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Greetings Readers

The ASB Commodities Report indicates that lower prices were recorded for wool, logs, cattle hides, lamb and beef while dairy prices have stabilised with some downward price pressure evident.

Such a situation is concern enough, but farm gate receipts are further diminished by the continued climb of the $NZ. And just where it heads, for good or ill, now seems to be in the hands of the US military.

Dairy farmers should feel a little frustration with the preciseness of Fonterra’s prospective payout information. The chief executives assurance that it continues on course at $3.70 with the possibility of some upward revision is accepted with a degree of unease.

Although claiming to be delivering the best information the current projections include assumptions that should be further clarified.

How much forward cover did Fonterra have purchased for this seasons sales and how much product was contracted to sell forward at the time of the low early season international dairy prices?

Fonterra runs a complex sales structure on a wide range of international markets. Normal market price fluctuations are significant enough but when US - NZ exchange rate appreciates by more than 35% in half a season a high proportion of the annual farm gate milk payment is placed in jeopardy if no balancing factors are in place.

The dominant position that exchange rate management has taken in giving certainty to dairy payout may be being tested by the current international conditions of mild recession and prospects of war in a key part of the world.

Detailed reporting in support of the payout assurance should be forthcoming from Fonterra even at this stage of the season.

Good Farming

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