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Milk and media moron Mike

Written By: - Date published: 9:37 am, August 19th, 2015 - 59 comments
Categories: Economy, farming - Tags: , , ,

One of the most basic of economic principles is that when you constrain supply, you can raise prices because the demand remains the same. But if you do not constrain product, then you generate mountains. Fonterra appear to be trying to prove that principle still applies.

On the 13th, Fonterra had this announcement

Fonterra Co-operative Group Ltd is significantly reducing its GlobalDairyTrade (GDT) offer quantity forecasts for the next 12 months. The Co-operative’s forecast offer volumes over the next 12 months for New Zealand products have been decreased by a further 56,045 metric tonnes with a 62,930 metric tonne decrease occurring over the next three months and 6,885 metric tonnes of planned volumes being added back later in the year in anticipation of changing market conditions.

Significantly, Fonterra also said

“In response to current conditions in the global dairy markets, we have further modified our product mix to shift volumes away from base Whole Milk Powder (WMP) and into our other products in our portfolio such as value-add ingredients, consumer and foodservice.

“In terms of our product mix, Fonterra is now selling approximately 70 per cent of its total product via channels other than GDT and as a result we do not expect a material impact on inventories,” said Mr Wickham.

I’d take the change in inventory levels with a grain of salt. You can’t shift large production chains rapidly. While they are expecting farmers to produce less over the coming year, it is only about 2%.

If you look back over the GDT notices, there are a few other suppliers dropping out from the small pool. I suspect that quite a few are just not offering.

This is reflected in the rather large drop in GDT supply (XLS) since last year. I haven’t bothered to calculate it or graph it (I have to head to work), but by eye, it looks to me like what is on offer at GDT is down compared to last year, and definiely down compared to 2013.

So this morning we wake up to the headline “Dairy prices rise sharply at latest GlobalDairyTrade auction“.

Wholemilk powder prices – which play a big part in the formation of Fonterra’s farmgate milk price – rallied by 19.1 per cent to US$1,856 a tonne at this morning’s GlobalDairyTrade (GDT) auction, raising hopes that prices may finally have turned after declining sharply since March.

Overall, the GDT price index gained by 14.8 per cent. The average winning price at the auction was US$1,974 a tonne, compared with US$1815 a tonne at the last sale on August
Whole milk powder prices have fallen sharply since March, when they reached US$3272 a tonne, but futures market pricing in recent days suggested an improvement was in store.

Further out along the price curve, whole milk prices for contract periods from November through to February 2016 all posted double-digit percentage price gains.

Of course they did. This is basic economics. Announce that you are constraining supply further in a public market, then you can expect the price to shift up. However if it moves too far the demand will shift from the market with constrained supply to talking directly to the companies with a large stockpile of already existing stored product. Fonterra for instance. This shows up in the statistics department stats that for years have shown a steady rise in dairy inventories (gotta get to work… could someone look them up).

Needless to say, the Media Moron (Mike Hosking), blathers on about “experts” promoting the views that help their interests. He appears to be rather adverse to exercising his brain. Who puts these ill-informed and rather stupid idiots up to talk about things that they have no understanding of. He also doesn’t appear to have any concept that parties with skin in the game have a strong tendency to promote views that suit their interests.

Rabobank, for instance, has been wrong in every prediction that I have seen them make in the last 3 years about where the dairy market is heading. They have consistently said that the market prices were about to rise even when the market has consistently gone down. I wonder if they have a strong investment in farmer mortgages?

Fonterra have an obvious interest and appear to have been in denial about the problems in their marketing that I and others have been pointing out for years. I think I started pointing out the downstream difficulties of the high milk prices for farmers in 2012.

Federated Farmers? Psssshhh… They are the epitome of self-interest in this matter.

Farming is going to be around for a long time. But they are badly served if they believe the bullshit that frequently comes from such self-interested industry experts. But most of the farmers I know are pretty smart, unlike our blathering media moron. Show them a spreadsheet and if needs be, help explain it. They’ll figure out what to do. They could have done with more of that kind of advice in recent years rather than self-interested bullshit that they did get.

