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Dairy Australia - Market News


24 September 2014

Dairy Australia - Fortnightly Update 19 September 2014Dairy Australia - Fortnightly Update 19 September 2014


Dairy Australia - Market News

Global Developments

No news was good news as far as GlobalDairyTrade (GDT) was concerned this week. Event 124 concluded with the GDT Price Index unchanged from the previous event and a weighted average price of US$2,795/t. WMP and SMP provided most of the support, up 0.6% (to US$2,692/t) and 0.9% (to US$2,619/t) respectively. BMP saw the biggest falls (down 6.9%) but at US$3,140/t continues to carry a sizeable premium to SMP.

AMF (down 2.2% toUS$3,264/t) and butter (down 2.5% to US$2,698/t) provided the downside as did a 6.5% fall for cheddar, selling on GDT for US$3,077/t. Some observers have been quick to label the results an indication that the long-awaited price floor has been reached, but the flat result may just reflect availability at this auction. Traders seem to be hedging their bets however; those ater contracts saw the bigger falls this week.Full results at www.globaldairytrade.info

Recent purchases by Algeria’s governmentimporting agency ONIL helped lift sentiment in the lead-up to this week’s GDT event, with tenders reportedly accepted for 60,000 tonnes of milk powders. About half of the volume purchased is WMP (reportedly NZ product) with the remainder SMP contracted in the low US$3,000/t range.

As demand begins to pick up, supply is likely to take a hit as farmgate prices in major exporting regions adjust to this year’s commodity price falls. Milk prices in the EU are moving below last year’s record highs as major processors announce further reductions to take effect from October 1, with ‘global markets’ taking the blame. European Commission data to July shows average prices for that month were 7% lower than the December peak before the latest round of cuts; and 2.5% below July 2013. New Zealand’s banks meanwhile, anticipate further cuts to Fonterra’s forecast Farmgate Milk Price, with ASB tipping an NZ$5.30/kg MS (A$5.13) payout, substantially less than Fonterra’s current NZ$6/kg MS (A$5.80) forecast.Fonterra is expected to review its forecast on 24 September.

The Australian Front

Australian Consolidated Milk (ACM) General Manager Peter Jones recently revealed to local media how the company has been faring in building its supply base: around 100 suppliers, or "close to double" last year’s figure. Like ADFC another more recent entrant, ACM has generated interest from prospective suppliers through attractive farmgate pricing. New suppliers have joined from across Victoria’s regions.

ACM’s Pactum Dairy Group joint venture (with listed Freedom Foods) late last month announced another China-related deal: ‘a Strategic Supply Agreement for premium high quality dairy milk.’ Western China-centred New Hope Dairy is looking to Pactum to supply high quality milk for its own brands. The venture’s Shepparton plant currently has capacity for 100 million litres, but can be expanded up to 300 million litres over time. Growing customer and supplier lists bode well for ACM’s growth plans; and foreshadow further intensification of price-based competition for supply.

Beijing Australia Agricultural Resource Cooperative Development Fund (BAARCDF) or‘the Fund’: a joint venture between two Chinese venturers, Beijing Agriculture Investment Fund and Yuhu Agriculture Investment Pty Ltd, was announced this week. The Fund is reportedly looking at investing a combined $3 billion across Australian dairy and other agribusiness. Details are yet to unfold; but the cashed up Chinese Government-owned Beijing Agricultural Investment Fund has some track record back home in dairy, with around 25,000 cattle across 5 farms supplying Chinese dairy majors Yili, Mengniu and Sanyuan.

Yuhu Agriculture Investment Pty Ltd is a subsidiary of Yuhu Group, which has diverse property, infrastructure and other interests. More speculation than activity may have gone on around Chinese investment in Australian dairy in recent years, but the Fund’s announcement(and emerging developments like below) could be turning points. At the same time, there is at least one state in which dairy stakeholders are looking for serious large-scale investment, depending on the ‘fit,’ to realise growth aspirations.

Ningbo Dairy vice-president Harry Wang raised more than a few eyebrows this week telling The Australian that the company saw ‘the only way [to realise profitably and rapidly its aspirations for large-scale fresh milk exports to China] is to process the milk ourselves, exportitto China and to bring some of [its] workers here.’ Ningbo reportedly has 30 farms with a total of 20,000 cows south of Shanghai; locally, the company has just 3 farms in South Gippsland but plans to add farms in Gippsland and northern New South Wales as well as establish a fresh milk processing plant in Victoria. Ningbo is understood to be currently supplying a local manufacturer; but obviously has other longer-term, challenging ambitions

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