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UDDER FACTS

Paul Brown
MANAGING DIRECTOR

The situation is simple. There is little to no spare money in dairy farming cash flows because :

• Payout advances are slow to increase to final payout levels
• Banks have choker holds on purse strings
• Production for this season has been poor to average in many areas (some areas have had very good seasons)

The payouts are slowly improving but in areas of poor / average MS production, the cash flows have been further tightened causing real problems.  This will come right of course around October but there are a lot of costs between now and then.

While the 'banks' are being blamed for most of the liquidity problems (which is slightly unfair) they have two choices of pathway.  It is clear they want to decrease their exposure in New Zealand dairying.  They could ease cash flows by calculating final seasonal production etc and letting limits stretch accordingly.  By doing this they would ease the pain levels without lifting farm costs.  Option 2, is they can keep the choker hold on and possibly stall dairying completely.  By this I mean unless, for example, cash flows ease up with guarantees of $$ being available to pay for winter grazing and stock purchases, then terms of trade will alter to adapt – cash up front!  (This may happen anyway as a result of last winter.)  The issue is that the seasonal activities must carry on, they just cannot be put onto a shelf and forgotten about for several months.  Also support industries need to pay their bills and dairy farmers must pay their way, under the terms of the agreement.

The problem is, with little spare cash, cows could be underfed again this winter, dry cow therapy be skimped on, cows dried off in light condition etc.  Obviously each farmer must adapt but in my observations up to 50% of the dairy industry is still under severe financial pressure.  Fonterra wants more milk, the banks want more milk, farmers want more milk – hence more money, so let the cows do their job!

Last season most dairy farms decreased cow numbers by 5 – 10% to adapt to the $4 payout.  Now, at $6 most farms need to increase by 5 – 10%.  However, the cash flow problems are preventing many farmers from buying stock as overdraft limits will not allow this .  Budget cows etc can be a good, cheap, short term solution, but unless they are purchased April / May they go to the works, leaving only more expensive options available.  Winter grazing must be paid for May to August so there is no point coming up with the $$ in October!

Another result of poor liquidity is the “in milk” market.  August / October could be strong as payout advances hence cash flows, should be slightly better as cows are in milk and wintered but could be overvalued.  So surely one should consider buying cheaper budget cows.  One point most farmers do concede is that because of the banks' hold, farm costs have held, not risen.  If this can be maintained within reason it will allow profitability to return to farms without causing competition based inflation, ie winter grazing.  This way, over time, farming profitability will return and banks can extract their dollars.  The question is, do we need to go through this stress or could it be eased by less of a choker hold?

WINTER GRAZING
Winter is looming and farmers are wondering about winter grazing prices.  The parameters effecting prices this season are :

• Low cropping prices
• Very poor cashflows
• Lamb/sheep margins are fair to low
• Beef margins also fair to low

Therefore, winter grazing costs should not rise on last year's prices and it will depend upon how much is available.  With Otago being very dry, those cows are heading into Canterbury and Southland which is putting pressure on feed supplies.  However, a good growing climate April / May will influence crop yields significantly.  There are also good supplies of silage on hand.  Overall, I believe they should be similar to last year with possibly a slight lift due to demand from Otago area.

MARKET PRICES
The livestock markets have fluctuated this season with payout perceptions etc but has fluctuated less overall than the last two years.  Lately, prices have softened but good high BW herds have held their values well.   Bargain hunters are about, picking off weaker negotiators and  there are some good cows left but not heaps.  There are plenty of in calf heifers especially   half / unrecorded and fully recorded, good BW heifers are selling well.

Budget cows are starting to appear but most will end in the works as there are few buyers yet.

R1 year heifer calves are very strong in price – for some reason.  However, lately this has eased but are still overvalued on today's market.

Culls are coming out fast now and as usual, prices will fall as the works need to make a profit from these, and there is no point hanging onto them while they become weightier.  The US market is high, building NZ prices.
 

SIDF   1985  to  2010
celebrating 25 years of service

South Island Dairy Farmers Ltd, the South Island's leading specialist dairy stock company, is celebrating 25 years of service to the dairy industry.  Established in 1985 by Paul and Julie Brown, their vision was to create a business that would be the “first choice” livestock company for dairy farmers in the South Island.  The company is the most established specialist dairy stock agency, with a South Island-wide coverage, whose focus is based upon the vision of enhancing SIDF's service to its dairy farming clients.   The Company's excellence was recognized in the 2009 nomination for the prestigious Champion Canterbury Awards.

It's important to note that many of the practices the dairy industry has absorbed were implemented by SIDF over 25 years.   SIDF imposes standards of service that bring excellence to the industry.  As markets / systems are required by the industry, SIDF is the instigator to develop and meet those requirements.

The sensitive business of winter grazing is avoided by most stock firms.  However SIDF's systems ensure experience, standards, consistency and the all-important communication are met.  SIDF introduced dairy farming support to many non-dairy farmers, helping them to gain expertise and develop performance with grazing dairy stock and buying dairy heifers instead of sheep or beef.  This created opportunity to earn supplementary income.

SIDF recognizes that dairy farmers are fastidious when it comes to the preparation, performance and purchase of stock.  Through this, and unique to the industry, SIDF formats every step of the sale process from concept to closure, monitoring all transactions and protecting against industry defects and stock negligence. 

As bobby numbers grew, in the early 1990's SIDF formed alliances with PPCS and Blue Sky Meats, and latterly CMP, to procure stock within Canterbury.

SIDF grew and developed the bobby collection from conception to its current day excellent, seasonal service which supports Freezing and Transport Companies, and the dairy farmer.   Of note is that Paul assisted PPCS and wrote their original terms of procurement.

Over the 2008 year with the imminent recession in mind, Paul and Julie made a conscious decision to expand, not constrict, SIDF.  Their decision was to “absorb” the recession and hence actively seek further dairy stock specialists. Further, to lead their team to increasing individual and Company successes, Paul and Julie took the step for Paul to “come off the road” – no small emotional task after two decades of direct sales

Paul, the next 25 years? I want to grow the team as the industry grows and continue to develop standards as required eg training the industry to merge with modern technology to provide a better service for dairy farmers and the support industries.

Loyalty is alive and well, contrary to what some agents / farmers believe.  After all, trust, along with loyalty is something that's earned. We are still dealing with original clients and in some cases, the next generation!  I feel privileged to daily talk with talented, successful and motivated farming couples.  Where services and intentions are honourable, handshakes are still the greater part of SIDF's business.  I aim to keep it that way, of which our team will be the epitome.”

UDDERLY INPORTANT

PRICES (as at 19 April 2010 - please refer to Dairy Interesting for update)