Business & Investing: More smiles for dairy farmers as global prices surge again, Plus a new leader for the Super Fund board

Farmers will cheer the latest Global Dairy Trade (GDT) auction result that has seen prices hit a seven-year high and is likely to mean a lift in their payout.

Whole milk powder prices settled at US$4,364, the highest level in seven years, while the GDT price index, used as a reference point by the dairy industry, rose 15 percent to an average selling price of US$4,231 a tonne. The futures market had anticipated a rise of just 6 percent.

In a letter to farmer-shareholders yesterday, Fonterra CEO Miles Hurring described the result as “pretty extraordinary” saying the results were some of the strongest the co-op had seen to date.

Hurrell said Fonterra would talk to its sales teams on the ground in its markets to understand what they are seeing regarding future demand before reassessing its payout figure.

In February, Fonterra lifted its forecast milk price range to $6.90-to-$7.50 per kilogram of milk solids, up from a previous range of $6.70-to-$7.30/kgMS, citing strong Chinese demand.

Following news of the latest GDT result, ANZ Bank lifted its farmgate milk price forecast for the 2020-21 season to $7.70/kgMS, from $7.20/kg MS.

Westpac Bank was even more optimistic lifting its forecast by 40 cents to $7.90/kgMS.

The latest GDT price rise follows a run of strong gains in commodity prices across the board in recent weeks.

Listed dairy companies A2 Milk and Fonterra Shareholder Fund units each climbed 0.8 percent to $10.10 and $5.03, respectively, while shares in A2’s main supplier Synlait Milk dropped 0.3 percent to $3.85.

Barfoot & Thompson smashes 17-year sales record in February

The news keeps getting better for Auckland’s largest real estate agency Barfoot & Thompson, after it recorded its highest sales volumes in 17 years in February with the median selling price hitting a record high.

The agency sold 1124 residential properties last month, up a significant 40 percent on the 804 it sold in February last year.

It’s the highest number of homes the agency has sold in the month of February since 2004 and is further confirmation the market isn’t showing signs of slowing down for now.

The median selling price hit a record high of $1,010,000, an increase of $190,000 or 23 percent compared with February last year.

Barfoot & Thompson Managing Director Peter Thompson described the results as “exceptional.”

It continues a strong run for the real estate business which has seen five months of near record sales volumes.

Thompson said 56 percent of all sales the company made in February were for prices above $1 million.

He said the amount of stock the agency had available to sell at the end of last month was down 7 percent compared to February last year, even though new listings in February were up 18 percent compared to a year earlier.

Commerce Commission settles case against payday lender Moola over unreasonable fees

Payday lender Moola has agreed to credit or refund approximately $2.8 million to current and former borrowers, after acknowledging the Commerce Commission’s view that it charged customers unreasonable credit and default fees.

Moola offers short term loans to borrowers via its website. Before the introduction of a daily rate of charge cap in June 2020, it offered loans with interest rates as high as 620 percent per annum.

The Commission’s inquiry into Moola’s lending practices came about after receiving multiple complaints, including from a Christchurch budget advisory service. In September 2017, a District Court judge raised concerns about the level of Moola’s fees and invited the commission to intervene in debt recovery proceedings being taken by Moola.

As a result of the investigation, the commission found that between 2016 and 2017 Moola is likely to have charged unreasonable credit and default fees, breaching the Credit Contracts and Consumer Finance Act 2003.

The breaches included charging default fees of $60, establishment fees of between $150 and $350 depending on the term of the loan and processing fees of $50. All of the charges were more than five times the commission’s recommended amount.

The commission said Moola had agreed to identify affected customers and calculate the difference between the amount charged and the reasonable amount calculated by the commission, which it has now done. Affected customers will be credited or refunded by Moola within the next 12 months.

Separately the commission has taken High Court proceedings against Moola alleging irresponsible lending. That matter is unaffected by the settlement relating to unreasonable fees.

Super Fund appoints new chair

The Guardians of New Zealand Superannuation have appointed Catherine Drayton as the Super Fund’s new chair from April 1.

Drayton succeeds Catherine Savage, who will retire from the board after more than 10 years.

The Super Fund has rebounded strongly in the past 12 months as global equity markets have risen sharply in the wake of last year’s Covid related sell-off  – returning 53 percent from its low point in March 2020.

The NZ Super Fund currently has a valuation of $54.08 billion.

