Dairy volatility has not gone away

Fonterra’s recent upgraded estimate of $6 per kg milksolids (fat plus protein) for the 2016/7 milk price has been welcomed by everyone in the industry. Given that it is only six months since Fonterra’s initial for this season of $4.25, the current estimate should also remind us of the impossibility of predicting milk prices with any accuracy.

This level of inaccuracy is typical of the last three years, where Fonterra’s initial estimates compared to the final price were out by $1.40 in 2014, $2.60 in 2015 and $1.35 in 2016.

Currently, we are about half way through the milk season in terms of production, and most companies will have sold about half of their total seasonal production. With some forward selling, they may even be ahead of this.  It is about this stage of the season that I bring in my price-range estimate to about $1.80 (i.e. plus or minus 90c around a mid-point).   Continue reading

Posted in Agribusiness, China, Dairy, Fonterra | 1 Comment

China’s infant formula market continues to evolve

Chinese infant formula imports are now worth more than twice the value of whole milk powder (WMP) imports. According to Italian information analysis company CLAL, infant formula imports to China for the first nine months of this year had a landed value of US $2.1 billion, whereas WMP imports were valued at only $US 0.87 billion.  This was despite the WMP volumes being more than double those of infant formula.  On a per kilo basis, the infant formula had a landed value of US $12.63 whereas the WMP was valued at US $2.52.

New Zealand is the dominant supplier of China’s imported WMP, with more than 90% market share. However, New Zealand is only a small player in the infant formula market, with 11% of Chinese imports. Continue reading

Posted in Agribusiness, China, Dairy, Fonterra | Tagged | 3 Comments

Trump’s rhetoric puts American dairy at risk

America’s dairy industry, and also American fruit and vegetable production, will be seriously hit if incoming President Trump aligns his actions with pre-election rhetoric. These industries rely on officially undocumented Hispanic labour, from Mexico and further south, to do much of the hard work.

Mr Trump has said he is going to send 11 million undocumented immigrants back over the border. However, cool heads from these industries will be trying in the next few weeks to get in Mr Trump’s ear to alert him to some of the economic implications.  Quite simply, many of the big farms with more than 1000 cows, which now supply more than half of America’s milk, will be in turmoil without these workers. Continue reading

Posted in Agribusiness, Dairy | 2 Comments

Is Forestry the Answer?

In late 2015, the New Zealand Government made a commitment at the Paris climate negotiations that by 2030 New Zealand will reduce greenhouse gas (GHG) emissions by 30 percent compared to the 2005 levels. This overall commitment includes methane and nitrous oxide emissions from agriculture.  These agricultural emissions are converted for carbon-accounting purposes to the equivalent tonnes of carbon dioxide.  The daunting and unique challenge for New Zealand is that agriculture emissions comprise some 50 percent of total emissions. Continue reading

Posted in Agribusiness | Tagged , | 8 Comments

All-grass farming at the Lincoln dairy farm

Dairy farmers fit broadly into two camps: those who believe dairy farming should be ‘all grass’, and those who favour a role for supplements.   I don’t fit neatly into either camp, because as in so many things, I think there is more than one way to succeed.  It all depends on the situation.

As a visiting farm systems professor put it to me this last week, amongst academics this is called ‘flat-line optimality’. Or as Mark Twain made famous, drawing on others who had gone before, ‘there is more than one way to skin a cat’.    And just to set that story straight in terms of political correctness, the cat was actually a catfish.

Although there is usually more than one way of doing things, there are also different levels of efficiency with which it can be done. So last week I spent a morning with Peter Hancox, the manager of the Lincoln University Dairy Farm (LUDF), learning how he was making all-grass farming work at Lincoln. Continue reading

Posted in Dairy, Uncategorized | 16 Comments

The Rise of China’s Agriculture

Although it leaves many New Zealanders uncomfortable, there is a stark reality that the future of New Zealand’s agricultural industries, and hence the overall economy, is highly dependent on China. The reason is very simple: there is no-one else in the world who needs and wants our agricultural products at the levels we produce those products.

If actions were driven by logic, then we would spend a lot of effort in trying to understand China.   We would want to understand Chinese consumers, we would want to understand Chinese government policy towards agriculture, and we would want to understand what is happening on the ground in rural China.

We do know something about all of these things, but we don’t know enough.  In particular, we know very little about what is happening within Chinese agriculture itself. Continue reading

Posted in Agribusiness, China, Dairy, Meat Industry, Rural development | 7 Comments

China Farms and Australia are Fonterra ‘work-ons’

Fonterra’s recently announced profit figure for 2015/16 of $834 million is a big step forward from the $506 million of 2014/15. The biggest underlying source of improvement appears to have been the margin for commodity cheese over and above the auction price for whole milk powder (WMP).  This is because WMP dominates the milk price calculations whereas cheese margins go straight to profit.  A second major improvement has been Australian operations where unprofitable operations have been sold and the EBIT (earnings before interest and tax) are now running positive. Continue reading

Posted in Agribusiness, Dairy, Fonterra | 2 Comments