Forum Archive Index - October 2003

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

No that wasn't the newspaper headline, but it might as well have been.   
It appears a very sick cow from Canada has provided a significant 
boost to our farmers income over the last few months.

What follows is an excerpt from the Ridley Corporation 2003 annual 
report, p14, which provides an interesting window to the farming scene 
in North America.    I think it has interesting implications for New 
Zealand.

------


"(North American) Market Conditions"
------------------------------------------------

"The first half of fiscal 2003 was one of the poorer years for returns 
that we have seen for a while in the milk, meat and egg sectors in the 
US.   Prices continued to be weak as we entered the second half.  In 
Canada conditions were similarly weak, particularly in pork and beef 
production, with the exception being the dairy and poultry sectors that 
operate under a supply management system."

"The pork industry recorded the longest streak of consecutive months 
of "below-break-even" prices in the history of the North American 
swine industry.   The price weakness is primarily the result of a 
worldwide oversupply of all sources of meat protein, exacerbated by 
the general weakness and uncertainty of the world economy."

"A prolonged period of market prices that are below the cost of 
production weakens producers balance sheets and inevitably leads to 
increased credit issues.  Furthermore low prices lead to increased 
producer consolidation as producers are forced to liquidate animal 
numbers.   This generally accelerates the rate of attrition among 
smaller producers and leaves fewer but much larger integrated 
producers."

----------

Sound familiar?   I think most NZ farmers have already been through 
this stage

--------

"Throughout fiscal 2003 US milk prices remained at levels that were 
below break-even due to an oversupply of milk brought on by the 
process of consolidation in the industry.    The dairy industry is 
following the very recent experience of the pork production industry, 
with small producers leaving the business and large producers rapidly 
expanding their herd size.  Operating in an environment of stable feed 
prices and with lower unit production costs, large and modern dairy 
operations are generally more efficient with more milk production per 
cow."

"The discovery in May of BSE in a cow in Alberta (this is the cow I 
have named 'Gertrude')  has had a dramatic effect of the on the 
dynamics of the beef industries on both sides of the US-Canadian 
borders.    Announcement of the discovery resulted in some countries, 
lead by the US, closing the borders to Canadian beef.  Since most 
Canadian beef is exported, primarily "on the hoof" to the US, the 
Canadian beef industry has no meaningful alternative for most of this 
beef production.  As of September 2003, there had been only a partial 
relaxation of the closed border status that has existed since 20 May 
2003.   Based upon on a  range of determinations largely pertaining to 
preventative measures that Canada had in place prior to the detection 
of BSE, the US department of agriculture will no longer prohibit the 
import under application of a range of products.   This will go some 
way to alleviating the substantial pressure that has built up within the 
Canadian beef industry.  It remains to be seen how the broader 
implications of the single BSE incident will play out in the North 
American livestock sector."

"On the US side of the border, the impact has been much less 
noticeable.  Beef consumption was strong prior to the report of the 
BSE finding in Canada, and has largely remained unchanged since.  
With about 4% of US beef being imported from Canada, and with that 
source of supply being turned off, cattle prices moved higher."

-------------


Points to come out of this of interest to NZ farmers are the following:

1/  With US milk prices weak, Canada is building up a 'milk mountain' 
under its 'supply management system'.    Can anyone in the industry 
confirm?

2/ US beef prices, and hence NZ beef export prices to the US,  have 
been kept high due to the Canadian beef scare.  Thanks 'Gertrude'.   
But how long will this situation persist?

3/ What is this:
"worldwide oversupply of all sources of meat protein."?
I have never heard it mentioned in the New Zealand media.

4/ With the American farming sector so weak, it doesn't seem politically 
tenable to allow commodity prices to fall in $US terms.    Does this 
mean a further depreciation of the $US, and by implication a rise in 
hours is a near certainty?

5/ How bad a shape is farming ion the USA really in?   Phrases such 
as:
"the longest streak of consecutive months of "below-break-even" prices 
in the history" 
do not inspire confidence!  

I and all WRI (amongst other farming company) shareholders will be 
interested in any answers that can shed light on these questions.

SNOOPY



--
Message sent by Snoopy 
on Pegasus Mail version 4.02
----------------------------------
"Stay on the upside of the downside, 
Anticipate the anticipation!"




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