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Dairy Australia - Market News


24 January 2014

Dairy Australia - Fortnightly Update 24 January 2014Dairy Australia - Fortnightly Update 24 January 2014

Event 108 on the GDT platform this week saw further convergence in dairy commodity returns, Fonterra has announced plans to fund further growth in its Chinese operations and Hilmar Cheese has announced plans to diversify its product offering through the construction of a milk powder processing plant.
Dairy Australia - Market News

Global Developments

Event 108 on the GlobalDairyTrade (GDT) platform this week saw further convergence in dairy commodity returns, with positive moves for most major products pushing the GDT Price Index up 1.4% and producing a new record weighted average price of US$5,025/t. WMP (up 0.1% to US$4,943/t) and SMP (down 0.5% to US$4,698/t) remain well supported, but it was butter and cheddar that saw the most price movement. Butter soared 10.8% to average US$4,657/t as more milk fat is channelled into WMP and northern hemisphere stocks are steadily drawn down. Cheddar also made big gains, averaging US$5,133/t (up 10.4%) as major suppliers weight production towards better returning powders. Full results at http://www.globaldairytrade.info

Fonterra has announced plans to fund further growth in its Chinese operations by issuing its second round of bonds denominated in renminbi. The dairy giant became the first Australasian company to raise funds through the ‘dim sum’ (CNY bonds issued offshore) market in 2011, and plans to use the CNY1.24 billion (A$234million) raised to further its consumer brands strategy in the country.

US company Hilmar Cheese has announced plans to diversify its product offering through the construction of a milk powder processing plant in Turlock, California. According to Hilmar Ingredients, the division that will market the powder, the expansion is ‘part of a broader plan to be a larger, more dynamic global supplier.’

The Australian Front

Saputo (SAP) started the week with one acquisition and closed it with another: after announcing the acquisition of the liquid milk unit of Nova Scotia-based Scotsburn Co-Operative Services for C$61m (US$55.7m), the Canadian dairy major finally picked up a >50% interest in Warrnambool Cheese & Butter (WCB).

SAP announced it had a 52.7% interest in WCB within a week of Bega (BGA) having sold its 18.8% stake—thereby taking the offer to $9.20 per share and triggering an automatic 14-day extension to the acceptance period (until 7PM, 4 Feb.) Murray Goulburn (MG) had earlier in the week urged the Australian Competition Tribunal (ACT) to allow its application to proceed; but with the co-op’s >50% interest condition unachievable, MG is withdrawing its bid and following BGA in selling its 17.7% stake to SAP given its ‘obligation to [the] co-operative shareholders to maximise the growing a strong and globally competitive co-operative.’ Meanwhile Lion stated that it ‘has no current intention to accept Saputo’s takeover offer in relation to WCB.’ SAP looks likely to achieve its >75% interest threshold, and take the offer value to $9.40 per share; and even reach the >90%, should Lion’s intentions change, raising the consideration to $9.60 per share. Expectations are mounting about how BGA and MG will use their approximately $50-60m in pre-tax and costs cash gains and how SAP will progress its plans for WCB after paying a hefty premium: debt, farmgate prices, plant and Asian markets?

Pacific Equity Partners (PEP) has reportedly engaged PwC to do vendor due diligence on its Peters Ice-cream business, acquired from Nestle in 2012. Post-SAP’s takeover of WCB, larger local players might look again at the business as the list of alternative potential targets shortens.

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