WELCOME TO ROSS’ BLOGFind out what Ross has to say about various news |
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Another rise in the Global Dairy Trade auction - that′s another piece of good news for our farmers. With good pasture growth and rising milk powder prices‚ dairy farmers can continue to make up for some of the reduced milk flows earlier in the season. Speaking with a few farmers recently and by looking at farms as I travel around, it seems there is more pasture around now than there has been all season. That′s great news for those with autumn calving herds and/or those supplying winter milk. Not so good for those buying milk down at the dairy, as you may have heard on talk back radio and read in the papers. For the health beneifts milk offers, it still seems like a fairly good buy to me. Most of Seales customers are dairy farmers so the freah milk they get straight from the vat is even better. Maybe we could set up a stall down the road and sell fresh milk straight from the cow, like the corn sellers do! Let′s save that discussion for another day...
The heavens have certainly opened up over the past couple of weeks ensuring some decent pasture growth in many regions. This offers a great opportunity to make up for lost production earlier in the season. With the potential for further up-side to the dairy payout it makes sense to optimise milk flows now by feeding your herd well and investing in top quality supplement. I have just read an article stating the number of farm sales in December was 30. This represents a sure shift in the market. Does this mean banks are willing to lend again in a positive market or are there some major players out there who are cashed up? On a similar note, who is going to purchase the Crafar farms? We wait in anticipation...
Happy New Year to all. I hope you managed to find some time to relax and de-stress after a very tough end to 2010. Well, at last the rain came but we still need more in most areas. It is already drying up again and that constant wind will sure speed up this process. What a fantastic result overnight with the latest Fonterra auction. It seems that the market senses a shortfall between supply and demand which may mean this upward trend continues. This is great news, not only for our dairy farmers but for all of NZ. Once again the challenge will be to manage your way through summer while maximising milk flows and minimising condition loss. I watch with interest the bid by Chinese company Agria to take a 50.01% stake in PGG Wrightson. The public outcry was loud and clear when it looked as though a Chinese company was going to purchase a large portion of NZ dairy land so I wonder if the same will happen when they try and take a controlling stake in a NZ company with a long and proud history. Let′s wait and see...
At last the rains come! What a relief the recent rain has been to our farming customers. Although we′re not out of the woods yet, the rain we have had will result in some good grass growth. Now, if NIWA forecasts are correct we should get regular rainfalls during summer meaning dairy farmers can begin to make up for production lost during our traditional spring period. The second piece of good news recently is Fonterra′s milk payment forecast increasing to $6.60. This is a fantastic result and I′m picking it will rise even further. I was intrigued with the recent news from Fonterra that every kilogram of milk produced by New Zealand farmers results in $280 being reinvested in the economy — for every person in New Zealand! That reinforces the importance of farming, particularly dairy farming, to New Zealand′s economy. I, for one, am proud to be a part of it.
This will probably be my last blog for the year with Christmas only 5 days away. I hope you can reflect on a good year and I wish you and your families well over the Christmas and New Year period. May you recieve some well earned time with friends and family and plenty of rain.
On behalf of the entire Seales Team, Merry Christmas.
The news surrounding Allied Farmers becomes more intriguing by the day. Let′s hope that in the end all shareholders recieve thier investments back and some! Also interesting are the proposed PGG Wrightson store closures in New Plymouth and Thames. Once again, I feel for those affected but it is a sign of the extremely tough trading conditions we have all experienced over the past two years. The volatility in global markets continues in both supply and price. Unfortunately I cannot see this changing in the short term and it may become the new status quo. This is particularly challenging for our farming customers due to the current climatic conditions. Most of the country is very dry with soil moisture levels up to 70-80% drier than the average year. This, combined with constant wind and a lot of sun, means pasture quality is declining rapidly and I understand most regions have only harvested around 30% of the silage that they would have normally harvested by this time, maize crops are reduced and yields are expected to be less. I have heard a few people talking about drying off prior to Christmas. If you are one of these then make sure you do your homework. As your herd does incur a &rsquorunning cost’ even if dry, the marginal return from adding supplementary feed to the diet to maintain at least some milk flow (cash flow) is likely to be positive.
