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Dairy Australia - Market News


05 September 2014

Dairy Australia - Fortnightly Update 5 September 2014Dairy Australia - Fortnightly Update 5 September 2014

'Emergency market support measures' for the dairy sector were announced by the European Commission late last week, and another drop in GlobalDairyTrade (GDT) prices this week.
Dairy Australia - Market News

Global Developments

‘Emergency market support measures’ for the dairy sector were announced by the European Commission late last week, in response to the EU’s loss of access to the Russian market. The Commission will open the Private Storage Aid (PSA) subsidised storage program for butter, SMP and ‘certain cheeses’ – limited to PDO/PGI cheeses under current rules. Greater coverage of the variety of cheeses exported to Russia has been flagged, under the ‘exceptional measures’ provisions of the CAP regulations. The period for intervention buying for butter and SMP has also been extended to the end of the year, however calls to raise intervention prices and reintroduce export refunds have so far been resisted. Further measures remain a possibility, with EU Agriculture Commissioner Dacian Ciolo? declaring that he would ‘act pre-emptively to stabilise the market’ using that CAP tools at his disposal, whenever ‘material risks of market destabilisation appear’.

The European Commission’s announcement, an extra 10,600 tonnes of product on offer, and ongoing market weakness in the face of booming milk supply drove another drop in GlobalDairyTrade (GDT) prices this week. Event 123 finished up with the GDT Price Index 6% lower, and an average winning price of US$2,787/t, selling 57,010 tonnes of product – the largest total since August 2013. Of the volume products, SMP was again hit the hardest (down 9.5% to average US$2,600/t) reflecting fears of a surge in European supply following Russia’s embargo. WMP backtracked from last auction’s modest gains; down 4.3% on average to US$2,673/t. Butter and AMF suffered similarly, losing 5.6% and 5.8% respectively (to average US$2,753/t and US$3,360/t). The forward pricing curve does provide some consolation for sellers however, with prices showing more resilience in the later months of 2014 or early 2015. See www.globaldairytrade.info

The Australian Front

Australian Dairy Farmers Cooperative (ADFC) earlier this week announced that it had appointed former Murray Goulburn (MG) chief operating officer Mr Paul Kerr to head up its operations. ADFC is reported to have up to 60 suppliers across the three eastern seaboard states with approximately 140 million litres of milk destined for New South Wales-based Richmond Dairies and Victorian-based Bulla and Procal. In the ADFC’s announcement, Mr Kerr flagged that the organisation had ‘some exciting projects in the pipeline and [he would be] in a position to announce new ventures in the not too distant future.’ ADFC has stated it intends to grow its milk pool to eventually meet Bulla’s full requirements; and recent comments to local media also implied that such growth may see the organisation develop more than just member numbers in Western Victoria. Higher farmgate pricing and more demonstrable growth should support production in the region.

Murray Goulburn (MG) announced its financial results for the year ended 30 June 2014: higher revenue ($2.9 bn, up 22% on prior year), lower profit-after tax ($29.3m, down 16% on prior year) and negative operating cash flow (-$69 m, compared to +117 m in the prior year). The top bullet point of the press release highlighted ‘significant improvement in group safety performance,’ understandably given a ‘normalised’ profit, excluding the $26.5 m gain from the sale of the co-op’s Laverton logistics centre within other income, would likely have seen MG’s profit come in significantly lower, despite the $51m before-tax gain from the sale of Warrnambool Cheese & Butter (WCB) shares. However, there was some other significant upwards movement: after all, higher international commodity prices supported MG’s claimed weighted average farmgate price of $6.81 kg M/S; and the co-op increased its milk supply intake by 8% up to 3.4 bn litres as it expanded its supplier base in New South Wales (for the new western Sydney fresh milk processing plant) as well as gained a new major corporate dairy farmer supplier. In other communications to suppliers, MG released another update on its ‘Capital Structure Proposal’: shareholders should expect an Extraordinary General Meeting ‘to consider the proposal in late January or early February 2015.’

Fonterra meanwhile flagged a $550 m deal, with key elements involving a joint venture with leading Chinese infant formula maker Beingmate at Fonterra’s Darnum plant and the NZ co-op taking an up to 20% interest in the Chinese company.

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