New Zealand - #thegreatunravelling

“We are really facing a perfect storm that has been created by a perception that production and endless growth is good”

The average cost of production of a kg of milk solids average for New Zealand is $6.70 and the Fonterra payout $4.70. About half of dairy farms are in big trouble.

This country is deep in the shit.

"No problem", the PM will say

High dairy debt and low payout a worry

"It is likely that the number of foreclosures among (highly) indebted farms will eventually increase if weak cash flows persist for multiple seasons," the Financial Stability report says.

Stuff,

13 May, 2015

The Reserve Bank says there is a risk to the banking system from the dairy sector where payouts to farmers have slumped after a fall in international prices.

And the central bank warns that forced sales of farms could rise if dairy payouts remain low, though farmers would go to great lengths to keep paying their loans.

Many highly indebted farmers were facing "negative cash flow" Reserve Bank governor Graeme Wheeler said in the Financial Stability Report out on Wednesday.

Around 11 per cent of all farm debt was held by farmers with negative cash flow and high debt levels.

"The risks will become more pronounced if low milk prices persist beyond the current season," Wheeler said, with current milk prices near five year lows.

It was likely that dairy farmers would face "difficult conditions" for two seasons in a row.

"It is likely that the number of foreclosures among (highly) indebted farms will eventually increase if weak cash flows persist for multiple seasons," the Financial Stability report says. And bank losses because of mortgagee sales could be made worse if land values fell alongside weaker farm incomes.

Speaking at Parliament's Finance and Expenditure Select Committee hearing, Wheeler said 37 per cent of dairy farmers had negative cash flow, given the forecast payout at $4.50 a kg.

Dairy debt had trebled since 2003 to about $34 billion and about a third of that debt is held by the 10 per cent of most indebted farms.

"So that is a major concern," he said.

If the dairy payout price remained at low levels for a long time, the negative cash flow problems would get worse. As well, dairy farm prices would start to fall, compounding the problem.

The dairy sector made up about a third of New Zealand's merchandise exports, so was a big part of the economy.

The spot price for whole milk powder was now about US$2400 a tonne, and was expected to rise to about US$2700 a tonne by the end of the year.

The equilibrium price that it could settle at was between US$3200 and US$3800 a tonne he said.

New Zealand was the most efficient dairy producer in the world and a lot of international producers were not making money at current prices. They had only been supported by falling cereal prices making feed cheaper.

"The whole situation is not sustainable. It depends on what happens to inventory levels and domestic production in China," Wheeler said, among other factors.

"But if we saw another year of low prices, that would be a worry for the economy, no question, and a worry for farmers and their debt capacity" Wheeler said.

Lending to farmers was reasonably steady in recent years, though shorter term funding had increased in the face of negative cash flows.

If the payout remained low that could lead to some hard conversations with bankers.

"But there is some degree of optimism that farmers hate to walk away from the land," assistant governor Grant Spencer said.

"They won't do it lightly and will go to extraordinary lengths to service the mortgage," Spencer said.

But Wheeler added that farm incomes also depended in part on the exchange rate which had fallen about 5 per cent on a trade weighted basket measure in recent weeks.

"We still think the exchange rate is unjustified and unsustainable so we'd like to see that come down, so that will also affect the returns dairy farmers can get," he said.

Meanwhile, it seems that our scientists are, apart from in a theoretical sense, are really climate change deniers. In fact, they do not necessarily agree with what scientists from America and Australia have found that we are not only in an el-Nino, but an extremely serious one.

I remember the days when weather extremes were 'not caused by climate change but by el-Nino" (or was it la-NIna?)

Welcome to the 'Double El Niño' — and more extreme weather

We’re about to experience a “double El Niño” — a rare weather phenomenon that climatologists had warned about several months ago.

That means two consecutive years of the concentration of warm water in the Pacific Ocean that brings West Coast storms, quiet hurricane seasons in the Atlantic and busy ones in the Pacific. The danger is that this could mean more than a few months of odd weather, but instead usher in a new phase

Scientists debate El Nino likelihood

Climate scientists are at odds over whether New Zealand will suffer an El Nino this year.

The Australian Bureau of Meteorology yesterday announced a substantial El Nino event had begun.

During an El Nino, the west coast is wet, the east coast is dry and it's cold everywhere. Those conditions make it ripe for drought.

Victoria University climate scientist James Renwick said it would take about a month to see just how severe it would get.

"Australia feels El Ninos possibly more strongly than just about any other country but New Zealand certainly feels the effects as well. What normally happens for New Zealand is the kind of weather we've had this week with strong winds and storms and things."

A medium-scale drought classification has already been issued in parts of the South Island and is likely to remain until August or September. - Photo: Supplied

But scientists at government research agency NIWA aren't so sure.

NIWA principal climate scientist Brett Mullan did not believe there was enough evidence to support Australia's claim.

"Our view is it's maybe a little bit premature to call it more than a weak event; it's certainly premature to call it a strong event at this stage."

But Dr Mullan said NIWA believed there was an 80 percent chance of an El Nino event developing.

Drought continues in South Island

Meanwhile, Primary Industries Minister Nathan Guy has said farmers on the east coast of the South Island are still suffering the effects of drought.

Mr Guy said it was particularly bad in North Canterbury and especially in Cheviot, which missed most of the recent rain in the area.

Mr Guy said it was likely the medium-scale drought classification would remain until August or September, depending on conditions over autumn.

He said soil moisture remained well below average and there were concerns about the availability of winter stock feed.

The minister said farmers should talk to their accountants if they need help or flexibility with making tax payments, and should revise feed budgets now, as winter feed may be limited.

What is not in doubt is that large parts of the country are in drought or, (much as they don't want to tell us) temperature records are fallinglike ninepins.

Drought maintains grip in parts of south

The Primary Industries Minister says drought conditions are maintaining a tight grip on eastern parts of the South Island and they are not expected to change until later this year.

Radio NZ,

13 May, 2015

Most of the Otago region, all of Canterbury and Marlborough were declared to be in a medium scale adverse event in February this year, and Nathan Guy says the classification is likely to stay in place until August or September.

He said the area of greatest concern was north Canterbury, which had received little of the recent rain.

"What I'm hearing is that by enlarge farmers have coped very well. We made this declaration on the 12th of February, it was the East Coast of most of the South Island, those areas mainly have had reasonable rain in the last month to six weeks so their own personal situations inside the farm gate have turned around but there is this area in North Canterbury that is a concern.

"We've got Rural Support Trusts that are out there supporting farming families making the tough decisions ahead of them, we've got some flexibility available through the Inland Revenue Department, and for those farmers that are in real hardship they should also reach out to WINZ because there are support packages out there."

Mr Guy said Rural Support Trusts were out in communities and hosting social events too, because it was important for farmers to get off the farm.

He said the trusts could offer support and advice around stock numbers and winter feed.

"Very tough decisions ahead of them, whether to buy more feed in or sell capital stock.

"The concern that I've got right now is we're coming into autumn and winter's not far away and it's very hard to get enough feed reserves to get stock through in reasonable condition this winter."