“The size of the fund is expected to double during the coming decade, and I will be focused on helping the team prepare for that growth,” Drayton said in a statement. Dayton’s other governance roles include chair of Christchurch International Airport, as well as serving on the boards of Genesis Energy, Southern Cross Medical Care Society and Southern Cross Hospitals.

China growing increasingly worried about potential bubbles in financial markets

China’s top banking regulator has warned of the growing risk of “bubbles” in international markets and also within the country’s own real estate sector, in the latest sign of mounting concerns over elevated global asset prices.

Guo Shuqing, chairman of China’s banking and insurance regulatory commission, said earlier this week that financial markets in Europe and the US were “out of sync with their economies and fuelled by monetary and fiscal policy”. The comments pointed to a potential spill over into China’s financial system.

“I’m worried the bubble problem in foreign financial markets will one day pop,” he said. “China’s market is now highly linked to foreign markets and foreign capital continues to flow in.”

The stark warning followed large inflows into China on the back of its rapid recovery from the pandemic, and as authorities in Beijing sought to liberalise overseas access to the country’s tightly controlled financial system.

The CSI 300 index of the country’s biggest Shanghai and Shenzhen-listed stocks reached an all-time high in February, surpassing its previous peak in the summer of 2007 in the early stages of the global financial crisis.

Guo’s statements also came weeks after Ma Jun, an adviser to the People’s Bank of China, said the risk of “bubbles” would increase if the central bank did not adjust its policy. Interest rates in China were cut last year in response to the coronavirus crisis, but policymakers have grappled with low inflation despite economic growth surpassing its pre-pandemic rate at the end of last year.

China’s debt-to-GDP ratio rose 24 percentage points in 2020 to 270 per cent, its fastest increase since the 2008 global financial crisis, according to HSBC.

Eurozone faces potential double-dip recession

Unemployment in Spain hit a five-year high and German retail sales slumped for a second month in a row, reinforcing economists’ expectations that restrictions to contain the coronavirus pandemic will drag the eurozone into a double-dip recession.

The number of unemployed in Spain rose 44,436 compared with the preceding month, taking the country’s jobless total to more than 4m for the first time in five years. Meanwhile, tight lockdown restrictions in Germany triggered a 4.5 percent drop in the country’s retail sales in January compared with the previous month, as the end of a temporary cut in sales taxes also weighed on consumer spending.

The fall in retail sales was much heavier than the 0.3 per cent decline expected by economists and follows a 9.1 per cent decline in December when the latest restrictions on people’s movement were tightened by Angela Merkel’s government.

Luis de Guindos, vice-president of the European Central Bank, said the bank was likely to lower its growth forecast for the first half of this year, although he still anticipated a rebound in the second half of 2021.

Eurozone GDP shrank 0.7 per cent in the fourth quarter and a contraction in the first quarter of this year would be classified as a recession, defined as two consecutive quarters of negative growth.

Rio Tinto chair to step down in the wake of indigenous cave destruction

The chairman of British-Australian mining giant Rio Tinto has announced he is stepping down over the company’s destruction of a 46,000-year-old, sacred Indigenous site last year, becoming the latest casualty in a string of departures connected to the event.

Simon Thompson, who has chaired the company since 2018, told Rio Tinto’s board he would not seek re-election when his term ends in 2022.

“As chairman, I am ultimately accountable for the failings that led to this tragic event which are a source of personal sadness and deep regret, as well as being a clear breach of our values as a company,” he said.

The announcement comes almost a year after Rio Tinto, the world’s second largest mining company, intentionally blew up the Juukan Gorge caves in Western Australia to expand an iron ore mine.

The local custodians of the land, the Puutu Kunti Kurrama and Pinikura people, had been fighting for years to protect the caves. Their destruction was met with outrage and condemnation from around the world, given the caves’ significant archaeological value and deep cultural meaning for Aboriginal people.

Months later and under pressure from investors, CEO Jean-Sebastian Jacques was forced to resign. However Rio Tinto recently revealed that Jacques still received some A$18.6 million in pay and long-term incentive rewards in 2020, despite his resignation.

Two other senior executives — Chris Salisbury, head of the iron ore business, and Simone Niven, group executive for corporate relations — also left the company in the wake of the incident.

Andrew Patterson is Newsroom's Markets Editor and has worked for decades as a financial journalist, radio presenter and editor with Australia's ABC, Radio Live and NBR.

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