Well, the news is still good from Henry and it may get even better! The trouble now is what to do about summer pasture, as it seems like we′ve gone from winter to summer without a spring. This means we haven′t seen the grass growth most of you would have been hoping for. During summer, protein levels in pasture drop away so it pays to supplement with a high protein feed. I′ve talked to a lot of people recently about the value of extending lactation and they all tell me the same thing, there′s profit to be made from extending lactation length (days in milk). Keep this in mind when deciding on whether to feed a high protein summer supplment this season. In the meantime let′s hope we get some decent grass growth so we can make the most of the decent payout figure and make up for last season.
Great news from Fonterra last week. A great result for not only dairy farmers but the economy in general. The outlook for this season is good too. I am sure there will be a lot of reasonably happy farmers out there right now. The weathers still atrocious but I am sure spring will be here soon bringing with it some more sunshine hours and grass growing weather.
Gee it′s been a wintery start to spring! I was visting some farmers in Taranaki recently and experienced torrential rain, gail force winds and hail. Most of the farmers I spoke with were talking about how wet it had been, with rainfalls well above average. I have received the same feedback from throughout the Waikato. This made me think about what pasture quality may be like leading up to mating. It′s not going to be the best and it will be important to keep your herds’ energy levels up during this critical period. As you know Seales have the best value high energy bypass fat on the market.
Although seasonal conditions on the farm aren′t the best, it has been pleasing to see the price in Fonterra′s auctions on an upward trend. Hopefully these positive signs will enable the Fonterra board to at least maintain the current seasons forecast. I′m going to be very interested in the Fonterra announcement on the 23rd as I am sure you will be also. In the meantime it′s wet weather gear on and business as usual.
The calves are coming!
As Ive been driving around Ive seen a fair few calves on the ground. Unfortunately that has coincided with several decent frosts on consecutive days. With low pasture cover and now cold weather, pressure on feed is going to be a concern during the critical early lactation period. It is especially important during this time that all is done to get those cows off to a good start while maintaining, if not improving body condition. Remember, not all feeds are equal and whether its maize silage, hay or pelletised feed you are purchasing, ensure it is of the highest quality. Your herd is one of, if not the largest investment you have ,so feed them well and get that milk pumping. Fingers crossed milk prices will stabilise and youll have a great season.
How to maximise your payout
Well, what a bumpy ride we’ve had in 2010!
We’ve come from the middle of a recession with a $4.55 payout forecast and yet now we are looking at a forecast payout of $6.05 plus. Many on farm decisions were made early in the season based on the $4.55 forecast which had significant negative impacts on New Zealand’s total milk production.
The question dairy farmers need to ask themselves right now is, “How to maximise the $6.05 payout?” The key to answering this question is understanding how the figure of $6.05 is calculated. You will be aware that separate payments are made for fat and protein. At a $6.05 payout, farmers are being paid around $3.75 per kg for fat and yet protein is earning a whopping $10.50 per kg. You read that correctly, $10.50 for your milk protein. These figures highlight the importance of increasing the protein to fat ratio of the milk produced by your herd to ensure you maximise your returns.
Over the summer period, protein levels in pasture tend to drop away so in order to maintain milk production a supplementary feed high in both energy and soluble carbohydrate is recommended. The next step is understanding how to increase the protein to fat ratio in the milk being produced by your herd. Luckily it’s not too complicated! Basically speaking, for a cow to produce higher protein levels in her milk (along with a balanced diet) she needs to be consuming a high grain diet. Once digested, the grain breaks down into soluble carbohydrate which is one of the main drivers in protein production. A benefit of feeding a top quality, grain based pelletised feed, is that during the manufacturing process parts of the grain are broken down (gelatisation) making the product even more digestible. Other benefits of a fully pelletised feed include the ability to include customised rates of minerals, trace elements and/or metabolic products at a rate to suit your herd, e.g. inclusion of rumensin for improved digestibility or zinc as a preventative measure for facial eczema. Lastly, the heat treatment that the pellets go through greatly reduces the risk of pathogen challenge from the likes of salmonella.
