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Dairy Australia - Market News


02 December 2013

Dairy Australia - Fortnightly Update 29 November 2013Dairy Australia - Fortnightly Update 29 November 2013

NZ's continuing milk production growth was insufficient to dampen prices at last week's event 19 on the GDT platform, Brazilian farmgate milk prices have all but ended a year-long run of increases, rising just 0.15% in Oct. and changes to China's one child policy will allow couples to have two children in future, provided at least one parent is themselves an only child
Dairy Australia - Market News

Global Developments

New Zealand's continuing milk production growth was insufficient to dampen prices at last week's event 19 on the GlobalDairyTrade (GDT) platform. The GDT Price Index inched 0.1% higher with the average price reaching US$4,805/t. WMP pricing recorded virtually no change, averaging US$4,870/t as fierce competition for January (contract 2) delivery defied the C2 record of 20,000 tonnes offered to result in a small price gain that offset slight decreases for later delivery. SMP sold for an average of US$4,583/t, up 0.7% as northern hemisphere offerings closed the gap on Fonterra-sourced product. AMF (down 1.6% to US$5,255/t) and butter (up 1.7% to US$3,853/t) remained within recent trading ranges but cheddar (up 4.5% to US$4,584/t) saw strong gains reflecting supply driven price increases evident in other channels. For full results see www.globaldairytrade.info

Brazilian farmgate milk prices have all but ended a year-long run of increases, rising just 0.15% in Oct. according to the country's Centre of Advanced Studies on Applied Economics (CEPEA). Better margins and a rainfall-induced pasture recovery have driven increases in milk production, while weaker demand has contributed to falling wholesale product prices. Brazil's dairy trade deficit looks set to continue for some time yet however; exports totalling US$72.4m for Jan.-Oct. were dwarfed by imports worth US$492.5m.

Recently announced changes to China's one child policy will allow couples to have two children in future, provided at least one parent is themselves an only child. Exemptions already applied for (a) a majority of couples who were both only children, (b) families from rural areas/minority groups with a female first child, and (c) families who paid a fine for having a second child. The further relaxation of the one child policy is likely to be good news for suppliers of infant nutrition products to China, with predictions of 1-2m extra births p.a. implying additional product demand in the years ahead.

The Australian Front

A week-long flurry of action in the takeover contest for Warrnambool Cheese & Butter (WCB): Mon, 25 Nov: Saputo (SAP) dropped the earlier special dividends linked to its $9.00 cash offer—but attached an additional 20c per share contingent upon the Canadian bidder achieving a greater than 50% interest in WCB. Tues, 26 Nov: Bega (BGA) extended the closing date on its cash-scrip offer of 1.5 BGA shares + $2 cash (equivalent to $9.03 at time of writing) to 12 Dec. 2013. Wed, 27 Nov: Murray Goulburn (MG) sought the Takeovers Panel (Australia’s takeover arbitrator) to order that SAP (a) desist from processing offer acceptances and acquiring WCB shares on market, and (b) reinstate the special dividends, and refrain from varying its bid to provide the additional 20c per share. Thurs, 28 Nov: MG announced its third offer, $9.50 cash; Fri, 29 Nov: SAP this morning notified the ASX that it had achieved a 9.64% interest in WCB—up from 3.73% on 25 Nov—the three-way contest continues.

Fonterra has meanwhile lifted its stake in BGA from 6.1% to 9.1%, according to Bloomberg reports this morning—the NZ giant further bolstering its interests in Australia.

Burra announced its third step-up for 2013/14: 12 c/kg fat, 30 c/kg protein—an increase of 20 c/kg MS— supporting its Gippsland farmers.

Dairy Australia has reduced its forecast milk production volume to 9.0-9.2b litres, implying a full year contraction of between 0-2.2% for the 2013/14 season. Due to the difficulties experienced in second half 2012/13 and challenges associated with returning pasture, cows and cash flow to productive health, the negative growth rates of the initial months of the season were not unexpected. Adverse weather continues to play a constraining role, particularly in northern regions where severe rainfall deficits have undermined pasture and crop production; in southern regions, colder weather has slowed pasture growth since a spike in Sept. Physical factors (in-calf rates last season, cost of replacements, pasture damage), cash flow constraints (limiting fertiliser, seed, grain purchases) and bruised confidence are all playing a part in limiting expansion to varying degrees. With October data illustrating a peak well below recent years,’ the low likelihood of production rebounding to recover milk volumes necessitated adjustment to the outlook. Revised projections assume improvements to current trends, as supported by forward indications.

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