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GlobalDairyTrade: one of a bad news triple-pack

16 July 2014

GlobalDairyTrade: one of a bad news triple-pack

While today’s fall in the GlobalDairyTrade auction platform reflects the most perfect global production season in many years, Federated Farmers anticipates it could lead to downwards revision in Fonterra’s benchmark forecast of $7 per kilogram of Milk Solids (kg/MS).

“The reality is that the world is having a near-perfect production season with Europe and the Americas having a blinder,” says Andrew Hoggard, Federated Farmers Dairy chair.

“The fall in GlobalDairyTrade reflects supply and demand. With good weather, high milk prices and grain availability, global dairy production has ramped up.

“While GDT Prices may have come off there is no milk lake of yesteryear. The world needs to grow a lot more than New Zealand’s annual production every year just to meet demand.

“In the short term, I would recommend dairy farmers start planning for payout forecasts being predicted by the banks of $6 to $6.25 kg/MS. We need to remember $6 kg/MS is the practical breakeven for about twenty percent of the industry with high production costs.

“Be conservative by focussing on debt and prioritising productive investment.

“This volatility in the payout shows that when politicians start mouthing off about new taxes specifically for farmers, without a clear objective of what they could achieve aide from being affordable in one year, they miss the reality that good years usually alternate with bad years.

“In addition to resisting bad policy, Federated Farmers has fully got the backs of our members when it comes to keeping council rates, fees and polices in check.

“What we’re going through with GDT reflects the reality of being an exporter. If New Zealand had Samsung’s global HQ in Dannevirke, I am certain there’d be a gnashing of teeth over its failure to dent Apple or the threat of Microsoft’s resurgent Nokia.

“No matter what you export, dairy, meat or tourists, we’re not being helped by the Kiwi dollar which only amplifies the pain. The dollar ought to be tracking down with the GDT and while it dropped a bit today, the Kiwi dollar does remain overvalued.

“Then again, a high dollar makes for cheap overseas holidays, LCD televisions and puts a lid on petrol prices.

“We are hoping the Reserve Bank is taking note with our interest rates seemingly decided by Auckland’s house market and the Christchurch rebuild. It makes for a triple whammy if the forecast payout heads downhill, a high dollar and the risk of an official cash rate hike.

“The reality is that there will be a belt tightening. It won’t surprise me if Federated Farmers’ New-Season Farm Confidence Survey, being released Sunday, shows a big fall in dairy farmer morale,” Mr Hoggard concluded.

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