end of its predicted range but are happy enough with next year’s wide range. They are concerned about having to remake their budgets and about cashflow for next season with early payments set at $3.80 based on an eventual price of $6.75/kg MS. And they are getting edgy about the co-op’s change of direction – both in the lack of detail and its failure to show up in improvements in the third quarter results just released. However, they still have faith in Fonterra as the best vehicle for their milk. Melissa Slattery runs a 300-cow dairy herd with her husband Justin in Waikato. The couple, Sharemilkers of the Year 2015, recently moved north from Canterbury to become farm owners. Slattery is also an accountant. “Yes, I do a bunch of forecasting,” she said. “And yes, this result comes as a surprise and I am disappointed. “I think the ranges are positive because it is hard to forecast 15 months out so I don’t think $6.25-$7.25 is a bad thing. It’s