Dairy farmers concerned about where grain price will go

30-08-2010 | Annette Scott

New Zealand dairy farmers are moving to secure grain supply as they keep a close watch on global grain prices and production.

The uncertainty of the market given the significant movement in grain prices over the past few weeks has prompted farmers relying on grain for their cows to bunker in while they can, Federated Farmers national dairy vice chairman Willy Leferink said.

"There are two options - either put a buck each way or secure grain now. Personally I have signed up and secured my grain for the next two seasons. I advise farmers to at least secure their grain for this season."

Leferink said while the recent grain price rises presented a conundrum for NZ dairy farmers, the industry across the Tasman was more significantly affected with just 10% of NZ dairy farmers, compared to around 70% of their Australian counterparts, relying on grain to feed their cows.

While it was expected there would be sufficient grain in NZ to meet demand meantime, Leferink said it would be useful if the NZ arable industry "could get a handle" on just where stock levels were
at.

With Russia down, Brazil remains the unknown and could well present a global problem while in Holland feed grain is being converted to milling grain, Leferink said.

The recent grain price rises have prompted concern for Dairy Australia.

The latest Australian Crop Forecasters report prepared for Dairy Australia suggests that a month ago the feed to milk price ratio would have been positive.

With hindsight, forward pricing feed requirements for 2010 would have protected a profit margin but according to the report the more difficult decision now lies in the risk of leaving grain requirements for the balance of 2010-11unpriced.

The dilemma is whether dairy farmers should take the risk of further feed grain price rises, or sit it out and hope for a downward correction.

Verbal and handshake deals are expected to be tested in markets with the big price swings.

If dairy farmers had forward contracts for feed supplies it was critical to confirm these details in writing with supplier, the Dairy Australia report recommended.

"One default by a farmer or supplier can trigger financial difficulty which impacts many in the chain, so check your supply arrangements with your supplier. Specify the quality of any grain and feed being supplied.

"Cutting corners on quality is one way of avoiding major price increases, but it will almost certainly mean lower energy and less milk in the vat."

Australia expects there is adequate grain supply for the next six to nine months. Once the initial shock of the impact of the Black Sea export bans is digested, and the world gets the chance to count up the global crops come late September or early October, then prices could settle down and ease back.

If there was a spring weather scare in Australia the market could flare up again.

Without further damage to world crops, prices would most likely ease down over 2010. Politics will play an important part with Russia trying to contain food price inflation, along with other regional deals around oil and gas.

Leferink said it was not so much a case of over-reacting, or looking to read too much into the daily moves, but rather keeping a close monitor on the situation as prices were likely to remain volatile for at least the next month or two.

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