1 00:00:00,080 --> 00:00:02,000 Speaker 1: Now let's deal with what is going on with milk. 2 00:00:02,040 --> 00:00:04,560 Speaker 1: Fonterra's farm gate milk price is being tipped to fall 3 00:00:04,559 --> 00:00:07,840 Speaker 1: below the ten dollar mark after yesterday's Global Dairy Trade 4 00:00:07,840 --> 00:00:09,879 Speaker 1: auction the price of whole milk powder. If you've been 5 00:00:09,880 --> 00:00:12,160 Speaker 1: following this, you will have noticed it's fall and twenty 6 00:00:12,160 --> 00:00:15,040 Speaker 1: percent since May and Fonterra's current rage for the farm 7 00:00:15,040 --> 00:00:17,800 Speaker 1: great milk price is nine dollars to eleven dollars per 8 00:00:17,880 --> 00:00:20,439 Speaker 1: kge of milk solid. Stuart Davison is a dairy analyst 9 00:00:20,480 --> 00:00:21,079 Speaker 1: for Higher Ground. 10 00:00:21,079 --> 00:00:23,279 Speaker 2: Hey Stewart, mate, how are you? 11 00:00:23,400 --> 00:00:25,640 Speaker 1: I'm very well, Thank you? Do you reckon it's inevitable 12 00:00:25,640 --> 00:00:26,400 Speaker 1: that it's going to drop? 13 00:00:27,560 --> 00:00:28,760 Speaker 2: Yes, I don't think it's an edible. 14 00:00:28,880 --> 00:00:31,440 Speaker 3: We've definitely seen the market fall in the last little 15 00:00:31,440 --> 00:00:33,920 Speaker 3: while and the big driver's milk supply, so we've seen 16 00:00:33,920 --> 00:00:36,280 Speaker 3: a lot of milk being produced everywhere. All the export 17 00:00:36,360 --> 00:00:39,080 Speaker 3: nations are well ahead on milk production through Q three 18 00:00:39,120 --> 00:00:41,080 Speaker 3: and that are likely follow into Q four. 19 00:00:41,400 --> 00:00:44,320 Speaker 2: And into early twenty six. So supply is the story? 20 00:00:44,560 --> 00:00:47,080 Speaker 1: Yeah, like not enough demand for that supply? 21 00:00:48,120 --> 00:00:51,239 Speaker 3: Well, demand's actually reasonably firm. We've seen a few tumbles 22 00:00:51,240 --> 00:00:53,000 Speaker 3: and trips here and there in the market. But demand's 23 00:00:53,120 --> 00:00:55,840 Speaker 3: not that far lower than normal, but milk production is 24 00:00:55,880 --> 00:00:57,440 Speaker 3: just outstripping that growth of demand. 25 00:00:57,560 --> 00:00:58,480 Speaker 1: Why what's going on? 26 00:01:00,000 --> 00:01:00,440 Speaker 2: Two things. 27 00:01:00,440 --> 00:01:02,680 Speaker 3: Milk pricing, as we see in New Zealand is leading 28 00:01:02,680 --> 00:01:04,320 Speaker 3: farmers globally to produce more. 29 00:01:04,400 --> 00:01:05,360 Speaker 2: You know, we were in. 30 00:01:05,280 --> 00:01:09,360 Speaker 3: A very tight situation supply supply reasons in the last 31 00:01:09,360 --> 00:01:12,720 Speaker 3: eighteen months. The market was screaming for more milk and 32 00:01:12,920 --> 00:01:16,000 Speaker 3: milk solds, especially milk fat in the last eighteen months. 33 00:01:16,000 --> 00:01:18,959 Speaker 2: And the market's got that supply to catch up. 34 00:01:18,880 --> 00:01:22,240 Speaker 3: Now and now we're in that transition period between undersupply 35 00:01:22,440 --> 00:01:25,120 Speaker 3: moving to oversupply. So you know, milk prices are just 36 00:01:25,200 --> 00:01:26,520 Speaker 3: driving production everywhere. 37 00:01:27,160 --> 00:01:29,000 Speaker 1: If it does fall below the ten dollar mark, as 38 00:01:29,000 --> 00:01:30,240 Speaker 1: you say, what does it fall two? 39 00:01:31,920 --> 00:01:35,480 Speaker 3: Well, yeah, how quickly it gets down and where it 40 00:01:35,520 --> 00:01:37,520 Speaker 3: goes to is up for discussion at the moment, I think, 41 00:01:37,840 --> 00:01:39,400 Speaker 3: you know, if we look at the milk price futures 42 00:01:39,440 --> 00:01:41,840 Speaker 3: market at the moment, yeah, we're trading about nine dollars 43 00:01:41,920 --> 00:01:45,119 Speaker 3: seventy three there at the minute. We could very quickly 44 00:01:45,120 --> 00:01:47,760 Speaker 3: go lower if we see the GDT auction in two 45 00:01:47,760 --> 00:01:48,400 Speaker 3: weeks time ago. 46 00:01:48,480 --> 00:01:51,120 Speaker 2: Even you know, especially power prices move even lower. 