Unfortunately, due to the recession and the original $4.55 payout forecast a lot of farmers have resorted to low cost (nil grain) blends or products such as palm kernel (PKE) and whole barley (50% of both will be passing straight through the cow so multiply the cost by 2). While these products are low cost and do have a place in the market at certain times, they will simply not offer you the same return on investment as a quality grain based pelletised supplement. In fact, in many cases, the likes of PKE will increase fat levels in milk (decreasing the protein to fat ratio) to a point that it drives payout down even further! That’s right, you will in fact not even get the $6.05. On the other hand, customers who use a high quality, grain based pelletised feed generally increase their protein output (increasing the protein to fat ratio) so potentially earn more than the forecast payout figure. If you want to make the most of the $6.05 payout or even earn more than $6.05, try a high protein, grain based concentrated supplementary feed. Better still, talk to our team about demonstrating our Smart Feed Milk Cheque Analyser.
In summary, the answer to the original question on how to maximise the $6.05 payout, is simple. Firstly adequate protein levels are normally not an issue with NZ pasture based systems. Getting dry matter into them is normally a bigger challenge. Secondly, feed a grain based supplementary feed for improved feed conversion efficiency and increased protein production. These two factors should enable you to maintain milk production for longer while at the same time increasing the protein to fat ratios in the milk produced which will means Seales customers simply make more money.
Why wouldn’t you!
What a great month it’s been for the NZ dairy industry. I still question Fonterra’s tinkering with it’s capital raising challenges.
Remember our business is inextricably linked to the fortunes of NZ’s dairy farmers, so if in our view Fonterra is not serving its shareholders in their best long term interests we will not only say so but also go into bat for better business outcomes from Fonterra. On the flip side we will be the first to compliment and cheer from the roof tops when we see fantastic business success from Fonterra and its management team.
Their recent 55c lift in forecast for the coming season could not have come at a better time for NZ farmers. So well done to Fonterra’s Board. Cashflow’s have been “hammered” and banks have overdrafts or working capital. This “shot in the arm” is the best new farmers have had following nearly a year of severe negative sentiment, poor outlooks and catastrophic cashflows.
We still have huge challenges ahead of us, but one thing that does concern me is Dairy NZ’s sole focus on the reduction of costs on farm. Improvements in milk production, productivity enhancements, strategic supplementation of dairy cows, an honest assessment of the returns from different feeds is an absolute must if NZ farmers are to be successful in the long term. Increased milk flows with the right soluble carbohydrate based feeds can lead to elevated protein levels leading to increased payouts, improved cashflows and better or greater returns on funds invested on farm.
Like Fonterra, carrying on doing the same as we’ve always done will not cut it in the future profitability game.
Fonterra’s performance is key, not only to NZ Dairy farmers, but also critical to the success of every agri-business in NZ servicing the dairy industry.
Clearly Fonterra have over-stretched themselves internationally, and as I see it, have only two choices. Obviously they need to raise capital, and, if they are to retain the co-operative model, they will either need to raise capital off farmers, (extremely unlikely under the current payout), or they will need to sell assets. If selling assets is the pathway chosen, then selling offshore assets would be the obvious place to start. However, if they want to continue with their overall global strategy of year round milk supply from different regions supplying the vast array of markets at their disposal, then capital raising will be required.
Personally I cannot see the ‘two headed conflicting monster’ on a partial capital float of part of the business while retaining shareholding control, as being workable in the long term. As such I think the choices are either they have to completely float the business and somehow retain preference shares that farmer shareholders control. This again is fraught with difficulty, however one thing is certain, an output co-operative such as Fonterra and Silverfern Farms, will never be as successful as an input co-operative. An input co-operative can ‘squeeze’ its suppliers to the lowest price possible. Fonterra’s dilemma is they are unable to ‘extort’ farmer shareholders in the same way that their competitors such as Nestle, Palmalat, and San Maguel are able to.