{"id":13126,"date":"2014-11-28T00:00:00","date_gmt":"2014-11-27T11:00:00","guid":{"rendered":"https:\/\/www.farmersweekly.co.nz\/wilson-coy-on-fonterra-payout\/"},"modified":"2014-11-28T00:00:00","modified_gmt":"2014-11-27T11:00:00","slug":"wilson-coy-on-fonterra-payout","status":"publish","type":"post","link":"https:\/\/www.farmersweekly.co.nz\/news\/wilson-coy-on-fonterra-payout\/","title":{"rendered":"Wilson coy on Fonterra payout"},"content":{"rendered":"Reading Time: <\/span> 3<\/span> minutes<\/span><\/span>

Speaking at the KPMG agribusiness update to a packed crowd of agribusiness professionals and farmers, he suggested the industry cast its mind back to 2012 when prices were last at present levels.<\/p>\n

\u201cWe do have a habit of forgetting what is behind us,\u201d he said.<\/p>\n

Global Dairy Trade data from November 2012 had the index at about 810, lifting to 1300 by mid-April 2013. This November the index is about 860.<\/p>\n

Wilson took the opportunity to reiterate Fonterra\u2019s global strategy to \u201cturn the wheel\u201d on milk payout and dividend returns through its V3 strategy for growth, of volume, value and velocity.<\/p>\n

Against gloomy farmer sentiment he described the co-operative\u2019s unprecedented level of investment in plant intended to add value to base commodity inputs, including the UHT plant at Waitoa and the proposed plants at Edendale and Lichfield.<\/p>\n

However, it was investment in an environment where the \u201cpeak to trough\u201d was much closer in time and further apart in value.<\/p>\n

While fully confident about the fundamentals of demand, particularly out of Asia, it was global supply issues that contributed to today\u2019s fragility.<\/p>\n

\u201cWe are in a market that is relatively well informed now. It is quite rational and despite the sudden movements we are seeing that shift from subsidy-supported stocks in Europe and the United States to freely traded product.\u201d<\/p>\n

Supply issues spanned every significant dairying region but each had its own particular reasons for contributing to global oversupply.<\/p>\n

NZ had partially contributed to that, coming in 8% up on last year\u2019s production, with farmers in the rest of the world following in their footsteps.<\/p>\n

However, with the US consuming 85% of its production domestically there was a lag for poor global prices feeding signals back to farmers to curtail production. That was also not helped by corn prices being at very low price levels.<\/p>\n

\u201cIt can then take up to 18 months for the global effect to flow through to them.\u201d<\/p>\n

Wilson acknowledged Fonterra\u2019s frustration at the US Farm Bill being passed in February with rare bipartisan support.\u00a0<\/p>\n

The Bill offered subsidies benefitting smaller dairy farmers in particular.\u00a0<\/p>\n

It included the Dairy Margin Protection Programme that effectively had the US government offering a safety net of returns to producers.\u00a0<\/p>\n

Producers were able to protect from 25% to 90% of their production history, selecting price margin insurance across a range of increments as protection against the milk price to feed cost gap.<\/p>\n

The Russian ban on European imports had also meant there were 2.5-3 billion litres of milk trying to find a new market.<\/p>\n

Meantime, while China was underpinning the fundamentals of demand it had also managed to turn its domestic milk production around after a year of declining production in 2013 because of a virulent strain of foot and mouth disease.\u00a0<\/p>\n

That had the country suffer a 25% decline in milk supply for the year. That had turned around relatively rapidly as animals recovered, with the current quarter recording a 12% increase on the corresponding quarter last year.<\/p>\n

The result had been an 11% slide in Chinese domestic milk prices between April and October.\u00a0<\/p>\n

Combined with Chinese buyers overbuying after expectations NZ supply would dry up in drought early this year, stocks in China had been significantly higher than usual, meaning the tail of lower prices had become longer.<\/p>\n

The other looming disruption to global supply was the impending ramp-up of production out of Europe once quota caps were removed on April 1 next year.<\/p>\n

Irish producers had already invested \u20ac1b into new plant for processing and were already running over quota levels still in play until April 1.<\/p>\n

When questioned on the recent China-Australia free trade deal, Wilson said no one had seen the fine print on the deal yet.\u00a0<\/p>\n

However, the Chinese premier\u2019s recent visit and the timing of the Australian agreement meant there was willingness for NZ and China to sit down and discuss the tariff conditions that kicked in once 18% of NZ\u2019s powder product had been sold there.<\/p>\n

Wilson also cautioned on the need for Australia to push harder for high quality trade deals and look forward to the two countries working more closely to seal deals on trade globally.<\/p>\n","protected":false},"excerpt":{"rendered":"While not giving any indication of what bad news might be coming for Fonterra farmers next week, chairman John Wilson has urged the sector not to forget it has been here before.\n","protected":false},"author":29,"featured_media":13127,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_FSMCFIC_featured_image_caption":"","_FSMCFIC_featured_image_nocaption":"","_FSMCFIC_featured_image_hide":"","footnotes":""},"categories":[3],"tags":[],"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t