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Originally posted by Snoopy
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quote:Originally posted by Mick100
I tend to agree with you about the exchange rate with the USD Snoopy
I think the USD may fall as fast of faster than the NZD meaning the NZD could appreciate against the USD. I'll add that I expect the USD to fall against all other major currencies over the next yr or so.
The effect of this depreciating USD should be higher commodity prices in US dollars which means that NZ farmer should still be better off.
I hope you are right Mick. Did you see the figures quoted on page 1 of the 'Dairy Equity Anyone?' thread though? I'm referring to the milk solid payout per kilogram over the last 5 years. I'll quote the figures from 2002 to 2006 inclusive:
$5.33, $3.63, $4.85, $4.59, $4.10
Not a very encouraging trend there....
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I don't see land values going down in the medium term although they could stop increasing in value for a few yrs.
From the same Rod Oram article, dairy farm profitability is $1,000 per hectare. Cost of land is $20,000 per hectare. I make that a return of 5%, *before* you start paying tax.
Now I know that dairy farming isn't the only game in 'farmland'. However, I do notice that farms still seem to be being converted from 'something else' to dairy. Unless you as a farmer can boost your earnings to more than a 5% return on your land, surely land prices must fall? And if Rod Oram is right about milk solid production costs being about half of what it costs here in Chile and Argentina, what hope is there of boosting dairy earnings long term?
If you believe Big Bear's figures (operating costs of a dairy farm at $4.10, which more or less matches the payout) then even Rod Oram's 5% return figure is wildly optimistic!
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So far, Ag commodities have not taken part in the commodities bull market. The base metals and energy always lead a new commodities bull market while ag commodities usually have their turn in the second half of the bull market.
Ag commodities 'usually' have their turn in the second half of the bull market? Again I hope you are right Mick. But how many commodity bull markets have you studied? I'm trying to figure out if you have an exit strategy!
SNOOPY