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.