A blame game isn’t going to improve farm cashflow. But it’s a worthy question given the wealth of market information available to those guiding and commenting on the market outlook since prices headed sharply south.
Fonterra has not been alone in misreading the likely depth and duration of the slump. Some market analysts have also been overly-optimistic on a turnaround, setting farmers on a rollercoaster ride of anticipation and dashed hopes.
But there were signs long ago this may not be just another cyclic downturn.
In April last year NZFarmer reported a blunt warning from analysts Craig Ferguson and Peter Redward that dairy prices would fall further and for a longer time than many expected. Their reasoning? A rise in global milk supply.
It wasn’t rocket science. European quotas were lifted in April. Constrained European farmers – already the world’s biggest milk producers – could pump out more. Grain prices were enduringly low. The internet sagged with the weight of country and research reports about a likely global milk production rise.
Yet in July Fonterra chief executive Theo Spierings told the NZ Herald that the-then price issue was a demand problem – not one of supply. He did not expect to see significant supply increases from the EU, US and New Zealand.
Fonterra has just reported that Europe increased milk production every month since quotas were lifted. A Massey University report tells us with only about 7 per cent of global milk traded, a small proportional change in supply globally will have a «profound» effect on the global supply market equilibrium.
Popular defences for the questionable quality of forecasting have been no-one anticipated oil prices this low either, or that sharemarkets would tumble. Federated Farmers blames it on Euro farmers getting income subsidies.
The fact is, farmers rely on market guidance. When a basic market dynamic is not adequately considered they have a right to ask why. Andrea Fox
Source: Stuff
