Talk Money with Tony Field – August 9, 2015

Dairy NZ says the average farm will have an operating loss of between $260,000 to $280,000 this season (Getty)
Dairy NZ says the average farm will have an operating loss of between $260,000 to $280,000 this season (Getty)

Dairy NZ says the economy will be $2.5 billion worse off as a result of Fonterra lowering its forecast payout to farmers.

The forecast for the 2015/16 season was cut on Friday from $5.25 per kilogram of milk solids to $3.85.

Fonterra says shareholding farmers will also receive a dividend of between 40 and 50 cents, bringing their total payout to between $4.25 - $4.35.

But that is still more than a dollar below Dairy NZ's estimated break-even point for the average farmer of $5.40.

That $5.40 break-even point was revised down on Friday from Dairy NZ's previous estimate of $5.70. But that will be of little consolation to farmers.

Dairy NZ says the average farm will have an operating loss of between $260,000 to $280,000 this season. That's why nine out of 10 farmers are likely to have to extend their loans this season.

There is particular concern about share milkers and those who have taken on a lot of debt in the last couple of years.

The banks wrote many loans that made sense with a payout above $6. Those farmers will be under great pressure now.

That's the reason Fonterra and the Government are both hoping the banks will hold off from any forced land sales.

It's also the reason Fonterra is offering interest free loans of 50 cents per kilogram of milk solids. Those loans are for two years and will not have to be paid back until the payout rises back above $6.

However those loans are only being offered to shareholder farmers and not to share milkers who do not own shares in the cooperative.

Here is my chat with Paul Henry about the cut to the payout.

It is not just dairy prices that have fallen hard. Other soft commodities (foods) and hard commodities (oil, iron ore, copper, gold) have slumped as well.

Just last week oil prices fell 7 percent.

Coffee, wheat and platinum are all down more than 10 percent this year.

These commodities all trade in US dollars and as the American currency rises they lose value. But that is just one of the reasons commodities are down.

China stockpiled many of these commodities and is now heavily cutting back its purchases.

The Chinese economy is slowing, meaning China does not need to buy as much. This is one of the reasons that the global economy is also not growing as quickly as many had expected.

The New Zealand dollar is trading at 66 US cents this morning, just over half a cent up from Friday morning.

This suggests there was a bit of a relief rally for the Kiwi after the Fonterra announcement. Some an analysts had been expecting a payout forecast closer to $3.50.

The kiwi is trading at 89.13 Australian cents.

It's 42.61 pence, 81.99 yen and 60.19 euro.

Publishing group Pearson recently announced the sale of the Financial Times (FT) to Japanese publisher Nikkei.

Now, the Financial Times is reporting that Pearson is planning to sell its stake in another respected publication, The Economist, as part of a move from media to education publishing.

The Financial Times says Pearson wants to sell The Economist Group for £400 million (NZ$619 million). As well as The Economist magazine, the group includes various other businesses including the Economist Intelligence Unit.

The Economist Group had operating profits last year of £60 million (NZ$90 million). The Financial Times is quoting sources close to the negotiations as saying that the de Rothschild family and Exor (the investment firm for Italy's Agnelli family) will soon be the largest single shareholders in the Economist Group.

Pearson has owned 50 percent of The Economist since 1957 when it also bought the Financial Times.

The Economist Group has no controlling shareholder. This is a deliberate move to ensure that the magazine maintains its editorial independence.

Exor has a 4 percent stake and Lynn Forester de Rothschild and her husband Sir Evelyn control 21 percent of the shares.

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