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Dairy Australia Fortnightly Update

12 March 2013
Dairy Australia

GLOBAL/AUSTRALIA - In their fortnightly update, Dairy Australia discusses the drought impacts in New Zealand, Fonterra's milk price of NZ$5.50/kg MS and Murray Goulburn's new range of initiatives.

Global Developments
The severity of the dry spell affecting New Zealand’s North Island has been officially recognised with large areas of the island officially drought-declared. On 6 March NZ’s Ministry for Primary Industries declared Auckland (south of the Harbour Bridge) and Waikato drought zones in addition to Northland, where drought was declared a week ago.

Lobbying is underway to have the declaration expanded to include Manawatu and Rangitikei (in the North Island), which also require significant rainfall during March and April to replenish soil moisture before the winter.

Latest forecasts suggest little rain is expected in the short term – painting a negative picture for milk production.Drought conditions appear to have galvanised buyers at the most recent GlobalDairyTrade (GDT) auction, with the Trade Weighted Index (TWI) jumping 10.4 per cent at event 87 this week.

Average pricing for WMP increased by 18.0 per cent to US$4,298/t – the biggest increase since September 2010. Pricing was also supported by a decreased volume of product on offer relative to forecast.

The most significant increases were for May delivery contracts (up 19.3 per cent), reflecting the heightened concerns over short-term conditions in the wake of drought declaration. SMP prices averaged US$3,759/t (up 4.6 per cent) with NZ product extending its premium over European and US equivalents.

Butter hit US$4,081/t with a rise of 9.6 per cent, accelerating away from AMF which managed 4.9 per cent to average US$3,820/t. The slowest mover was rennet casein, up 1.2 per cent to US$8,930/t.

Still in NZ, Fonterra has confirmed its Farmgate Milk Price at NZ$5.50/kg MS (A$4.45/kg MS), and payout forecast range at NZ$5.90-$6.00/kg MS (A$4.77-4.86/kg MS) – both unchanged from previous guidance.

The cooperative has also confirmed it will proceed with a previously announced partnership with Netherlands-based A-ware Food Group. The agreement involves Fonterra constructing and operating an ingredients plant that will process whey and lactose by-products from an adjacent cheese plant to be run by A-ware.

Construction of both plants on a greenfield site in the north of the Netherlands is scheduled to be completed in late 2014. Proposed new food safety laws to take effect in China from April 1 ban online sales of milk powder by requiring all retailers of bulk foods or dairy products to have a physical storefront.

Food vendors in Beijing will be required to obtain a food certification licence, which will expire every three years. The moves are in response to ongoing food safety concerns, and are particularly targeted at online purchasing of infant formula from overseas.

The Australian Front

  • Fonterra Australia announced its second step-up of the season: 8c/kg butterfat and 20c/kg protein.
  • Murray Goulburn (MG) has announced a raft of new initiatives to assist its shareholder suppliers, including: (1) ‘Next Generation Dairy Rebate,’ a rebate on the investment made in the start-up phase; (2) ‘Workforce Support,’ services including case management of immigration applications; (3) ‘MG Partnerships,’ MG attracting equity funding for land purchases and then leasing the land to farmer shareholders; and (4) a range of new finance options under the labels ‘MG Supplier Finance’ and ‘MG Trading Finance’ providing support to help manage cash flow and sustainability.
  • Warrnambool Cheese and Butter (WCB) announced its half-year results: revenues down 11.8 per cent to $231m, given lower international commodity prices, with a 50.2 per cent drop in net operating profit after tax to $15.3m, and ‘underlying profit after tax’ of $10.7m after removing the impact of inventory adjustments. At the same time, WCB also flagged three new initiatives: (1) development of Livefree, ‘Australia’s lowest fat cheese’ for Kraft; (2) signing of an agreement with NZ’s Tatua to construct a lactoferrin plant at WCB’s Allansford site, and; (3) upgrading of existing whey protein concentrate (WPC) capability to enable the manufacture of instantised WPC.

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