Early Bird I Thursday July 4th 2024

Prices fall at the latest Global Dairy Trade auction, could climate change affect future farm financing, and Primary Industry stars shine at national awards. Welcome to Proud Country's Early Bird - The top things you need to know that impact rural New Zealand delivered to you by 5am, because who doesn’t need better chat beyond the weather! Prices fall at the latest Global Dairy Trade auction Dairy prices experienced their most significant decline since August last year, with nearly all major products seeing a decrease in the latest Global Dairy Trade (GDT) auction which fell by 6.9%. The primary buyer of whole milk powder was Southeast Asia/Oceania, purchasing 57% of the product, while North Asia accounted for just 30%.  Several bearish factors influenced the auction, including greater product availability, perceived market uncertainty, and anticipated price drops in the SGX-NZX Derivatives market for Fonterra’s main reference products. Whole milk powder prices, which heavily influence Fonterra’s milk price forecasts, dropped by 4.3%, skim milk powder fell by 6.1%, nearly reversing gains seen since May. Anhydrous milk fat, essential for ice cream and chocolate production, decreased by 10.7% after a strong performance over the past year. Butter prices plunged by 10.2%, while cheddar, which is not included in Fonterra’s milk price forecast calculations, declined by 6.9%. Fonterra’s opening forecast for the farmgate milk price for the 2024/25 season is between $7.25 and $8.75 per kg of milksolids, with a midpoint of $8.00 per kg. In its latest update, Fonterra reported that New Zealand collections for the season ending May 31 were 0.6% lower than the previous season. Could climate affect future farm financing? Concerns are mounting that banks might use recent climate stress test results to justify tightening their lending policies for rural borrowers. Earlier this year, the Reserve Bank published results of climate stress testing on the loan portfolios of the five largest banks, extending to 2050. Under extreme climate scenarios, rural loans were projected to account for 24% of banks’ climate-related losses, despite comprising only 9% of all loans from 2031 to 2050. In contrast, residential mortgages, which made up 60% of total loans, were expected to account for 27% of the losses. Scott Wishart, managing director of rural debt advisory firm NZAB, voiced concerns that some banks might prematurely act on these projected risks, adopting tougher lending policies now. The Reserve Bank’s forecast indicated that risk weights for agricultural loans could rise from 80% in 2030 to 120% by 2050. Meanwhile, risk weights for business loans were predicted to increase more modestly from 60% to 80%. A former director of an Australian-owned bank highlighted that bank shareholders would demand compensation if required to hold more capital for agricultural loans. This would likely result in higher loan costs for farmers as banks seek to maintain profitability. Federated Farmers national board member Richard McIntyre warned that restricting credit or raising interest rates could deter farmers from making necessary investments to enhance their operations' resilience. Farmers might shy away from borrowing for projects like irrigation or water storage if they fear it would negatively impact their financial standing with banks. Even with concessionary interest rates or dedicated climate resilience loans, McIntyre doubted many farmers would take advantage due to strained relations with lenders. McIntyre also noted that many farmers feel banks have become more negative and demanding despite improvements in their financial positions. He stressed that any assistance from banks must not put farmers at greater financial risk. He expressed hope that the upcoming parliamentary inquiry into rural banking would explore ways banks can incentivize farmers to invest in climate resilience. North America holds as our biggest red meat market North America remained New Zealand's largest red meat market in May, with beef and sheepmeat exports showing notable year-on-year increases in nearly all major markets, according to the Meat Industry Association (MIA).  New Zealand exported red meat products worth $1.1 billion, marking a 3% increase from May 2023, driven primarily by beef exports which saw a 5% rise in volume and a 9% increase in value. The United States emerged as a significant market, with exports totaling $358 million, a 28% increase, making it a record month for the value of beef exports to the US. Japan and the UK also showed strong growth, with exports rising 96% to $72 million and 51% to $62 million, respectively. Conversely, China, the second largest market, saw a decline with exports valued at $232 million, down 42% from last May. Beef exports were worth $524 million, while sheepmeat exports dropped 1% from last May, with value down 5% to $387 million.  Additionally, fifth quarter exports increased by 6% to $198 million for the month, with a 174% increase in the value of tallow exports to $30 million, primarily to Singapore, where tallow is used in bio-fuel manufacturing. This surge in tallow exports elevated Singapore into the top 10 overall markets for the month. Is the relationship between DINZ and AgResearch souring? Southland farmers are seeking clarity on the perceived decline in the relationship between the deer industry and AgResearch.  The Southland branch of the New Zealand Deer Farmers Association are seeking to understand why the relationship was perceived to be deteriorating and what the Deer Industry New Zealand board's plan is to ensure sustainable future deer research. Branch members have expressed frustration over the change in funding and the lack of communication or consultation from the board regarding the reasons behind it. They are seeking answers on why the funding arrangement changed, its implications, and the future availability of research funds. Megan Skiffington, AgResearch's farm sector manager, has managed the relationship with the deer industry for eight years. She believes the relationship has not deteriorated but acknowledges that the change in how the deer industry chooses to buy research could have been better communicated. According to Skiffington, the deer industry now purchases research on a project-by-project basis rather than through a single overarching program. Despite the changes, she asserts that AgResearch remains committed to investing in deer science, with the current commitment exceeding the previous 12-month period. Deer Industry New Zealand interim chief executive Rhys Griffiths believes that the relationship with AgResearch is good and efforts are being made to improve it further. Primary Industry stars shine at national awards The sixth annual Primary Industries New Zealand Awards have honoured outstanding contributors across nine categories, highlighting the efforts and achievements of individuals and organisations within the primary sector. Retired farmer Alastair Macgregor was named 'Rural Hero of the Year' for his extensive volunteer work with the Farmy Army. Macgregor played a significant role in assisting Hawke’s Bay landowners impacted by Cyclone Gabrielle. He spent over 200 hours restoring fences in Tutira and Waipukurau, often staying away from home for extended periods to help with the recovery efforts. Dr. Warren Parker was posthumously honoured as the primary industries 'Champion' for his significant contributions to agribusiness and resource management. Dr. Parker, a former chair of Pāmu, had a distinguished academic career and was deeply committed to environmental sustainability and mentoring the next generation of leaders. Julian Raine, recognized for his innovations in horticulture and dairy, received the 'Outstanding Contribution' award, the 'Innovation and Technology' award was given to the Farm 4 Life Hub, a dairy education platform that offers a vast library of on-demand tutorials, and Jane and Damian Roper’s 300ha dairy farm in South Taranaki won the Guardianship and Conservation Award.  Claire Williamson, founder of Velma & Beverley, received the 'Emerging Leader' award. Besides her work as a mortgage advisor, Williamson supports rural women through her bespoke jacket business and her role on the board of Rural Women NZ.  The 'Team and Collaboration' award went to New Zealand Ethical Employers, Southern Pastures/Lewis Road Creamery won the 'Food, Beverage, and Fibre Producer' award, and the 'Science and Research' award went to the ESR Groundwater Team and DairyNZ for their denitrification bioreactor solution. See omnystudio.com/listener for privacy information.