The price of milk has been falling over time as world supply has grown faster than world demand, and the costs associated with many farms had fallen. The sudden turnaround in milk prices will give farmers quite significant margins to play with compared to what they are used to. Many farms have been running at a loss, relying on the capital gain associated with there land to fund borrowing so they could live. I’m glad that farmers are getting a bit of money now.

I don’t agree with the flippant use of the term ‘windfall’ when referring to this payout. It is not an aberation, it is simply the ‘normal price.’ Read my earlier comment about the dairy payout in 1985 and then inflation ajust it for today. Then compare that with the salaries paid to economists and other soothsayers back then compared with those paid today. Get the idea?

Farmers don’t invest in companies because they have no faith in the NZX, the companies office or the probity of directors. They do have faith in the upward movement of land prices and the abject failure of the IRD to enforce the existing capital gains tax statutes. You should ask your farmer friends how many of them have sold land which was bought within the last tem years. The answer might be a revelation.

I was just lamenting the fact that they don’t invest in companies. If they spent the money in that way NZ would be able to increase its resource base.

Robbie, thats a good point, the value added component is complete arse. The only good thing that Fonterra would have done is some good hedging to get the payout to that level, as the exchange rate would have eatten up a significant amount of the base increase in commodity prices. Fonterra cannot control the price of milk in most market, because even though it is one of the main exporters of milk, its still only produces 2% of the world quantity (domestic production is strong in most places that consume milk), as a result they should be trying to add value to the product to differentiate themselves. Lets hope that the new quota system gives Fonterra the right incentives to maximise long term returns for farmers

The commodity milk price is presumably dictated by international supply and demand for milk powder, where Fonterra’s only real ability to influence that is through throwing it’s market power around.

The real test of Fonterra as a company is the added value component, supposedly representing the value that Fonterra is going to return to its shareholders long-term over and above the value of their milk at the farm gate.

Fair value share is currently at $6.79 and delivered a return of $0.20 – 3%. Hardly stellar, though I guess it never has been.

If I was a farmer I’d be grateful, but to the shifting winds of the commodity markets, not the business nous of Andrew Ferrier.

Nothing has changed. Dodging tax is built into the NZ pscychy or how the hell ever you spell it.

I agree that farmers payout has been depressed in recent years, and in inflation adjusted terms there are still stronger periods than the current one. But holy shit, people thought that having a soft commodity price economy was going to lead to permanently slow growth. Suddenly europe has cut production, and developing countries have decided they like milk and bamm.

I don’t think that farmers will borrow anything as a result of their payout. They will pay back debt, and buy houses with no mortgage. Its a pity we can’t convince them to invest in productive infrastructure.

I think a pay out of over $7.00 is sustainable, even aftre the dairy commodity prices come back a bit,provided we can get a responsible government which reduces its own iinflatinary spending/bribery and allows Ballard to bring interest rates down, thereby encouraging the little Nipgrannies to bugger off somewhere else to find ther sushi investments.

Go and see what the dairy pay out was twenty years ago. I can remember vividly the Fieldays in 1985, the year in which at least twenty farmer suicides went unreported, and the payout was predicted to be $2.75 (down from $4.80 the previous year.) It finished upat $3.75 – I think. Cant remember if that was butterfat or milk solids.

Reality is that the payout has been depressed for thelat couple of years and is now only geting back to ‘normal.’

Yes, I agree with you Mat. Most of it will go on capital expenditure associated with massive new borrowing, irrespective of interest rates, in order to AVOID PAYING TAX. Cockies have a congenital and pathalogical hatred of paying tax so look out for a massive increase in the price of farm land as the money supply chases a limited supply of land.

Now, if you want more comments on your blog you must introduce two things. Pictures and humour. If you can find an economically sustainable way to do this and slag of the gummint of the day at the same time then you’ll have that graph heading in a north easterly direction before you know it. Surely economists can be more fun than accountants and/or actuaries? Statisically speaking, that is.

I think Helen is pulling his chain to get him back into line before the election.