Farming profits not for get-rich-quick investors
Check out Mr Businessman . . . on his way to the stock exchange.
The value of Fonterra shares (units) rose by 25 per cent in an afternoon that made the average Fonterra shareholder richer by $300,000 in a few hours.
I think everyone's priorities are just so wrong. How can a bit of paper which materialised out of thin air, this Fonterra unit, create any actual value? Is it going to entice greedy farmers to sell the "economic rights" to their shares? How can that benefit the sellers in the long run? Don't you need every cent you can earn from your milk to reinvest back into the infrastructure that actually creates the milk which is the wealth - your farm and cows?
Have we just created one generation of rich dairy investors and to hell with the future?
If suddenly your farm business is worth more because the shares have jumped in value, does that mean the banks will go running to loan you more money because your equity position suddenly looks much healthier than it did at lunchtime?
Are we not currently experiencing the fallout from banks loaning funds to farmers who want to get ahead quickly and then because of factors beyond their control find the equity is just not there any more and the bank is unable to tolerate that situation. The result: mortgagee sales, bankruptcy, forced sales to overseas interests, depression, broken marriages, suicide?
The old-fashioned way to invest in dairying was to work your way up to farm ownership by hard work and buying first some cows and then some more cows and then eventually buying a farm. The way today's sharemilking system is being raped with many sharemilkers working for milk price only these days, that path to dairying is very steep, rocky and, impassable to most. I wonder how many of the richer overnight Fonterra shareholders got to where they are today via the sharemilking system and whether they now employ managers or if they have stuck with the sharemilking system do they share the dividend? I have heard farm owners bemoaning the fact that "we simply just can't afford a sharemilker," and in the next breath complain they just can't find good dairy farm employees anywhere.
The higher valued share is all very well but what about when farmers want to increase production and need to buy more wet shares. That was a big investment at $4.52, now a few days into TAF it's nearly $7 a share and in real terms it seems to me nothing has really changed . . . it's all so intangible. While it's nice to increase production and build new conversions, where do you get the cash? Maybe sell your economic rights (and mortally wound your own business right there and then by working for the "ever diminishing" milk price only), if only there was enough of the pie to go around.
Today's pundits describe the modern dairy industry as volatile. Commodity market cycles of yesteryear were described as "boom and bust" . . . I know something that hasn't changed; supplying millions of tonnes of a perishable product to international markets is always going to be a juggling act with swings and roundabout.
Hopefully, the new investors will be able to handle the lows as well as the highs.
In my opinion we should be using the profits generated from the milk we've already sold to reinvest in value-added projects. Not enticing get-rich-quick investors and to hell with the heart of the industry.
That is probably too slow and steady an approach in today's rip, s... and bust environment. But didn't slow and steady win the race? Oops, too late now.