For a laugh, go and watch the vast intellect of media moron Mike Hosking blathering on about how self-interested “experts” are always right. He calls these “Facts”. I don’t think that he would know what a fact is if he tripped over it. I rather suspect that he is too stupid to read a spreadsheet.

59 comments on “Milk and media moron Mike ”

  1. vto 1

    Fonterra is an expert in collecting milk from farms in tankers, driving it to a plant, drying it out and sticking it in a box.

    There is no evidence of anything else.

    • RedLogix 1.1

      I think if you had worked in the industry a bit you might not say that vto. Much of their manufacturing/process side is very sophisticated and definitely world-class.

      What does worry me is the business side. Not much sign of anything much to be proud of there.

      • tinfoilhat 1.1.1

        Quite agree there RL but weren’t the factory side of the business around long before Fonterra ?

      • vto 1.1.2

        Yes Red it was their manufacture/process side which I referenced them as being experts in, albeit in simplistic form (dry out and stick in a box)….

        Not experts in sales, as clearly evidenced.

        Not experts in future strategies for the business, as clearly evidenced.

        Certainly not experts in sustainability… of either their business or the land which produces their product.

        I see yesterday a new report indicating that 70% of our freshwater critters are now threatened with extinction. Back in early 90s it was only 20%.

        It is exacty like Don Elder at Solid Energy – hailed as some great business guru when the reality was his actions, in conjunction with the government shareholder, led the company to failure.

        Useless

        • dukeofurl 1.1.2.1

          In the scheme of things we are very small dairy producer ,( less than France but more than Turkey) so most of the higher value products get made in the country of supply from their own milk and sold in their own supermarkets.

          As we are very big in the export market, but only in product that the market wants, which is mostly DMP ( dried milk powder), we are between a rock and a hard place.

          Those countries that consume a lot of dairy and it plays its part in the food culture, often have very strong companies that have cornered the top of the supply chain (think Nestle, Danone etc) can pick and chose their dairy supply partners. Fonterra is both a competitor and supplier of basic product, so weakening them is good for their business too

      • Tracey 1.1.3

        “Experts” have been criticising Fonterra’s business side for many many months for over supplying the market, predicting that the huge price drop was therefore inevitable.

    • tinfoilhat 1.2

      Very good at creating a large highly paid bureaucracy.

      I think most people would be astounded if they new how much milk powder there is in storage around NZ at the moment.

    • tc 1.3

      They’re not even world class at that with muppetts who think they understand logistics and MRP blowing millions on ill considered initiatives and botched implementations that wreak havoc when they hit Production.

      They are a laughing within SAP circles but you’ll never hear a bad word as vendors and consultants are making a killing out of their entrenched incompetence.

      • Saarbo 1.3.1

        @TC

        Are Fonterra implementing SAP, I certainly remember losing all visibility in a CHH business for over 12 months when it was implemented there…absolute shit system.

        • Chess Player 1.3.1.1

          They’ve been implementing SAP for at least 5 yrs, possibly 10. Multi-millions of cost. There’s been resistance within the business but no sign of it ending.

          • lprent 1.3.1.1.1

            Not looking forward to SAP. However the existing systems are mishmash and not very good. Typical corporate systems. SAP may be better…

    • dukeofurl 1.4

      “The Fonterra Research and Development Centre (FRDC) is one of the largest research facilities in the world dedicated to dairy. It is home to around 100 PhD qualified scientists, technologists and engineers, many of whom are the world’s leading experts in dairy science.
      400 employees in total

      http://www.fonterra.com/global/en/about/our+locations/newzealand/fonterra+research+centre
      Who else in NZ has 100 PhD level scientists working in the one place- could even be 200+ masters level

      • vto 1.4.1

        that relates to the point how?

