Yesterday Fonterra startled the industry and financial circles by following up a respectable opening forecast payout of $6.90-$7.10/kg milksolids for the season, which begins next week, with a longer range forecast of a possible $8-plus final season payout – if international dairy prices and foreign exchange rates hold at current levels.The opening forecast, which combines a milk price of $6.60 and a forecast distributable profit of 30-50c/kg, means around $650m more for the economy in the 2010-2011 year – but an $8-plus payout would mean a $2b economic bonanza, says Bank of New Zealand head of research Stephen Toplis.The $8 payout would mean a close to $1m income for a farmer producing the industry average of 120,000kg in the season. Out of this has to come the farm’s running costs, tax, labour, family costs and new Emissions Trading Scheme taxes reports Stuff.

Fonterra heavily stamped its new season forecasts announcement with cautions about market volatility, big swings in foreign currencies and economic turmoil overseas.The expectation in the industry is that farmers will keep their wallets firmly shut while they repair balance sheets battered by the global economic crisis and recent drought in some regions. They would reduce debt run up before the payout dropped like a stone overnight last year on the back of plummeting international market prices.Fonterra chairman Sir Henry van der Heyden said many farmers had suffered financial hardship and would use the higher payout to get their books in order. Mr Toplis said New Zealand farmers would be “wealthier” as a result of the payout hike, but it gave them a choice whether to invest more, save more or spend.”In the current environment one would assume they would probably save more than in past cycles.

“There is a golden opportunity now to get the dairy sector back on its feet, not just on its feet, but sustainably. The choice is in farmers’ hands now. Twelve months ago it was not in their hands because they were in dire straits.”Farmers would want to avoid a repeat of 2008-09 when the payout forecast went to a record $7.90, sparking speculation that it would end the season at $8.50 or $9 and prompting farmers to borrow accordingly, Mr Toplis said.The federation’s dairy chairman Lachlan McKenzie reminded farmers that this time last year the opening forecast was only $4.55.”I should add that current Ministry of Agriculture modelling shows that it costs a staggering $4.88 to produce one kilogram of milksolids …”

 Fonterra said it intended to retain 25 per cent to 35 per cent of the forecast 30c to 50c distributable profit.

Once dividends from profits are added, Fonterra could produce a payout of around NZ$7/kg. This would be the second highest payout in Fonterra’s history after the record NZ$7.62/kg paid out in 2007/08. Fonterra chairman Henry van der Heyden said it was possible the final payout could be over NZ$8/kg if the exchange rate and commodity prices stayed at their current levels. This would add up to NZ$2 billion to the economy from the NZ$2009/10 season, assuming the drought of the last few months does not hurt output too much reports interest.co.

Each extra dollar of payout adds around NZ$1.2 billion to the New Zealand economy and the forecast of a higher payout will boost the outlook for the economy overall and provincial economies such as Southland, Canterbury, Taranaki, Waikato, Manawatu, Bay of Plenty and Northland.

Fonterra also held its value of its shares at NZ$4.52 per share. Fonterra requires its farmer/shareholders to hold one share for each kilogram of milk solids it produces each season.

AHB chief executive William McCook said the prosecution showed the AHB would take action against farmers who fail to abide by livestock movement regulations. “It is clearly unacceptable that one man put his fellow farmers at risk for his own pecuniary gain. Selling cattle from a herd that is suspected or known to harbour bovine TB could have serious consequences for the national TB control programme. “We know a vast majority of the 73,000 cattle and deer farmers in New Zealand willingly comply with movement control restrictions and expect us to come down hard on those farmers who do not.

“This conviction sends a clear message to the farming community that the AHB will vigorously enforce the rules around the movement and sale of infected herds. “This complements the other methods we use to control the spread of TB such as monitoring compliance by checking animal identification and status declarations at sale yards and shows. “We also audit animal movements out of movement control areas, investigate overdue TB tests, act on complaints and, as with the Muir case, take action through the courts when necessary,” Mr McCook said.

KPMG warned last month that NZ has little as five years before its farmers are undercut by trade rivals reports The ODT.”South America, Western China and Central Asia’s large scale intensive farming practices have the benefit of lower cost land and labour and normally have less complex regulatory regimes,” said the firm’s agribusiness chairman, Ross Buckley.

In addition, they were closer to key markets and able to deliver food to the customer at a significantly lower cost than NZcompanies.He also warned about under-investment in infrastructure including water sustainability, information technology, new science and education.At the same time, Mr Proudfoot warned government policy needed to be prioritised toward better investment, management and use of water resources.

Today, he said the budget failed to provide any significant funding to support the development of irrigation schemes, apart from $1.6m allocated to community irrigation grants to develop feasibility schemes and maintaining existing crown schemes. “Getting irrigation schemes off the drawing board and into construction to drive improvements in productivity is … critical to the future of the sector,” he said.

The budget also provided no further funding for the rural broadband initiative, another key piece of infrastructure to drive improvements in rural productivity.  The benefits that farmers and growers gained from changes would depend on the structures through which they owned and operated their assets, he said.

The total number of farms sold in the three months to April was 267, almost the same as the 266 in the same period last year but well down on the 786 farms sold in the three months to April 2008. Though it is effectively the last month in the dairy farm sales season, only 12 dairy farms sold in April and the median price for the three month period fell from $3,600,000 at the end of March to $3,550,000. The average price per hectare for the April dairy farm sales was just $34,766, a further decline on the March average of $36,905, and the February average of $43,970. And the average sale price per kilogram of milk solids fell to $36 from $42 in March and $47 in February.

There were increased sales of grazing properties with 123 sold in the three month period and a rise in the median price to $900,000 from $850,000 at the end of March. There was also an increase in the median price for finishing farms from $953,100 at the end of March to $1,225,000 in the three month period ending in April.

