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Milk Price- Please read Mod note in post #1
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Kowtow I hope you won't be bragging that we all heard it here 1st in 5 years time...
haha.. I doubt it. I thought the post above was wide open and non-specific enough that it almost qualified as a proper forecast
What I am really trying to illustrate is that it is important to look at a market from a bit of a distance, to challenge the obvious, and to expect it to wrong foot most peoples expectations most of the time.
It strikes me that we are all expecting volatility, but that most people I speak to imagine that volatility consisting of prices fluctuating between the unbearable (now, soon???) and last years price. They do the maths and come up with an average between 30 and 35c and pat themselves on the back while planning to save in the good years etc. etc.
If only things were that easy. I suspect that the killer situation for Ireland would not be prices in the low 20's - nor yet prices rocketing up and down to 40 , but actually prices moving relentlessly between, say, 25c and 30c with input and fixed costs steadily rising.
If I were still any kind of banker that is the situation I would be stress testing, and I'd be wanting to see that borrowers could pay themselves something at that price as well. Any fool can be "price competitive" if he's prepared to work for nothing!
The market HAS to clear out producers in order to function, if all it does is irritate them and depress them it isn't working properly. If shockingly low prices won't do it, long term attrition will.
A lot of course also depends on demand, and current prices indicate that the demand everyone was so sure of simply hasn't materialised. No real surprise there - the easy money to be made out of the Chinese milk market has already been made, by the sellers of stainless steel & newspapers. The hard shilling, if it exists at all, is ours to make over the long haul.
Edit: It is also notable that Irish banks are making money lending for expansion on high land prices, over-collateralised by inherited farms. As far as I can determine they are doing this against a business model in which the borrower / farmer is able to pay himself little or nothing, at least unless the milk price is historically high. It is worth noting that they would not do this for any other, mainstream, business. If we continue to value our (inherited) land at nothing by diluting our equity in it, and our labour at nothing when we calculate cost of production, then the market will make damned sure that that is what they are worth.0 -
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haha.. I doubt it. I thought the post above was wide open and non-specific enough that it almost qualified as a proper forecast
What I am really trying to illustrate is that it is important to look at a market from a bit of a distance, to challenge the obvious, and to expect it to wrong foot most peoples expectations most of the time.
It strikes me that we are all expecting volatility, but that most people I speak to imagine that volatility consisting of prices fluctuating between the unbearable (now, soon???) and last years price. They do the maths and come up with an average between 30 and 35c and pat themselves on the back while planning to save in the good years etc. etc.
If only things were that easy. I suspect that the killer situation for Ireland would not be prices in the low 20's - nor yet prices rocketing up and down to 40 , but actually prices moving relentlessly between, say, 25c and 30c with input and fixed costs steadily rising.
If I were still any kind of banker that is the situation I would be stress testing, and I'd be wanting to see that borrowers could pay themselves something at that price as well. Any fool can be "price competitive" if he's prepared to work for nothing!
The market HAS to clear out producers in order to function, if all it does is irritate them and depress them it isn't working properly. If shockingly low prices won't do it, long term attrition will.
A lot of course also depends on demand, and current prices indicate that the demand everyone was so sure of simply hasn't materialised. No real surprise there - the easy money to be made out of the Chinese milk market has already been made, by the sellers of stainless steel & newspapers. The hard shilling, if it exists at all, is ours to make over the long haul.
Edit: It is also notable that Irish banks are making money lending for expansion on high land prices, over-collateralised by inherited farms. As far as I can determine they are doing this against a business model in which the borrower / farmer is able to pay himself little or nothing, at least unless the milk price is historically high. It is worth noting that they would not do this for any other, mainstream, business. If we continue to value our (inherited) land at nothing by diluting our equity in it, and our labour at nothing when we calculate cost of production, then the market will make damned sure that that is what they are worth.
+1. It was too easy to predict a growing market demand when China's economy was expanding at 7+% per year.
However a 1929 economic event is a possibility in China now...0 -
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This discussion has been closed.
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