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Dairy Australia - Market News


14 July 2014

Dairy Australia - Fortnightly Update 11 July 2014Dairy Australia - Fortnightly Update 11 July 2014

The GlobalDairyTrade (GDT) Price Index decreased at the 1 July event (#119), Fonterra has entered into a strategic agreement with UK-based Dairy Crest, another plank of Fonterra’s global strategy was unveiled on Thursday, 10 July, and the European Commission (EC) reaffirmed its expectations of ‘moderate’ (2-3%) growth in milk production.
Dairy Australia - Market News

Global Developments

After steadying briefly in mid-June, the GlobalDairyTrade (GDT) Price Index decreased at the 1 July event (#119), ending the auction 4.9% lower as the market struggled to absorb a 30% increase in product volume on offer. Prices for DairyAmerica’s Unsalted Sweet Cream product for contract 1 (now August) delivery increased 3.3% to US $4,875/t while Fonterra’s New Zealand sourced offerings fell between 10-15% to trade around the low US$3,000/t mark. The net result was that butter prices fell by 14% on average, further widening the gap between US and Oceania pricing. AMF (down 7.5% to US$3,606/t) and WMP (down 5.4% to US$3,459/t) also pushed the overall index down; SMP was relatively stable, selling for US$3,810/t on average, down 0.9%. Full results at www.globaldairytrade.info.

Fonterra has entered into a strategic agreement with major UK dairy company Dairy Crest, extending its network of sourcing partners in Europe: the deal will see Fonterra marketing all of the demineralised whey produced at Dairy Crest’s Davidstow cheese facility, as well as the galacto-oligosaccharides (GOS) Dairy Crest will soon manufacture in conjunction with the UK’s Fayrefield Foods.

Another plank of Fonterra’s global strategy was unveiled yesterday in a joint announcement with US-based global healthcare company Abbott: the companies intend to form a strategic alliance to develop a dairy farm hub in China (Fonterra’s third in the country). If approved by Chinese regulators, the US$300 million (A$282 million) project will consist of up to five farms housing more than 16,000 dairy cows producing up to 160 million litres of milk per year.

The European Commission (EC) reaffirmed its expectations of ‘moderate’ (2-3%) growth in milk production after the quota system’s removal in 2015. In its latest Short Term Outlook, the EC also notes the strong spring milk output in the bloc, but claims that the extra milk was ‘easily’ absorbed by markets; and acknowledges that prices eased through the spring peak as capacity became an issue.

The Australian Front

Van Diemen’s Land (VDL) director Miles Hampton has been quoted as saying that New Plymouth District Council (NPDC), the owner of the major Tasmanian dairy farming enterprise, has been trying to sell the company for two years, given the NZ-based council faces ‘pressure to reduce risk in its investment portfolio.’ With a total of 25 farms (13 at Woolnorth, 12 in the northwest), a reported 28,000 cows and a book value of $170m, the 1825-founded VDL has recorded a series of accounting losses in recent years. NPDC holds 98 per cent of VDL as a superannuation-related investment. No specific parties have yet been identified in the latest reports, although ‘a number of investors looking at the company.’ Fonterra (which currently takes VDL’s milk) as well as China’s Bright Foods and its sovereign wealth fund China Investment Corporation (CIC) have all previously been linked to potential transactions, including equity stakes with a view to supporting VDL’s ambitious expansion plans.

Local media reports earlier this week revisited Bright Foods’ interest in potential Australian dairy investments, although no pending transactions were flagged. The Chinese company has reportedly been scouting for assets in Western Australia, Victoria and Tasmania over recent years. A Bright spokesperson indicated that the company’s experience with its investment in Manassen Foods (announced in 2011) has gone favourably, so the Shanghai-headquartered company is keen to make further investments in Australia.

CIC is meanwhile reportedly looking at taking a 49% stake in 9,000 ha property Rushy Lagoon in northeast Tasmania. The deal would enable expansion of irrigation and Rushy Lagoon’s 2,800 cow herd.

Lion Dairy & Drinks’ marketers have been busy working on their branded milk offerings: the processor has launched a new advertising and marketing campaign including TV commercials and new labelling to inform consumers that Lion’s branded milk also contains the A2 protein. Although some sub-segment of customers may be attracted to Lion’s product, given perceptions of a lower priced substitute for A2-branded milk, ranging decisions and tit-for-tat retaliatory moves could constrain the ‘also A2’ move. Meanwhile Lion’s Dairy Farmers milk in Far North Queensland (FNQ) is set “to feature new look ‘Malanda Original Milk’ packaging.” Since the milk is sourced from around 50 farms in the Malanda region, Lion’s move aims to bolster support from FNQ consumers for a sustainable local industry.



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