Fonterra’s $3.2b capital return to farmers set to boost rural incomes and NZ economy
According to ASB, Fonterra's plan to sell it's Anchor and Mainlands brands could inject $4.5 billion in additional spending into the economy.
“A super start to spring” is how Rabobank dairy analyst Emma Higgins describes the third consecutive significant rise on the Global Dairy Trade (GDT) event platform.
The GDT price index rose 7.7% with the average price US$2920/MT over 14 rounds. The all-important whole milk powder (WMP) index was up a more modest 3.7% with an average price of US$2793/MT.
“There were more bidders this time around: 199 bidders in this event compared to 177 in the prior event – a sign that the prospect of increased prices has flushed out more buyers looking to fill inventory pipelines before commodity prices move higher,” Higgins told Dairy News.
On the supply front, news of less milk available around the globe continues, Higgins says.
“The cut in European milk production has carried on into June and July and a drastic reduction in milk production in South America, along with a similar prospect in Australia, continues to support our view that the global exportable milk surplus will continue to tighten in 2016.”
This short-term coverage demand, combined with slowing global production, has translated into all dairy categories improving in the latest GDT event, Higgins says.
“This time around WMP lifted the least in this event at just +3.7% (US$2793/MT) compared to butter at almost +15% (US$3764/MT). SMP lifted a significant 10%, realigning Oceania prices with European SMP prices.”
ASB senior rural economist Nathan Penny says the dairy price correction in August and now September has been swift and large.
“For now, we expect prices to consolidate over coming auctions as markets will need to take a breath,” Penny says.
“For example, the relatively flat prices across the different WMP contracts hints that that may now be the case. However, we expect continued production weakness to lift prices again later in the season.”
Penny says NZ spring data, as it comes through, will support or challenge the view that global production will weaken further.
“Also, with EU’s production now also clearly on the wane, we expect the wedge between NZ-dominated products (WMP) and EU-dominated ones (SMP) to narrow. For example, June EU production data showed a 1.6% fall compared to June 2015.”
Senior economist Anne Boniface says in her agri update that, unlike recent auctions, the increase wasn’t driven by WMP. Instead SMP and anhydrous milk fat (AMF) prices rose 10% and 15.4% respectively while WMP lagged.
“That’s a bit weaker than the 8% or so lift the futures market had been pointing to,” she says.
The recently confirmed support from the European Commission to subsidise the region’s dairy farmers will have helped support SMP prices, Boniface says.
EU milk production is expected to be dampened further by the €500m payment to European farmers, including €150m for reducing milk production and extending private storage. If fully utilised, the payments for reducing milk production would lead to a 1.1 million tonne reduction in supply.
Boniface says fundamentals have moved in favour of dairy producers over the last month or so, with improved demand coinciding with lower milk supply from key global exporters.
A major feature of the Ashburton A&P Show, to be held on October 31 and November 1, will be the annual trans-Tasman Sheep Dog Trial test match, with the best heading dogs from both sides of the Tasman going head-to-head in two teams of four.
Fewer bobby calves are heading to the works this season, as more dairy farmers recognise the value of rearing calves for beef.
The key to a dairy system that generates high profit with a low emissions intensity is using low footprint feed, says Fonterra program manager on-farm excellence, Louise Cook.
Rural retailer Farmlands has reported a return to profitability, something the co-operative says shows clear progress in the second year of its five-year strategy.
According to a new report, the Safer Rides initiative, which offered farmers heavily discounted crush protection devices (CPDs) for quad bikes, has made a significant impact in raising awareness and action around farm vehicle safety.
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