KEY POINTS:
New Zealand dairy companies should be in no hurry to fix long-term contracts for milk commodities, as there is no end in sight to the boom in world prices, Dairy Farmers of New Zealand chairman Frank Brenmuhl says.
He disagreed with claims there was resistance in the global
marketplace as milk powder prices soared to unprecedented levels.
"We don't expect it to stay up there forever but at the moment, until such time as we actually start to see a tipping point in it coming down, I wouldn't be in a hurry to fix any long-term prices at a lower level than I thought I could achieve," Brenmuhl said yesterday.
His faith that the dairy boom had plenty of steam left contrasted with views aired the day before by former Fonterra chief executive Craig Norgate at a three-day summit held by farm lobby group Federated Farmers. Norgate urged the dairy giant to fix long-term contracts below spot prices to avoid burning off global demand - a phenomenon he claimed was already occurring. Brenmuhl did not believe contracts needed to be offered at lower prices.
Norgate's comments echoed those of New Zealand academic William Bailey, who recently noted that some prices for European skim and wholemilk powders had declined for the first time in 18 months.
However Brenmuhl, who heads Federated Farmers' dairy section, insisted upward prices still had some way to run.
"Watching what's happening at the moment in the world markets with regards to prices of dairy products in the last year there has been no levelling-off of dairy price increases," said Brenmuhl.
"While I can understand Craig's reasoning on it I believe Fonterra's very much up with where the play is on that one - as will the other dairy companies - and they will be doing the best to maximum their returns."
He said the absence of dairy commodity stocks throughout the world was continuing to fuel price rises, and noted that the annual growth in milk consumption globally was roughly equivalent to New Zealand's annual milk production.
While Norgate had warned that rising farm costs could jeopardise dairy farmers' improved returns, Brenmuhl said a drop in the dollar was all it would take to erase the impact of uncontrollable costs such as the price of oil and fertiliser, which were being driven by increased demand in China and India.
Fonterra in May announced its highest payout forecast of $5.53 per kg of milk solids, on the back of high commodity prices driven by a strong global demand for dairy products.
The increase is expected to lift the income of dairy farmers by an average of about $140,000 a year.
On the agenda
* Federated Farmers, a farm lobby group with 17,000 members, descended on Auckland from July 17 to 19 for its 62nd annual conference, which rolled into one meeting of the group's dairy farmers, meat and fibre producers and national council for the first time.
* The group unveiled an independent survey of 900 farmers that showed discontent with the Resource Management Act, which their president, Charlie Pedersen, said needed changing urgently or farmers would take "more direct action".
* Pedersen claimed the act cost farming some $81 million a year to comply with.
* The survey also showed farmers objected to the Department of Conservation's advocacy role in the formation of regional and district plans under the act and the length of time resource consents took to process.
* It also revealed some 79 per cent of farmers wanted section 6 of the RMA changed to compensate farmers when land use was restricted for the purposes of public benefit.
* National Party leader John Key addressed the summit, pledging to reduce delays involved in the act, as well as cut legal costs and eliminate the potential for "frivolous objections" if his party came to power.
* Other speakers included former Fonterra chief executive Craig Norgate, who described a strong outlook for the country's agricultural sectors, while cautioning the dairy giant to act quickly to secure long- term contracts at lower than spot prices to avoid burning off demand.
* Attending for the first time, Fish and Game chairman Rob Roney said the dairy industry was moving in the right direction, and that the two groups had areas in common, but that the time was over for voluntary measures to curb effluent run-off.
$8.6m to future-proof dairy herd
Researchers trying to "future-proof" the nation's dairy cows have received $8.6 million in taxpayer funding for research to boost productivity.
Over six years, AgResearch scientists will study how mammary glands respond to cues such as nutrition and hormone production to control milk production.
Once the critical genes and trigger factors are understood, the information will be used in breeding programmes and ultimately by farmers, with a goal of improving yields and efficiency.
Fonterra has promised its farmers a 27 per cent boost in milk payouts this season to nearly $7 billion - an average of $595,900 each - but its farmers are lagging behind targets set in previous years for annual 4 per cent productivity increases.
The giant co-operative's predicted production of 1.25 billion kg of milksolids this season, compared with 1.242 billion kg last year, would represent a lift of only 0.6 per cent.
But one commentator, former New Zealand academic Bill Bailey, has said it is still too early in the season to have any real indication of production figures.
"Most analysts have pencilled in a 2 per cent to 3 per cent increase, based mostly on more cows being milked, rather than efficiency-based increases."
The AgResearch investigation of how environment influences gene behaviour in cows is expected toadd $170 million to dairy earnings by 2023.
The grant is part of $628 million of taxpayer funding handed out yesterday, mostly to state science companies, and universities.
The projects include $311 million specifically to boost efficiency and innovation in the primary production sector.
- NZPA