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Dairy Australia - Market News


11 August 2014

Dairy Australia - Fortnightly Update 8 August 2014Dairy Australia - Fortnightly Update 8 August 2014

GlobalDairyTrade (GDT) event 121 concluded with the GDT Price Index down a further 8.4%, Fonterra is reducing its 2014/15 forecast Farmgate Milk Price by 14% to NZ$6.00/kg MS (around A$5.80/kg MS) and Russian authorities are reportedly moving to ban or restrict imports of a range of food and agricultural products.
Dairy Australia - Market News

Global Developments

Dairy markets received another jolt this week, as GlobalDairyTrade (GDT) event 121 concluded with the GDT Price Index down a further 8.4%, for an average winning price of US$3,035/t. The auction saw a 32% increase in the total tonnage on offer as the New Zealand season peak edges closer. In a sign that Chinese buyers remain content with their current inventory levels, WMP saw another steep decline, losing 11.5% to average US$2,725/t, while SMP beat the average, easing 6.5% to fetch US$3,264/t. Cheddar and BMP have seen relatively modest declines in recent weeks, but each lost just over 10% this auction, averaging US$3,742/t and US$3,852/t respectively. Milkfat products went some way towards restoring their ‘usual’ relativities: AMF prices increased 6% (to US$3,457/t) as butter decreased 9.6% (to US$2,800/t). Full results at www.globaldairytrade.info

New Zealand’s dairy farmers received some unwelcome, if not unexpected news this week, with Fonterra reducing its 2014/15 forecast Farmgate Milk Price by 14% to NZ$6.00/kg MS (around A$5.80/kg MS) – down from the season opening NZ$7.00/kg MS. The move reflects further falls in the GDT Price Index since the start of the season (June 1). An estimated dividend range of NZ$0.20-0.25 per share was also announced, bringing the forecast payout to NZ$6.20- $6.25 for a fully shared-up supplier. The second largest NZ milk processor, Westland Milk Products, has also trimmed its expected milk price; now forecasting a payout of NZ$6-$6.40/kg MS before retentions.

Russian authorities are reportedly moving to ban or restrict imports of a range of food and agricultural products (including dairy) in response to sanctions imposed by a number of countries over the conflict in eastern Ukraine. The executive order signed by Russian President Vladimir Putin specifies a period of one year, effective immediately. Exporting countries affected include the United States, European Union, Australia, Canada and Norway. Russian official have reportedly been meeting with delegations from Latin America to boost supply from alternative sources.

The Australian Front

Fonterra this morning announced another 2013/14 season step-up: 8 c/kg fat and 20 c/kg protein; earlier in the week, Burra Foods announced its final payment: 20 c/kg milk solids.

In announcing the payment to Burra’s suppliers, CEO Grant Crothers also confirmed that the company’s new infant formula capability was ‘fully operational’ with production at capacity, given the plant and many of the company’s key customers have obtained the required accreditation from the Certification and Accreditation Administration of the People's Republic of China (CNCA) to market infant formula in the Chinese market. Burra has previously indicated it expects to export up to 10,000 tonnes of infant formula product.

Bellamy’s Australia Limited (BAL) listed on the Australian Stock Exchange (ASX) earlier in the week; and reassured the market that the manufacturer of its Bellamy’s Organic branded infant formula Tatura Milk Industries (TMI) had also received the required CNCA accreditation enabling the Tasmanian-based company to progress its expansion into China. BAL is expected to build further on its presence in China and other Asian markets.

The local unit of PZ Cussons Plc. is acquiring Melbournebased organic yoghurt manufacturer 5am for just under $80m, reportedly 12.8 times earnings before interest tax and depreciation. Established in 2011, 5am has expanded its distribution into major supermarkets Coles and Woolworths and built a strong brand on its organic offering, achieving $23m in revenue for 2013 (and expecting $35m for 2014). Cussons is looking to build on its growing local range of food and infantrelated brands, including Rafferty’s Garden baby foods purchased in 2013 for $70m. 5am founder David Prior said he was ‘sure the business [would] flourish under its [new] ownership.’

Longwarry Food Park (LFP) founder Rakesh Aggarwal confirmed to the Australian Financial Review last week that ‘Asian, European and domestic players’ have been sizing up the Gippsland-based manufacturer of dairy powders, cream cheese and liquid milk. With an annual milk intake reportedly around 100 million litres, more than 80%+ of LFP’s expected $100m+ revenue has been derived from export sales.

Australian Dairy Farms has some ambitious plans to build a listed corporate dairy farming operation: local media report that the aspiring corporate player is looking to raise $14.7m with Bell Potter’s assistance, and from 2 farms acquire another 14, focusing on Western Victoria.

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