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Farming Profit and the Image of Wealth

Greetings Readers

An interesting sideline to the current upturn in farming fortunes is a continuation by the daily press of their interest in the fortunes of farming.

Gareth Morgan of Infometrics continues his grumpy analysis of GlobalCo’s establishment, but he is never the less timely with his warning that “if Globalco has delivered bullshit and oversold its position and then doesn't deliver this wonderful result, they will be responsible for an even bigger overshoot in farm prices than would otherwise be the case”

Gareth Morgan is a warning about the performance of GlobalCo, which is also something, every supplier will be watching. But the uncontrolled variable in dairy farming fortunes in the current world economic climate seems to centre round the exchange rate and growth in the big economies.

Last weeks Agri-Fax analysis of the dairy payout being reduced from $5 to $4.30 had the exchange rate averaged US 57 cent to the NZ dollar shows the exchange rate influence on the recent payout announcement. But that, taken in tandem with weakening international economies indicates the narrow range of price and exchange rate shifts required to put dairy payouts below $4.

The press is focusing on the sale value of farm properties and the amount of new capital being invested in dairying, causing an increase in notional wealth without noting that the vast majority of farm businesses continue on with minimal changes to patterns of farming or additional capital.

The number of farms changing hands remains below 1000 per annum, which probably equates the normal attrition rate caused by age or lifestyle changes of farm owners. Therefore the supposed big spenders account for a very small proportion of the industry that has chosen to expose themselves to the risk of nariable returns in the immediate future.

Dairy farmers need to take care that they don’t fall to the folly of believing that GlobalCo holds the total answer their future. Much of the success of farming, as it always has, lies outside the control of the processing and marketing structures that serve farmers.

The problem farmers have is identifying the early indicators of change that will impact future product prices at the farm gate. And that includes exchange rates, world prices and the management of GlobalCo.

Good farming




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