      • Tricledrown 1.4.2

        That’s Fonterra spin Duke.
        In reality of the 500 other largest companies in the world Fonterra spends much less on R&D than any other large company.
        When you look at Fonterra competition they are way more diversified add way more value to their products.
        Fonterra are miles behind their competition.
        To catch up they need thousands of scientists th

        • Sacha 1.4.2.1

          Our government props up Fonterra by slanting public R&D spend towards dairy industry needs. And even that investment is well below world standards.

      • Tricledrown 1.4.3

        That’s Fonterra spin Duke.
        In reality of the 500 other largest companies in the world Fonterra spends much less on R&D than any other large company.
        When you look at Fonterra competition they are way more diversified add way more value to their products.
        Fonterra are miles behind their competition.
        To catch up they need thousands of scientists .
        Millions more on market research and development.
        Millions more in farm consultants who are desparetly needed on farm.
        A large proportion of the Dairy farming industry is hugely wasteful due to bad management poor skill levels.
        Animal cruelty and neglect is widespread only one or 2 farmers farm workers are made an example of.
        Pasteur management is poor,animal health is poor farm worker,s health and education is poor.
        This industry could be profitable if it sorted out it problems.
        One milking a day is all that is needed to cut costs better educated farm managers and workers better care of the health of cows workers and their environment would mean that $3.80 could be profitable.
        The Factory Farm model of pumping out as much milk as you can per day is a very wasteful model.
        For example one milking a day means less labour costs less storage and transport costs longer milking life for cows up from 8years to 11 years.
        Cow health management is very poor on most farms cows being beaten is a regular occurrence cows being over milked in the sheds is widespread just about every Dairy farm does this.
        Leaving the suction teats on the cow even though the cow has no more milk in its udder,this damages the udder permanently reducing milk production significantly.
        It’s abusive and neglectful.
        Most farms could increase their productivity by 50% to 100% if they had good management well trained workers.
        Fonterra needs to become way more involved it could save millions by having a similar system that meat producers are doing by monitoring the production of milk from the blades of grass to the end product using modern technology .
        Instead of bailing out bankrupt farmers with cheap loans help make these farmers profitable the cost would be much lower .

      • Draco T Bastard 1.4.4

        If they had 2000 PhD qualified researchers then they may have something to write home about but there’s no way that they would do that as it would mean that the directors would have to take a pay cut. As it is it’s just a tip of the top-hat in the general direction of R&D rather than the full on R&D needed.

        Not surprised though, NZ has been anti-intellectual and cheap for so long that we’ve forgotten that it’s the intellectuals that built our industry and that it needs paying for.

    • John Shears 1.5

      vto Can I suggest that you are oversimplifying a fairly complex and
      technical industry headed by Fonterra in NZ which rather than doing what you suggest actually produces a range of products for export besides Whole milk powder which seems to be the only item being considered on this thread because the price went up on Tuesday.
      ps. This comment was intended to be below your original comment at the top of the thread. js

      DWMP is the product where NZ leads the world with 1515,000 metric tons followed by China at 135000 and the rest all under 800000 tons.
      Other products that NZ exports are
      Butter, Cheese, Non-Fat MP, AMF or Gee.
      NZ although not the top producer is the top Dairy Product exporter and the major part of the NZ Dairy production is exported whereas other much larger countries tend to use their production and only export their surplus.
      ie. India Production 4800 Export 980 NZ Prod 595 Export
      575.(1000’s Metric Tons)
      Info at http://www.indexmundi.com/agriculture/

      • vto 1.5.1

        Yes I surely simplified it, but it aint complex. Buying something, processing or changing it and selling it is something people do every day and have done since time immemorial.

        Can I suggest to you that the industry puffs its chest up beyond reality. It does this also by constantly professing to have the best farmers in the world – something for which no evidence has ever been provided. Farmers love to shout that they are the best in the world. That same attitude has permeated Fonterra clearly.

        It aint rocket science mate…… You just gotta make sure your supply cost is less than your sale price.

        Loads and loads of people do it. I do it myself – get the equation wrong, forget the main business principles, get carried away with yourself and start believing your own bullshit and then the rot sets in ….. happened with Solid Energy, happened with finance companies, happened with Bill English, has happened with moi, happening with Fonterra ….

