Dairy boom just around the corner

Boom! Boom! Boom!

So bang the dairy drums. Column inches gush with talk of rivers of white gold while the Hot Copper share market forum’s “most discussed stocks” list is topped by a dairy proposition and includes another two dairy stocks.

I may be a mere farmer but the dairy proposition in question, Carbon Conscious, seems ambitious at best and fanciful at worst. The company has a 12-month lease on a farm (with an option to extend it if it can pull off plans for intensive housing facilities) and has bought 418 cows. It appears from the announcement document that it hopes to:

  1. find a processor that will buy its milk at a locked in premium price
  2. the processor will then process and package it specially for the company
  3. then the milk is sold to the farm landlord
  4. the farm landlord exports the milk to China
  5. the farm landlord sends some of the profits back to the farm tenant.

Sounds like a great plan but it will face a few challenges. First, the investors believe they can milk 2,500 cows three times a day in a 60-stand rotary. Whew!

Lost you? Well, according to rotary dairy maker, Daviesway, “A 60 unit rotary dairy with an average 10 minute rotation should milk 300 cows per hour with an average production of 30 litres per cow.”

That would mean the proposed herd of 2,500 cows would take more than eight hours to milk, three times a day. In other words, non-stop milking. Hope they have a crack team of milkers and mechanics on hand! You may call this a mere technical problem but dairies aren’t cheap (a few hundred thousand) and it seems somebody’s overlooked a pretty basic calculation or that this is less farm and more factory.

On the topic of factories, getting the project off the ground will require a great deal of sensitivity. The “system 5” style of farming described in the announcement is the most intensive type of dairy farming in the world. Cows are housed year-round and do not graze grass.

Only a few months ago, public opposition thwarted the development of a dairy farm in the small hamlet of Kernot by Chinese investors.  The Carbon Conscious farm is in a far more sensitive “lifestyle” location and will be more intensive than the developments planned for Kernot.

On top of that, the announcement makes no mention of an arrangement with any of the three processors in Western Australia capable of the job.

Yes, at this stage, it’s really just a plan with a rented farm. Even so, Carbon Conscious is laughing all the way to the bank. Its shares opened at 20.5 cents this morning, up from just 7.8 cents on Christmas Eve.

The dairy stratosphere is now littered with investor thought bubbles. Here are my top four:

  • Mining millionaire, Bill McDonald set the typewriters rattling in 2014 when he said his new Camperdown Dairy International company would build a $120 million plant but The Weekly Times reports the site is largely building rubble,
  • Ningbo Dairy at Kernot, where public opposition has forced the Chinese investors to put the property back on the market,
  • the company formerly known as Linear Capital – Aerem – has flirted with purchasing 50 farms and failed to meet one self-imposed deadline after another, while taking the once-excited farmers for a merry ride, and
  • Gina Rinehart on the other hand, flirted only briefly with dairy, putting her $500 million project on hold when she realised dairy prices go down as well as up.

“Why?” I asked an investor friend this morning. I don’t understand. Robobank’s analysts have been forecasting a return to health for global dairy markets for what must be a year now. They’ve pushed out any forecast recovery until late 2016, blaming the delay on stronger than expected European production.

Dairy farming is complex. You must be able to manage people, animals, pastures, machinery and cash with precision to make a profit. To make the money that investor shareholders typically demand, everything has to go right, too.

While farmers are often characterised as lacking the professionalism of big business, I’ve been disappointed for the farming friends treated so shabbily by would-be investors in 2015. I really hope 2016 will be different.

16 Comments

Filed under Farm

16 responses to “Dairy boom just around the corner

  1. JulieD

    Sounds like they never heard of the old rule of thumb- One set of clusters for every 10 cows! (or one robot for every 60)
    From local experience, any “largish” dairy in a sensitive town will create lots of backlash with people who don’t get the systems and infrastructure involved.

    Like

  2. Lisa Dwyer

    You are definitely not just a ‘mere farmer’ Marian!

    Liked by 1 person

  3. Glen - Bass River Dairy

    A concise and well written article Marion.

    Like

  4. Peter

    Very informative post which was well researched and written. I would enjoy reading posts about the other dairy stocks that are part of this “boom” from an actual dairy farmer! 🙂

    Like

  5. Written like a kitten on a keyboard….still can’t get that one out of my head.

    Cows with Guns to the rescue! Ta da da daaaaaaaaaaaaaaaa (check your favourite forum for details).

    Like

  6. Cows with Guns...holstered for now

    Seriously though…

    There seems to be a fundamental set of flaws with Carbon Conscious and their approach to dairy investment that even the most simplistic person with a simple view of farming and an even less understanding of the workings of dairy farming can see.

    1. Rent a dairy farm for a year? For free…
    2. Sell raw milk to Browne’s for processing….standard farmgate milk sale…
    3. Buy processed milk back from Browne’s to export…wholesale buy price…
    (Note: Do they think they get their own milk back as treated, processed, packaged and waiting for collection)
    4. Same owners of said dairy farm also export milk to some exotic sounding overseas location for distribution through their own supposed retail outlets…

    Sounds like some overseas exotic persons think aussies are just some cheap, dumb source of labour and capital and better still used a listed vehicle in aussieland so it can get some dumb aussie bunnies to fund it all for them but with no committed return since those same dumb aussie bunnies love any investment that has “dairy” in it.

