"Crash & Burn" Dairy Farmers &/or Bankers go Mad

NZ & in particular Christchurch & Canterbury have been hit by more than 4000 after shocks since Sept 4th 2010 when there was a massive earthquake measuring 7.1. The damage in the city & on some farms has been dreadful & heartbreaking for families involved. See the photo where the road, hedge & fence moved in excess of a metre during the big one in Sept.
This isnt the only quake to hit NZ.
NZ dairyfarmers have gone mad & paid rediculous money for cows & land now both have crashed & some dairyfarmers will burn! Two years ago land prices in NZ got up to NZ$70 per kg of Milk Solids (the way land is often valued in NZ) today they are max NZ$40 & some farms are selling nearer to NZ$20. Two years ago dairy cows peaked at NZ$2000 today they are less than NZ$1400. Why? They went mad thats why! With total disregard for cashflow/profit or decisions based on commonsense some have made crazy investment decisions! Land was never worth NZ$70 & cows were never really worth NZ$2000. The mad crazy market drove the prices beyond what they really were worth. In areas like Canterbury there are hundreds of farms with massive new rotaries & brand new irrigation systems (centre pivots)...the capital spending is extraordinary. The capital works look impressive but the debt now looks very scarey!
The milk price didnt drive farm prices higher, the profitability of NZ farms didnt justify the extreme prices or massive capital spending......so why!!

The expectation was that land prices would forever continue to rise.....so farmers started to speculate & to farm the gain in speculative gains(increases in equity & borrowing against non real equity gains). Who supported this madness....the bankers!!!

The bankers carry much of the responsibility for the very risky lending on non existant profits & on unreal capital gains. Many farm purchases were not based on sound economics or profitability. Does this sound like Ireland? The banking crisis has hit dairyfarmers or is about to....big time!?

On our recent NZ study tour we met one young dairy farmer who bought a farm 2 yrs ago with 50% equity (based partly on cows worth NZ$2000) today that same farmer has equity of 23% & is hanging on by his finger nails. This is frightening stuff!

Now the Australian owners of the NZ banks are saying enough is enough. They are calling in much of the excessive farm debt. Farmers are getting calls demanding in some cases up to $500,000.

Now where do you get that sort of money if all banks are taking the same line???

The "Crafar case" is a very public example of the inevitable increase in farm bankruptcies.

Everyone is expecting the number of "crash & burn" dairyfarms & farm businesses to increase in NZ.

Nicola Shadbolt & partner Shane Carroll refocussed our visiting French group (from Brittany) back to the basics. Nicola emphasised the importance of profit & cash. Benchmarking in Discussion Groups must focus on the right profit ratios & on cashflow. Profit per hectare is insufficent & very risky.

A strong cashflow business can capture purchase opportunities (farms or farm business expansion)but in doing so must not lose sight of profit, return(& profit) on equity & cashflow must be strong going forward. If there are NZ farm businesses that are going to "crash & burn"....believe me there are others who have kept focussed on cashflow who will now await their opportunities. Dont get swept along with the madness of a gold rush! Cash is King!Keep focussed on cashflow & profit.

Chicory & Plantain Downunder in NZ

I'm in very dry New Zealand awaiting the arrival of my French Discussion group from Brittany.(very impressed with the exciting range of milk products in the supermarkets..much bigger range than when I last visited NZ).

NZ has had very little rain (unlike the poor farming souls in Queensland Australia who are getting floods that are up to 15metres high!!) so since November the dairy farms have struggled for grass.This photo is of Neil & Barbara McLeans farm just north of Hamilton in the Waikato..the cows are getting some pasture plus Barkant turnips.

In preparation for the french visit to NZ I have visited DairyNZ at Hamilton & with Chris Glassey had a really good look at parts of Scott Farm.Here are plots of Chicory & Plantain being harvested.

One of the trials at Scott Farm is looking at Chicory & Plantain (both deep rooting herbs) as alternate pasture species. NZ farmer experience suggests that chicory is really good in year one but declines in year 2. Work at Massey (Prof Peter Kemp) & at DairyNZ with Julie Lee is looking at how pre grazing heights and post grazing residues are affecting Yr 2 survival.

This is interesting work which could be implemented by farmers very quickly. As we are seeing a number of NZ farmers on this study tour plus Lincoln & Cropmark in Canterbury I think we will learn much more about these two intriguing plants.

