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Dairy Australia - Market News


13 January 2014

Dairy Australia - Fortnightly Update 10 January 2014Dairy Australia - Fortnightly Update 10 January 2014

Most dairy commodity prices were up at the 7 Jan. GDT auction, US milk production is expanding slower than may have been expected and Fonterra confirmed that Danone has formally initiated legal proceedings following the whey protein concentrate precautionary recall initiated by Fonterra in Aug. 2013.
Dairy Australia - Market News

Global Developments

Most dairy commodity prices were up at the 7 Jan. GlobalDairyTrade (GDT) auction (event 107), but lower prices for SMP, WMP and AMF saw the index fall by 0.8%. SMP lost 3.4%, averaging US$4,688/t, however the loss varied across contracts, with falls of between 2.8% (Contract 3) and 9.9% (Contract 6). Contract 2 (Mar.) bucked the trend to gain 0.5%. WMP was down 0.6% and AMF 1.8%. Butter prices added support to the index, averaging US$4,233/t (up 5.1%), as did LAC, up 5.8% for an average price of US$1,826/t. See www.globaldairytrade.info

US milk production is expanding slower than may have been expected, with the USDA’s preliminary estimate for Nov. 2013 being up only 0.1% year-on-year—a decline from Oct., for which growth was up 1.2%. Factors behind this include poor forage quality in 2013, inventories of feed purchased before prices improved, a reduced dairy herd (down 3,000 cows YoY in Nov. 2013), and excessively cold temperatures. Many farmers are also seeking to rebuild equity before investing in expanding production.

Fonterra yesterday confirmed that Danone has formally initiated legal proceedings following the whey protein concentrate precautionary recall initiated by Fonterra in Aug. 2013. Excerpts from the media statement read: “Fonterra has been in ongoing commercial discussions with Danone and is disappointed that they have resulted in legal action … It continues to be confident in its position and will vigorously defend any proceedings.”

The Australian Front

Saputo (SAP) this morning extended its $9 per share cash offer for Warrnambool Cheese & Butter (WCB) until 7PM, 22 Jan. The Canadian bidder also confirmed that it now holds 21.39% of WCB; approximately 46.4% of WCB is still held between BGA (18.8%), Murray Goulburn [MG] (17.7%) and Lion (9.9%). In its announcement to the ASX, SAP has stated that its offer will only be extended beyond the 22 Jan deadline if it reaches any of the ‘interest thresholds’ (50%, 75% or 90%) ‘within the last 7 days of the offer period.’ However competing local bidder MG is still expected to have to wait until mid-Feb. for clearance from the Australian Competition Tribunal (ACT): key conditions of MG’s$9.50 per share cash offer are the ACT’s authorisation and a >50% interest in WCB. Meanwhile, BGA Executive Chairman Barry Irvin has stated that the BGA board would ‘think about the broader industry good and the position of Bega... [and] make [its] decision based on Bega Cheese strategy and the right thing for suppliers and shareholders.’

United Dairy Power (UDP) has re-emerged as the subject of a sale: management stated earlier in the week that a sale or partial sale to an as yet unidentified party was ‘imminent.’

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