NZ DAIRY PRODUCT PRICES EXTEND PLUNGE TO SIX-YEAR LOW
Since the NZ politicians, general business community and media are underplaying the seriousness of what is happening to New Zealand dairy farmers at present, by manipulating the facts to infer what is happening is not as serious as it immediately appears – by trying to suggest dairying is only 5% of New Zealand’s GDP and 20% of exports – I thought I would put my own slant on things and present the facts together in I hope a much more accurate context:
FACT 1) In the 2013 to 2014 season Fonterra’s pay-out to about 13,000 dairy farmers was milk: $8.40, dividend: .10c = Total pay-out: $8.50 KgMS (Kilo of Milk Solids). In the above linked recent article yesterday, you will note that; ANZ Bank economist Cameron Bagrie has just slashed his 2015/2016 forecast for dairy farmers’ pay-out to NZ$3.50 KgMS – and that OppenheimerFunds in New York expect the NZ Kiwi dollar to fall as low as US$0.50c within a year. Already the ANZ Bank has estimated the average brake even point for all dairy farmers is NZ$5.70 KgMS. This means, even with a dramatic collapse in the value of the NZ dollar improving export revenue over the coming year, the average dairy farmer is going to lose about $5.00 per every KgMS he produces.
FACT 2) Now anyone can go on the Internet and read the official statistics of all dairy production in New Zealand or the world. In the 2013 – 2014 year, Fonterra’s total revenue was $22.275 billion, which was 30% of world dairy exports, which was not 20% of New Zealand’s total exports but nearly 30%. Now that prices have collapsed and are still collapsing, the proportion of exports is NOW 20% and falling. See how figures can be manipulated! So to have nearly 30% of our entire NZ export income vaporise like this is very serious indeed. Yet all I saw on the 6 pm TV News last night was the New Zealand Prime Minister playing golf up at the Cook Islands! And on the TV3 News tonight I see the media scoundrels have deleted the financial section of the news completely. The cheek.
FACT 3) In the 2013 –2014 season, there were precisely 11,927 dairy herds in New Zealand, with an average size of 413 cows, each producing an average of 371 KgMS per cow per season. This means that on average, with an average herd size of 413 cows x 371 KgMS each = each herd produced 153,223 KgMS each x $8.50 KgMS = Total income per farmer: $1,302,395.50. ANZ Bank’s brake even point is 153,223 KgMS each x $5.70 KgMS = Total Income per farmer: $873,371.10. Yet ANZ economist Cameron Bagrie is predicting 153,223 KgMS each x $3.50 KgMS = Total Income per farmer: $536,280.50. So what we are left with is the final prediction for the average dairy farmer for the coming year (and there is even a distinct possibility it will go even lower):
FACT 4) Total average income per farmer 2013-2014 season: $1,302,395.50
Total ANZ Bank estimated break even point: $873,371.10
Total Income estimated per farmer 2015-2016: $536,280.50
TOTAL AVERAGE ESTIM. LOSS PER FARMER 2015-2016: $337,090.60
FACT 5) PLUS, Fonterra’s income looks like it will be down by at least 60% ( or $13.365 billion), or from $22.275 billion to $8.91 billion. If this collapse in dairy farm earnings continues, and it looks like it is, soon farm prices will begin to collapse below the collateral value used as security for many farmers’ loans, and this will affect all farmers whether they have debt or not as they will all end up dog tucker and be caught in the stampede. Add to this, the Government loses billions in GST and tax, and New Zealand’s trade deficit increases dramatically – and much less money circulates through the general economy, especially the rural economy, so ultimately it will affect everybody, because if the currency drops to US$0.50c then we will end up paying $5.00 a litre for petrol before too long, imports will rise in price dramatically, while wages, salaries and benefits remain static. If this happens, people will be forced to reduce spending.
FACT 6) Basically, if the Reserve Bank does not not rapidly lower the value of the New Zealand dollar still further, Fonterra, New Zealand’s biggest company, will collapse and go belly up, and tens of thousands of farmers and farm workers will become unemployed, and the foreign international bankers and their Chinese agents will probably end up taking over the lot. But you can’t keep borrowing and collapsing the currency forever, as the Greeks have recently found out. In the end, should we all be concerned?
7) So I wonder if the Prime Minister John Key knows much more than he’s letting on? A new National anthem and new flag? While the farmers are staying at home exhausted from calving at present, living on aspirin worrying about their future, while he’s busy playing golf on a tropical island – dreaming about the new Banana Republic he is rapidly creating for the new farming social class in the country – resurrected from feudal England – a whole new army of simple peasants and serfs, tenants in their own land?
Yes, the overseas trips and the new Toyota pickup every year are over.
My prediction for the next 2-years? Auckland Harbour Bridge will be very busy with farmers bungy-jumping without ropes.
Biggest growth business for next year? Psychiatry clinics and liquor wholesalers.