Agsafe Weekly Rural Report

Finance: The NZ exchange rates were mostly steady over the week. The Reserve Bank lowered the OCR by 2.5 base points to 3% with a further 2 drops indicated before Christmas. Brent Crude is moving around the $US70/barrel - currently $US68

Wool: Wool prices are at an unsustainable level. There are workshops around the South encouraging wool farmers to hang-in!!

Beef, Sheep & Venison schedules: Most meat schedules are up with lamb closing in on the $10/kg. Beef prices are strong, and venison schedules are steady. The Christmas lamb will be expensive this year so start saving!!

Dairy Prices. The “Pulse” auction is indicating another easing of WMP & SMP prices at the up-coming g/DT this week. They are only minor changes and should not affect the Farm Gate Milk Price for the season.



The government Banking Commission has released its report. It is available on the government website. One of the recommendations is to reduce the “deposit risk fund” required to be held by the banks in case of major industry failures. The rural requirement was double that of the Australian Reserve Bank and the NZ 24-month amount held apparently adds 2% to 3% to the rural loans.


ou can hear us live on the radio on Monday morning at 7.35 am with Brian Kelly on Country Sport Breakfast – Radio NZ Gold AM. 792 AM in the Waikato & 1332 AM in Auckland.



Jim’s Weekly Rant:


The 22nd August 1871 the 1st Dairy Co-op was formed in NZ producing a branded cheese on the Otago Peninsula and now 154 years later the inheritor of the many brands has decided to sell them, subject of course to the shareholders approval. NZ peaked with approximately 500 dairy co-ops in the 1930’s that morphed into 1 major co-op and a couple of smaller ones, Westland and Tatua in the early 2000’s. Fonterra was formed in October 2001, 24 years ago. The original Co-ops were all about producing “Consumer Branded” dairy products for the local market and then exporting to “Mother England”. The Consumer Brands (Brands) that built the Co-ops are now to be sold to the highest bidder to make money while Fonterra commits itself to focusing on the Commodity & Ingredient Trade. There were many discussions during the mergers & formation of Fonterra around the ownership and the development of the Brands and the possibility of separating them into a “Farmer Co-op Owned” commercial Company. The major difficulty was in determining the point in the processing where the milk went from being a Commodity/Ingredient to being a Branded product as there was a bundling of the returns within the industry. But they must have sorted that problem out so they could sell the Brands and know when and how to charge for the commodity supply. The other major issue was that Brands cannot just coast along for long. They need intensive management to grow & develop as fast as their competitors or they die, & you don't grow a business without money & the only money in the system was the famers money & they were always reluctant to invest back into the Co-op, capital retentions have been the archils-heal of the industry. The Brands have remained within Fonterra since its inception and the Co-op failed to grow the Branded business at the expense of the development of the Commodities & Ingredients market. Lactalis is paying $4.2 billion for a business that has had potential to make the New Zealand dairy farmers a lot of money. It has been a business that has survived because of its reputation for quality and supply. It has been largely ignored within Fonterra and I have often wondered where Fonterra would be if it developed the Brands and grown a greater business to benefit all NZ. Yes, it does require capital to develop, but even a NZ equity partner could have been a better option. I am not in favour of the sale because I believe it is still a jewel in the crown of the Co-op and a major restructure and recapitalization (with a NZ investment fund) of the Branded business is still a possibility. The sale of the Brands and the return of approximately $2/share will greatly diminish the value of the Fonterra shares and part of the conspiracy theorists view is that the sale is a way of forcing the shareholders share value back to the “Old $1 standard”. I am talking with farmers who are in favour, others against and some who will be swayed by the thought of the capital payment to reduce debt or buy a beach house. My comment is simple, the Co-ops were built on Brands that have become well known internationally & the Brands have underpinned the growth and development of the NZ dairy industry and now some 154 years after it all started the management want to change it. The last calculations I saw on the returns, the Brands were making, as a percentage of milk processed, mare than the Commodities & the Ingredients, but we are given limited financial data to allow us to dig deep into the business and make a really good informed decision. And a final comment or thought is President Trump is bring all the USA processing back home to Make America Great Again after allowing production and technology to be taken to other countries over the last 100 years. Should we be seeing how we can make NZ Great Again? Keep the Brands here and grow the business & our country!!!