Chris Glassey from DairyNZ explained that Plantain plus Clover was very competitive with ryegrass plus clover even at a stocking rate of 3.5 cows per hectare.Here is a photo of Plantain during a very dry summer in the Waikato. It's interesting isn't it....when I first started work as a consultant both Chicory & Plantain were considered weeds.....now they both look very good pasture herb options for the future.

A Future Agenda for Grass fed Milk

As the dawn of the year 2011 breaks it's a great time to ponder the next decade & the changes that might occur & how we prepare our businesses to capture those opportunities. UK farmers are currently struggling with the snow & ice......it makes every task on the farm 10 times more difficult. Its very hard to produce food when conditions are so extreme. At each meal you should thank a farmer for his/her efforts. Mind you its also easy to think only of the present & not look into the future. As the Aussies say (nothing to do with cricket I might point out) "Its hard to think about draining the swamp when you are up to your neck in crocodiles"
Over Christmas I've started to read a fascinating new book called "Future Agenda"......basically a worldwide think tank sponsored by Vodafone. I'm very impressed! It's really thought provoking & I recommend either the book or the website...

www.futureagenda.org

Most aspects of the Future Agenda impact directly on agriculture & farmers. Looking into the next decade food, food security, our health, water scarcity & the implications of economic growth are all massive issues for grass based thinking dairy farmers.

Recent comments in the UK press regarding "Cows no longer belong on pastures" couldnt be further from the truth. This comment of self interest came unbelievably from the chair person of the North Devon Grasslands society???!!??!!.

The world population is forcast to increase from nearly 7 billion (2010) to 7.7billion by 2010, thats an increase of 750million. How are those extra people going to eat? What will they eat? What ability do the world's farmers have of producing enough food???? Serious questions! Especially as most Govt intervention has a negative impact on food supplies eg USA & Europe's push for bio energy.

There will be an accelerating shift in economic power to Asia. Increasing economic growth means people eat more food (especially protein) & they waste more food too. As GDP per capita rises so does water demand. China is already short of clean water. Good water supplies are essential to farmers & food supplies. By 2025 2/3 of the world will be living in water stressed regions. Climate warming predictions include southern England as a water stressed region!!!

Water is often taken for granted in the UK. We are indeed fortunate to currently have adequate water. You only have to visit a country like Australia to realise that both Govt policy & individuals are more conscious of water & strategies to reduce wastage. Agriculture must adapt to lower water use.Water is the key to agriculture & to a healthy nation. China is particularly vulnerable. The price of water does not reflect the true economic value....this distorts our understanding of the importance of water. It is shocking that the UK loses 3.3billion litres of clean water per day thru leakages!

Water scarcity is forcast to have a severe impact during the next decade.

With a rapidly increasing world population who cant feed itself we in Britain & UK grass based dairy farmers have a massive opportunity as we have the soil, the water & the expertise but do we have the research backing or the Govt policy to succeed? Pasture based farmers already have a considerable bank of data backing our system, our cows & our environmental management.

The opportunities might well come from producing protein for the world market or by producing healthy food. Grass fed milk has the potential to deliver "Good for You" Foods. (as discussed in the last blog). Pharma foods (vs Farmer foods) are foods with clinically enhanced properties eg probiotics. The challenge for grass based dairy farmers will be to find "Natural" foods that deliver preventative health benefits without becoming a drug. With obesity becoming a serious health problem in the western world dont be surprised if a "fat" tax is put on unhealthy food.There will be an increasing focus on local food & seasonal foods (not where the supermarkets have been taking us the last few decades!)....the aim will be to better feed more people thru intelligent use of resources such as water, soil, & energy. There is a real opportunity for innovation & new products as well as smart production. We need to significantly increase global research & investment to get the technical break throughs required for the second agricultural green revolution that will enable us to feed the world. The global food security has worsened not improved & represents a serious risk to world peace & stability.

So why is the UK cutting spending on R & D?

Why oh why is DairyCo not at the forefront of R & D for the dairy industry......why the endless delay in starting a productive research program?????

Great leaps forward for tomorrows pasture based dairy farmers will require strong collaboration as innovation rarely occurs in isolation. Both Google & Microsoft have built their business model around Thomas Eddison's very successful "work group" model that produced such amazing technological breakthroughs & innovations eg gramaphone & electric light bulb.

Pasture based dairy farmers need effective onfarm Discussion Groups to push forward & to meet the challenges of the next decade & beyond.