    It really sounds like a poor share-milker arrangement on a short term dairy farm less in a less than optimal part of WA dairy country and selling it to investors as a strategic entry to the dairy export business using fanciful words like “System 5”, “China”, “export”.

    Can someone who reads this blog and is from a practical, well informed dairy farming operation tell me what part of this I am missing and that whatever CCF think they are going to do actually has a slim chance of survival.

    Like

    • Ouch!

      The point I was trying to make here was not that Carbon Conscious are “dumb”. After all, they’ve already made a lot of money out of this plan via the sharemarket and it might just work!

      Aussie dairy farmers have been investing in exports for as long as I can remember and China does indeed offer new opportunities.

      The point that I was trying to make is that investors seem very keen to jump on board at the mere mention of “dairy” without doing a lot of research (there seems little consideration on Hot Copper of the hurdles Carbon Conscious must overcome to implement its vision) or on the basis of a proven, successful dairy business.

      Ill-considered investments can cause a lot of heart-ache for the farmers they approach, the communities they join and, eventually, the mum and dad investors caught up in the excitement.

      Like

  7. Hugh Frederick Green

    Interesting insights. I come across your blog when i am looking at Australian green energy companies stories and carbon conscious came up and then your blog post. Australia could have been the world’s energy house with the initial edge of green energy technologies but Abbott has completely killed off that advantage. We can only hope that the current government will do all it can to support the Australian farmers if we are to become the world’s food supplier, as many say that qe would.
    A few comments and questions:
    1. I thought Carbon Conscious is paying the farm gate price which is the normal price paid to the processor? Or is the farm gate price actually a premium price as you mentioned?
    2. Realistically in your opinion how many cows they can milk with their 60 stand rotary that Carbon Conscious has?
    3. How can the Australia general public support our local dairy farmers in the current agriculture boom? Do you think the key is to enaure the company to engage local supplier/processor which you have alluded to?
    Thank you.

    Like

    • Hi Hugh,
      Thanks for commenting. I agree regarding the renewables but still hope that we will soon be back on track. The Australian government was very vocal in Paris – if our politicians can’t walk the talk, it will get rather embarrassing for them!

      In answer to question 1, Carbon Conscious will be paid by the processor for its milk rather than paying the processor to contract process it. Carbon Conscious’ January 8 announcement (see http://www.asx.com.au/asxpdf/20160108/pdf/4348jxttc8smnx.pdf ), it says: “Under the proposed strategy, the Company plans to execute long-term offtake agreements with local milk processors that will pay a farm gate price to Carbon Conscious for milk supplied. This is expected to lock in an attractive and consistent return.”

      Reading between the lines, that sounds like a premium but maybe I’ve assumed too much!

      2. I think I’d leave the number of cows they can milk in a 60-stand rotary to the shed design experts but by anybody’s reckoning, 7500 milkings a day would be logistically challenging.

      3. You’ve asked the $64-million question there! On a consumer level, the answer is to buy Australian-made dairy products at a fair price.

      Honestly, it doesn’t feel like a boom here on the farm. The price we’re receiving is at or below break-even this year and the recovery signals are weak and distant. China is yet to deplete its large stocks of dairy products and production by the Europeans is weighing heavily on the market (see https://www.rabobank.com.au/media-releases/2015/151217-strong-eu-production-delays-price-recovery-rabobanks-latest-dairy-outlook/ ).

      The Global Dairy Trade auction results (see https://www.globaldairytrade.info/ ) are not encouraging.

      It’s important that our governments put extra resources into RD&E so we can continue to innovate. That sounds trite but it’s the only thing that will allow us to compete and deliver high quality foods.

      Like

  8. Tim

    Lol. Written by another useless farmer about to go broke. The big players are about to finish you off clown. You clearly have no idea of markets. Youre a farmer not a market maker. Dont be fooled by this clown people, he knows that carbon consciuos is going to be massive and wipe him out, thats why he written this. Laughable.

    Like

    • Oh lovely! Need I respond? Such a thoughtful discussion of my points, it’s hard to know where to begin.

      Like

      • Glen

        Keep up the good work Marian. Its refreshing to hear a farmer who doesn’t believe the “stories” that are presented to them. Yes, the mum and dad investors could be conned into such a scheme, there have been worse presented in recent times.

        Like

    • kayepea

      In reply Tim, I am neither a farmer nor an investor, just an average person who knows she doesn’t want to buy from ‘big players’ who often have not many morals about what they do or the way they do it – as long as it makes a profit, cripple all around them. I DO WANT to buy from an ordinary-sized family farm run by someone who cares for the environment she/he lives in, has morals, a social conscience, and treats the animals under her care, WITH care. In short, knowing the MilkMaidMarian as I do, (uppercase used because she is more important than lowercase!) I would suggest you are blowing steam and not much else through some other orifice without engaging your brain. On second thoughts – I think MilkMaidMarian was probably right not to give you a response!

      Like

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