        • Draco T Bastard 1.5.1.1

          +111

          They’ve put themselves up on a pedestal as being the best and now lay back on their couches expecting the rewards to be eternal.

  2. dukeofurl 2

    How did that talk with ‘expert’ Prof Jane Kelsey go Mike ?

    Or when the IPCC came out with their ‘expert views’

    “Bad news. I’m afraid the IPCC – the International Panel on Climate Change – has issued its latest report. It’s 2,600 pages long and spans 32 volumes.But I can sum it up for you. Ah, we’re stuffed. The seas are rising, the storms are coming, the locusts are close, we are going to climatic hell in a handcart. That’s of course, if you believe them. Which, as it turns out, I don’t.”

    have fun with googling Hosking and ‘dont believe the experts’

  3. Ian 3

    As a dairy farmer with a mortgage I have decided to postpone my suicide for at least another 2 weeks.A bit late for my friend and colleague who topped himself last Friday week. The concern and compassion shown towards dairy farmer’s by the Labour party and the left in general is noted.

    [lprent: Ian, letting this comment through despite your current ban.

    The problem with this current fiasco is that it was entirely foreseeable from years out. It isn’t like unexpected short-term weather shifts. The risk is known in advance. Yet for years, Fonterra and the government appeared to operate as if there was no downside. The downsides were like your friend and colleague and probably many others like him. Farming is a hard and often lonely life and it shows in the mortality stats.

    I’ve been talking about this problem with having a dependence on dairy as a near-raw commodity in an open international market for at least 4 years. Essentially since I realised exactly how damaging this downturn in prices *would* be for farmers and NZ. Labour has been doing so for few years as well.

    This current price slump was as inevitable as the post-SMP fiasco in the mid-1980s. The one that I avoided by deciding not to go farming in 1977. I’d done a year working on dairy farms and sheep stations as a very underpaid hand figuring if I liked it (I did). But I looked at the basic economics at the end of 1977 and decided that the land prices with SMPs in place was crazy. That working in a business that was designed for capital gains rather than profit was economically perverted, and not something that I wanted to spend my time on.

    I don’t think this economic disaster will be as long lasting as that downturn was. This will probably stabilize later this year, and start to move up towards profitable levels in the 2016/7. So either hang in there expecting at least that (ie don’t believe in fairytales) or figure out how to make a dignified exit while still living. There is life outside of the milking shed and the quad. My partner Lyn’s family had to do the same thing in Southland in the 1980s. Everyone survived the move into town.

    Best wishes and I actually hope that I see you trolling commenting back here in the future. ]

    • Anne 3.1

      My late father was talking about the need to diversify agricultural products 40 plus years ago, so I think it can be said that successive governments have been at fault here.

      Hang in there Ian. One door may close, but sooner or later another opens.

  4. esoteric pineapples 4

    Mike’s motto – always look on the bright side of life, and remember its only bright because the National government created all the things that make New Zealand such as wonderful place to live

  5. tinfoilhat 5

    IMO giving any oxygen via blogposts to persons like Hoskins or Slater is counterproductive they love people to be talking about them and all such posts do is give them the impression that people take notice of them and take them seriously.

    • lprent 5.1

      2 paragraphs on the subject of a media moron out of the 18 paragraphs in the post seems to be appropriate.. Plus the flashy headline.

      What more could such a stupid arse protector want?

    • Sacha 5.2

      No, indulging stupid bullies gives them the impression they should continue behaving thus.

  6. esoteric pineapples 6

    Federated Farmers’ answer to low milk prices affecting communities is to make more milk by fast-tracking irrigation projects – http://www.fedfarm.org.nz/publications/media-releases/article.asp?id=2455#.VdOscLKqpHw

  7. Kiev 7

    The Fonterra farmers/suppliers only need to look at Tatua and then ask why ?????

