Dairy Australia - Market News
18 October 2013
GlobalDairyTrade (GDT) event 102 saw a modest retreat in prices overall, with the GDT Price Index easing 1.9%. WMP pricing fell back by 2.9% to average US$5,058/t as the market continues to digest increased volume projections from Fonterra, while SMP increased 0.7% to US$4,541/t driven by strong bidding for calendar 2013 delivery periods (contracts 1 and 2) and solid pricing for DairyAmerica’s foray into contract 4 and 5 offerings. Indian supplier Amul saw the average price of its SMP climb by up to 9.6% and it’s WMP by 4.5%, suggesting its offerings (usually priced significantly lower than alternative suppliers) are increasingly sought after in the current pricing environment. AMF prices edged down by 1.2% (averaging US$5,007/t), while butter fell 3.5% to US$3,780/t – although DairyAmerica’s product for November delivery gained 5.4% to average US$4,185/t, its highest since debut. For full results see: www.globaldairytrade.info
The European Commission has recently released its latest Short Term Outlook for grain, meat and dairy markets in the EU-28, highlighting the likelihood that increased milk prices will stimulate a production recovery in the second half of 2013 and growth of 1.1% in 2014. Several member states have already seen a turnaround from the decreases of early 2013 – particularly the Netherlands and Denmark, where production in excess of quota is looking increasingly likely, and quota lease prices have increased despite the impending expiration of quotas in 2015. The Outlook also notes that the number of dairy cows in the EU has increased this year for the first time in 20 years – driven by farmers retaining cows to take advantage of high milk prices.
The Australian Front
The takeover contest for Warrnambool Cheese & Butter (WCB) intensifies: Saputo (SAP) came in with a $7.00 bid (8 October)—unanimously approved by WCB’s board in the absence of a ‘superior offer’—and this morning MG upped the ante with a $7.50 cash bid. MG’s bid comes less than a week after KPMG released its independent expert report (12 Oct) putting WCB’s value at $6.96-$7.49 per share. KPMG’s valuation range hinges on (a) EBITDA figures reflecting WCB management’s revised FY2014 EBITDA forecast, and (b) valuation multiples for comparable companies. As with BGA’s bid, a key condition of MG’s 18 October offer is ACCC approval; and, like SAP’s bid, MG’s also requires obtaining an over 50% interest. While BGA and SAP would retain WCB’s corporate identity as part of their groups, MG proposes making WCB part of a ‘Murray Goulburn Warrnambool’ combination.
Toronto-listed SAP has long desired to gain a foothold in Australia and thereby access Asian growth opportunities. Yet SAP needs to not only gain Foreign Investment Review Board (FIRB) approval, but also be prepared to pay more than competing shareholders MG and BGA and win over local shareholders. Bega Executive Chairman Barry Irvin has stated BGA ‘reserved the right’ to increase its offer. With three bids on the table, and offer closing dates extendable, the contest for scale and close to 10% of national milk intake may take some time to play out.
Parmalat are lifting farmgate prices for Victorian and South Australian suppliers: from 1 November through to June 2014 suppliers will see their farmgate milk prices increase by 20c/kg fat and 40c/kg protein, taking the company’s ‘model farm’ annual price to $6.30 kg/MS. Parmalat has also announced that construction of its new Rowville (Vic) UHT plant is on track; and that it has a new extended shelf life (ESL) line installed in Adelaide to supply flavoured milk for Western Australia via arrangements with Mrs Mac’s.
UDP announced a ‘step-up/loyalty payment’ of 20c/kg fat and 40c/kg protein and stated that it was aiming for a closing price 10% above $6.40kg milk solids—and ‘if pricing continues to grow’ upside to $7.00 kg/MS.
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