47 00:01:51,680 --> 00:01:53,920 Speaker 3: You know, my sort of early forecast in the year 48 00:01:54,000 --> 00:01:56,360 Speaker 3: was sort of nine dollars twenty but I've sort of 49 00:01:56,440 --> 00:01:58,640 Speaker 3: regauged things. At the moment, we're probably closer to nine 50 00:01:58,800 --> 00:02:02,200 Speaker 3: forty nine fifty all things considered. But you know, we 51 00:02:02,760 --> 00:02:04,560 Speaker 3: just have to look back to the twenty two twenty 52 00:02:04,600 --> 00:02:08,600 Speaker 3: three season when prices fell seventy cents from the peak 53 00:02:08,680 --> 00:02:11,519 Speaker 3: to the trough during the season. So yeah, in the 54 00:02:11,520 --> 00:02:13,840 Speaker 3: same timeframe, we've got left run in this season, so 55 00:02:14,400 --> 00:02:17,160 Speaker 3: you know, there's there's some serious movement potential. 56 00:02:17,160 --> 00:02:17,679 Speaker 2: Left to run. 57 00:02:17,840 --> 00:02:18,040 Speaker 3: Yeah. 58 00:02:18,280 --> 00:02:20,640 Speaker 1: Look, you know this obviously sounds bad, but actually, if 59 00:02:20,680 --> 00:02:22,760 Speaker 1: you put it in kind of historical context, it's still 60 00:02:22,760 --> 00:02:24,120 Speaker 1: a pretty good payout, isn't it. 61 00:02:25,080 --> 00:02:27,160 Speaker 3: Well, and that's that's the big driver of the expectation 62 00:02:27,240 --> 00:02:29,359 Speaker 3: of more milk supply as well. So yes, you know, 63 00:02:29,400 --> 00:02:31,440 Speaker 3: even if we get down to nine nine dollar handle, 64 00:02:31,600 --> 00:02:33,440 Speaker 3: and the farmers listening will not let me saying that, 65 00:02:33,520 --> 00:02:35,519 Speaker 3: but you know, they're still making a lot of money 66 00:02:35,560 --> 00:02:37,920 Speaker 3: generally in New Zealand at that point, and you know, 67 00:02:38,000 --> 00:02:40,720 Speaker 3: feed prices, interest rates, fuel all those input costs that 68 00:02:40,840 --> 00:02:43,320 Speaker 3: actually ease lower in the last twelve months as well, 69 00:02:43,440 --> 00:02:46,239 Speaker 3: So margin wise, things are still looking pretty good. 70 00:02:46,919 --> 00:02:48,799 Speaker 2: And you know, if you look at price. 71 00:02:48,520 --> 00:02:51,639 Speaker 3: As a signal for supply, the question is actually how 72 00:02:51,680 --> 00:02:53,680 Speaker 3: low does the milk price need to get to sort 73 00:02:53,680 --> 00:02:55,880 Speaker 3: of condense milk production a little bit globally as well. 74 00:02:55,919 --> 00:02:58,359 Speaker 3: So that's the question now, is how low will milk 75 00:02:58,400 --> 00:03:01,720 Speaker 3: prices go? How quickly will farmers respond to the signals? 76 00:03:01,720 --> 00:03:04,200 Speaker 2: And usually, you know the general rule. 77 00:03:03,960 --> 00:03:07,600 Speaker 3: Of thumbers and agriculture, you know, the supply response is 78 00:03:07,600 --> 00:03:10,600 Speaker 3: relatively slow on both sides. So we don't expect a 79 00:03:10,680 --> 00:03:13,760 Speaker 3: quick response from anyone, and milk prices are going to 80 00:03:13,800 --> 00:03:16,320 Speaker 3: get a lot lower before we see the response anywhere. 