    Fonterra lacks value add. Sending bulk milk powder overseas is akin to sending NZ logs overseas for secondary processing.

    http://www.interest.co.nz/rural-data/dairy-industry-payout-history

    • dukeofurl 7.1

      Doesnt prove anything. A boutique dress shop will always get higher prices for its wares than a place like Farmers whos operations are on a far bigger scale.
      Fonterra has to spend more in 6 months in capital expenditure than Tatua has in yearly revenue.
      But in one area they do lead the way, last year they had a retention of $1.32 per kg/ms to increase their value added business.

      Heres a historical comparison of payments etc, a more apt comparison with Fonterra is Westland because of the bigger delivery distances

      http://www.interest.co.nz/rural-data/dairy-industry-payout-history

  8. Ann Johns 8

    Moronic Mike quoting Rabo bank? They are his main sponsor, what can you expect.

    • Morrissey 8.1

      Moronic Mike quoting Rabo bank? They are his main sponsor…

      SkyCity also pays him a considerable amount to dine there whenever he wants, and to chunter on positively about it on TV and radio.

      SkyCity has the same arrangement with Paul Henry and several other broadcasters.

      [lprent: Colin Espiner for SkyCity who asserts that he doesn’t have any such deal. Like you I’m a skeptic about that assertion based on the moron Mike’s effusive performances extolling the virtues of SkyCity. But I can see why SkyCity would wish to deny the connection. ]

      • dukeofurl 8.1.1

        You had to laugh about those SkyCity deals at the time, with the flurry of ‘look over there’ comments, then this
        “Last Saturday night, having ignored phone messages inquiring about SkyCity, Hosking spent the evening watching a Vodafone Warriors game from a SkyCity corporate box with wife Kate Hawkesby. Also in the box was SkyCity chief executive Nigel Morrison.”

        The Listener was most intrigued by it all back in Dec 2013
        “But it seems he doesn’t do interviews at home, with the exception of women’s magazine epics like “Our Perfect Love” and its companion piece, “We Love Our Marriage”. LOLS
        http://www.listener.co.nz/commentary/the-artistry-of-mike-hosking/

        Interesting that his first ‘trade’ was as a radio copywriter. As for ‘services rendered for SkyCity’ , Im guessing it ‘could be done’ through a PR company who organises charitable gigs paid for by SkyCity Community Foundation. And of course the restaurants in Federal St are run by their own operators not SkyCity across the road

    • dukeofurl 8.2

      Rabobank, in NZ, is a specialist farming bank- or agri-business as they call it.

  9. Lionel 9

    Spot on Lynn I work in the rural area I tell the guy I’m working for at the moment that the government and their mouthpieces along with Federated Farmers are feeding you a bunch of lies.None of them have a clue what is going on or what happens next.They are grasping at straws.

  10. New Zealander 10

    I just feel sorry for the ladies down on the farm. They don’t pump as much out do they so the ladies dry up a bit. They would still be producing the same amount of milk regardless of auction prices, supply/demand. Is this all being dumped then. Perhaps it could be given to the 305,000 children in poverty for free.

    • Wensleydale 10.1

      Give unwanted foodstuffs to deprived children? For nothing? Pfftt. I think you’re forgetting who is in government. “I don’t care if you’re a half-starved orphan on the verge of passing out in the gutter, Timmy! Life is hard, and the ‘free market’ doesn’t mean what you freeloaders think it means, so user pays matey! Now, cough up or bugger off!”

    • dukeofurl 10.2

      NZ, doesn’t sound like you have a clue about dairy industry.
      The liquid milk is almost all turned into product like butter cheese milk powder and 100s of others very quickly.

      Only 3% is sold as liquid milk, and yes Fonterra already does a free milk for schools program. Check if you can help out too , they are looking at recycling the cartons!

      “NUTRITIOUS MILK AVAILABLE TO ALL PRIMARY SCHOOL KIDS NATIONWIDE!”

  11. Ad 11

    +100 Lyn

    That price response to supply offered shows Fonterra’s global dairy market effect.

    One day they’ll figure out how to compete at the high end.