While there was an increase in the sale of lifestyle properties from 1118 at the end of the three months to March to 1167 at the end of the three months to April, the national median selling price remained the same at $440,000.  On an annual basis there has been no increase in the median price of lifestyle properties and they remain down on the $455,000 median price at the end of the three months to April 2008.

The Nuffield scholar and M&WNZ director says in the EU supply chain funnel, the power lies with the big supermarkets. In the UK, the big four supermarket chains – Tesco, Asda, Sainsbury’s and Morrisons – have boosted their market shares and collectively hold about 75% of the market. Because of their power in the supply chains, these supermarkets are able to pressure suppliers to discount prices, resulting in lower returns for farmers.

This has led to other players, like processors, in the supply chain looking at consolidation. Parsons says a good example is the Brazilian beef processor JBS, which started as a small abattoir in Brazil’s Midwest. It has ballooned in size in recent years through a series of acquisitions in the US, Europe and Asia to become the world’s biggest beef exporter, processing an average of 35,000 head of cattle a day.In Australia, JBS already has an extensive presence on the eastern seaboard.

The operations of its Australian subsidiary Swift Australia, includes 10 meat processing plants and five feedlots. Parsons says JBS also has the advantage of sourcing beef products globally and concerns around foot and mouth disease in Brazil is not an issue for the company. “Who wouldn’t want such a company to come to NZ,” he says. “I wouldn’t be surprised if JBS is not in NZ soon.” .Parsons says it all comes down to who controls the supply chain.

Normalised earnings figures – with exceptionals taken out to leave only meat industry activity – for the four largest meat companies over the past five years show combined earnings in 2008-09 were well below the five-year average even though turnover and assets employed increased.Average margin on sales was just 0.7%.“You can all see from these numbers a train crash is coming.”

In 2008-09, 19 companies and 36 plants killed 25.6m lambs. Average weekly kill is just 42% of potential capacity. The picture for beef, Anzco’s core business, is only marginally better: export processing plants fell from 36 to 32 with an increase in annual kill from 1.96m to 2.22m over the same time period. Average kill is 56% of capacity.“The train crash is coming because there’s too much capacity in regards to the livestock supply and the second thing is lack of profitability,” He told the monitor farm meeting only two players in the NZ meat industry have paid tax every year in the past decade “and they are Alliance and Anzco”. Harrison also highlighted market share statistics based on EU sheepmeat and US beef quota allocations.“There’s been a huge drop for Silver Fern Farms (SFF) and Alliance has now overtaken Silver Fern Farms as the largest sheepmeat company. Affco’s flat and Anzco is climbing. That tells you some story.” Beef trends are similar, with SFF having suffered “a huge loss of market share” to the US, though it remains the largest player at about 56,000 tonnes..

For all the talk of fragmentation, the NZ meat industry today is the most consolidated it has ever been in its 128 year history, with SFF, Alliance, Affco and Anzco handling 75% or more of both the sheep and beef kill. However, there is no point trying to create a Fonterra-type model, or even having that debate, because sheep and beef farmers have never backed collectivisation, he says. “In the end farmers will come back to choice.”

 Meat and Fibre chairman William Grigg said the demand for both beef and lamb was up on last year in international markets. Mr Grigg said Australia and the United States were in a herd-rebuilding phase and a looming shortage of beef, domestic and imported, had seen prices soar in recent weeks.

Lamb product prices had been reasonably stable and demand for lamb in Britain was up on the same time last year, but despite good market prices, the strong NZ dollar had eroded farmer return. Venison prices had taken a dive. They were currently $6.90 a kilogram for a 45kg to 85kg animal, down 26 per cent on the same time last year. He said prices for store stock had decreased as the year and dry conditions progressed.

Mr Grigg said crossbred wool prices had improved a little over the past year, but remained sluggish. Mid-micron prices were better, especially for 24 to 26 micron, which was up 25 per cent on this time last year. Merino prices had recovered, but not to a sustainable economic level. He hoped the coming season would see more activity from European countries, who were noticeably absent this season.

Dairy chairman Bruce Richmond said it had been a “rollercoaster” year for the dairy industry. The early pay forecast was “unacceptable” and early advances were well below break-even level at the start of the season, which caused widespread overdraft blowouts as farmers tried to deal with the most expensive part of the season with little income. The payout improved, but many farmers were still playing catch-up and dealing with huge increases in expenses, especially in electricity and fuel, said Mr Richmond. Marlborough Tbfree Committee: Marlborough Tbfree Committee chairman Chris Bowron said infection in the region was holding at two herds, both in the Upper Awatere.

Stock control officers were called and they recognised the bull as one they had been called out to twice four days earlier. The owner could not be found so the bull was shot because of public safety fears. A Dacre woman who narrowly escaped serious injury after hitting a cow near Woodlands last month said she wanted farmers to take more care with fences. The woman said she had little time to react when the black cow loomed up in her headlights while travelling home one night.”It’s not good enough – the farmer should have the boundary fence hotwired. Cattle have no respect for ordinary fences.” Mr Price said officers were amazed she had walked away without injury. The next motorist hitting wandering stock might not be so lucky, he said.

Police are threatening to prosecute repeat offenders who fail to improve boundary fences, while the Southland District Council is considering impounding animals found wandering. Mr Price said cattle were not easily frightened so they did not flee like horse, deer or sheep did, and they were slow-moving. Cattle numbers in Southland had also increased dramatically. “We’ve probably been a little remiss over the years in not identifying the recidivist farmers that have crook fences. Now the tolerance has gone – anything to do with stock, particularly large cattle, we’re going to take a hardline approach.” Charges could be laid against those allowing road safety to be endangered, he said.