81 00:03:16,360 --> 00:03:19,200 Speaker 1: Stuart, I haven't spoken to you since the sale of 82 00:03:19,280 --> 00:03:21,960 Speaker 1: Fonterra's consumer brands to luck to Lease and Winston obviously 83 00:03:21,960 --> 00:03:23,840 Speaker 1: getting pretty vexed about it and saying they're going to 84 00:03:23,919 --> 00:03:25,600 Speaker 1: regress it. Do you think they're going to regress it. 85 00:03:26,680 --> 00:03:29,200 Speaker 3: I don't think they're going rigord it at all. I think, 86 00:03:29,240 --> 00:03:31,240 Speaker 3: you know, we're two sides of that. I think the 87 00:03:31,240 --> 00:03:33,880 Speaker 3: farmer's side. You know, they're going to do well without 88 00:03:33,919 --> 00:03:36,000 Speaker 3: two dollars and the and their budgets, and they've got 89 00:03:36,040 --> 00:03:37,720 Speaker 3: a lot of ways they can spend that on their 90 00:03:37,760 --> 00:03:40,320 Speaker 3: own businesses and they'll quite enjoy that capital sort of 91 00:03:40,320 --> 00:03:42,720 Speaker 3: breather room on the Fonterier side as well. I think, 92 00:03:42,760 --> 00:03:45,200 Speaker 3: you know, the strategies have been talked about pretty clearly, 93 00:03:45,840 --> 00:03:48,560 Speaker 3: and you know, I think what their politicing in New 94 00:03:48,640 --> 00:03:52,040 Speaker 3: Zealand seems to miss very bluntly. They're very focused on 95 00:03:52,080 --> 00:03:54,160 Speaker 3: the fact that Fonteria is going to be an ingredients business, 96 00:03:54,200 --> 00:03:56,880 Speaker 3: and I think that's you know that the assumption is 97 00:03:56,920 --> 00:04:00,520 Speaker 3: that means the company is then only in commodities it's based. 98 00:04:01,000 --> 00:04:02,920 Speaker 2: I think we missed that the world of dairy is 99 00:04:03,000 --> 00:04:07,040 Speaker 2: very quickly going towards higher fractionalization of dairy, so you know, 100 00:04:07,080 --> 00:04:08,400 Speaker 2: getting right down to the nitty. 101 00:04:08,160 --> 00:04:10,880 Speaker 3: Gritty parts of the milk solid and pulling all the 102 00:04:10,960 --> 00:04:11,560 Speaker 3: value out of it. 103 00:04:11,560 --> 00:04:12,880 Speaker 2: That's that's what the market. 104 00:04:12,600 --> 00:04:15,760 Speaker 3: Wants, you know, still buying homic powder and skim and 105 00:04:15,760 --> 00:04:18,400 Speaker 3: and all those other big name commodities, but you know, 106 00:04:18,560 --> 00:04:22,880 Speaker 3: the market screens for high proteins and more way protein 107 00:04:22,960 --> 00:04:25,560 Speaker 3: isolates and milk protein concentrates and all these things that 108 00:04:25,680 --> 00:04:28,239 Speaker 3: go into the high end of products and are used 109 00:04:28,279 --> 00:04:30,640 Speaker 3: for very specific use cases. And that's you know, that's 110 00:04:30,640 --> 00:04:33,400 Speaker 3: where Fontera is telling us they want to go and 111 00:04:33,440 --> 00:04:36,440 Speaker 3: this frees them up to make that strategy approach. And 112 00:04:36,480 --> 00:04:38,560 Speaker 3: they've already started an investment channel to you know, we 113 00:04:38,560 --> 00:04:41,400 Speaker 3: look at Startholme protein investment that's going on, and then 114 00:04:41,440 --> 00:04:43,400 Speaker 3: all the expectations of what else they're going to do 115 00:04:44,200 --> 00:04:46,200 Speaker 3: have talked about with their protein plans too. 116 00:04:46,240 --> 00:04:48,159 Speaker 2: So I think it's I think it's a good move. 117 00:04:48,720 --> 00:04:50,880 Speaker 3: It's just you know, the the other question we probably 118 00:04:50,880 --> 00:04:53,560 Speaker 3: have to start asking ourselves is k Dairy and the 119 00:04:53,600 --> 00:04:55,920 Speaker 3: Kiwi dairy industry is how much money are we willing 120 00:04:55,920 --> 00:04:57,360 Speaker 3: to invest in the co op to make sure we 121 00:04:57,400 --> 00:05:00,800 Speaker 3: can chase those higher value fractional lineational plants. 122 00:05:00,800 --> 00:05:03,560 Speaker 1: Down to Stuart, as always, it's really wonderful to talk 123 00:05:03,560 --> 00:05:06,200 Speaker 1: to you. Thank you, Stuart Davison, Higher Ground Dairy Analyst. 124 00:05:06,920 --> 00:05:10,080 Speaker 3: For more from Hither Duplessy Allen Drive, listen live to 125 00:05:10,160 --> 00:05:13,200 Speaker 3: news talks it'd be from four pm weekdays, or follow 126 00:05:13,240 --> 00:05:14,960 Speaker 3: the podcast on iHeartRadio.