  12. Macro 12

    I can’t quite understand what Fonterra are crowing about this morning. A 33% reduction in supply resulting in a 19% increase in price actually represents a 22% reduction in income.
    But don’t tell that to the sheeple. Let them think that its all over now – Blinglish was right. The price has come back up again and isn’t he a marvelous Minister of Finance.

    • lprent 12.1

      To be fair*

      Fonterra are planning to phase that supply reduction in over the current year. However because the purchasers are typically working not only in the GDT market, but also on the futures markets for dairy. So a large chunk of that decrese is factorfed into the prices now.


      * Actually I’m not planning to be fair – which is what using the phrase invariably means. But I’m paraphrasing the bright brilliance of our typical right leaning commenter and media morons.

      Now that is a brilliant cartoon….

    • b waghorn 12.2

      Just had a feed show up on fb from another key sycophant Jamie McKay’s farming show saying the price has rebounded as predicted. Made me snort tea out my nose , I suppose if you continuously predict a rebound for long enough it will happen.

    • Tricledrown 12.3

      Fonterra has removed a mountain of milk powder from the market back to the days of Muldoonism stockpiling commodities in the hope prices recover Russia just Destroyed €42 million worth of cheese.
      Rod Oram has pointed out since Fonterra’s inception they don’t have a plan other than being a commodity based company.
      Rod Oram has also pointed out that while Fonterra is top 500 company in the world by size it has the smallest R&D budget of any large company saying that is a recipe for Disaster.
      Time after time Rod Oram has gone round the country talking to farmers
      Telling farmers this Fonterra and the govt have continued in the belief it will be alright even after being many other countries are rapidly increasing production at much lower costs.
      Bill English and Theo Spering have openly lied about not knowing this glut was coming.
      New Zealand is one of the dearest places to produce milk.
      So farmers in Europe South America the US can still be profitable at NZ$ 3.85 while all New Zealand Farmers are loosing money.
      Jim Anderton built an investment fund for farming research and development to help New Zealand farmers move away from commodity based very cyclical incomes.
      National came into office and destroyed that fund.
      Laissez faire is Nationals policy.

      • Draco T Bastard 12.3.1

        National came into office and destroyed that fund.
        Laissez faire is Nationals policy.

        Probably more accurate to say lazy and greedy faire is National way.

      • Saarbo 12.3.2

        NZ is at the bottom of the cost curve I understand. Some mega dairy farms in the USA (6000 to 10000 cows) feeding low cost grain and using low cost Mexican labour (Which Canada was complaining about in TPPA negotiations) can produce at around NZD $6.50 per KG MS, at best. In NZ, our farm is typical…total breakeven with all costs including interest and drawings is about $5.25. No other country comes close to producing at this cost with the exception of Aus, in the occasions when it doesn’t have drought issues and a few grass fed Europe countries.

        Rabo bank didn’t pick the dairy collapse but I still think their predictions have been the closest. The big problem is nobody knows what the fuck is going on in China, they’re tricky buggers.

        Good news is that there are massive reductions in production and exports from USA in last 2 months, so the recovery is happening. Because of where we sit on the cost curve, we will be the first country that gets back into profit.

  13. Tricledrown 13

    The global Dairy Auction was set up by Fonterra.
    Just a small fraction of its product is sold through it.
    So removing a substantial amount out of auction is manipulating the market.
    The best outcome For Fonterra is A world wide drought that doesn’t affect NZ.
    But the long-range forecast for NZ is an El Nino rising ie drought for NZ .

  14. Editractor 14

    Lite Mike – 99% fact-free

  15. Paul 15

    Keep up the attack on Hosking and other media repeaters of the elites propaganda.

  16. Smilin 16

    5 years ago when we getting the led in the world marketing of milk fonterra knew the rest of the world would catch up because of the effect it was having on their trade so what we have now was predictable then and Key instead of creating frugal policies obviously thought his super star status would be able to save the day from coming ,get real it dont work that way democracy in the trade did what you would expect
    So much for Key spin

  17. weston 17

    its big mortgages i reckon cause suicides and the deadly attraction of thinking big .you could be king of the world on just a modest sized farm with a modest size herd and no mortgage .

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