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Dairy Australia - Market News


09 January 2015

Dairy Australia - Fortnightly Update - 9 January 2015Dairy Australia - Fortnightly Update - 9 January 2015


Dairy Australia - Market News

Commodity market direction is far from a sure bet at present, but the first GlobalDairyTrade (GDT) event for 2015 (#131) got the year off to a positive start for sellers, albeit with lower volumes on offer. The GDT Price Index increased 3.6%, building on a 2.4% rise at event 130 on 16 December and producing a weighted average price of US$2,709/t as all products saw increases. Butter (up 13.2% to US$3,558/t) and AMF (up 7.0% to US$4,493/t) extended their gains to four successive auctions: both are trading around US$1,000/t higher than as recently as November levels. Moves for the key powders were more muted. SMP gained 2.8% to sell for an average of US$2,386/t, though Fonterra’s offerings captured most of this; other sellers largely absent or losing ground. The forward curve for SMP has flattened appreciably over recent events, as the market apparently prices in a slower and steadier price recovery out to July. WMP prices edged up 1.6% overall to US$2,307/t amidst a similar pattern of early delivery gains and later losses. See www.globaldairytrade.info

Dry conditions are beginning to impact milk production in New Zealand’s South Island, according to Fonterra’s latest Global Dairy Update, released this week. The cooperative’s total NZ milk intake is up 4% for the season to December, but the possibility of irrigation restrictions on the east coast of the South Island in particular have the potential to cause a more rapid ‘taper’ in volumes. Otago Regional Council has already announced that irrigation in Central and North Otago is likely to be shut down from next week as rivers in the region approach minimum flow levels.

Major UK milk processor First Milk has announced a two week delay in ‘all future’ milk payments to its 1,300 suppliers as the cooperative struggles with cash flow issues brought on by ‘a year of volatility that has never been seen before’. As part of a set of measures aimed at providing a ‘stronger business platform for 2015’, First Milk will also quadruple the per-litre capital contribution suppliers make through to August 2015, and reverse a portion of the announced price cuts for February. The cooperative has pledged to work with banks to ‘explain the rationale’ around the decision, acknowledging that the delay to payment will affect farmer cash flow and direct debits.

The Australian Front

Late in December 2014, Parmalat announced that it had acquired Gippsland-based Longwarry Food Park (LFP), subject to Foreign Investment Review Board (FIRB) approval and other undisclosed conditions. The AUD $67 million deal gives Parmalat some additional milk supply and a facility in Victoria with bolt-on export capabilities in ingredients including milk powder, cream cheese, as well as fresh and UHT products. LFP founder and managing director Mr Rakesh Agrawal, who had purchased the former Bonlac facility and grown the Longwarry

business, is expected to stay on together with other staff. The deal also ends long-running speculation about LFP's future, given Mr Agrawal had told local media last year that he was considering selling, listing on the stock market or obtaining equity partners to expand. Parmalat had earlier in 2014 acquired Western Australian-based Harvey Fresh in a deal valued at AUD $117 million, giving it a national footprint and some bolt-on export opportunity via Perth to Singapore. Parmalat’s global expansion ambitions led to Australian and Brazilian acquisitions in 2014 (announced) totalling AUD $1.1 billion, according to Bloomberg data.

New Zealand-listed A2, ‘a2MC,’ is moving closer to listing also on the Australian Stock Exchange (ASX) and progressing its international expansion agenda. The NZheadquartered company has called a special general meeting for later this month in Auckland in order to seek changes to its constitution that will reduce the number of NZ resident directors and thereby give the company greater flexibility in appointing directors as it expands internationally. a2MC is currently active in Australia, New Zealand, China and the UK; and in the second half of 2014, the company announced that its US entry plans were in ‘the final stages’ with a roll out of liquid milk in selected US regional markets during 2015.

Western Australia-based Bannister Downs has announced that it is growing its manufacturing capabilities in partnership with Gina Rinehart-controlled Hope Dairies (WA). Niche player Bannister Downs has grown its branded farmer label retail sales volume over three-fold in the last four years according to IRI-Aztec supermarket sales data and dipped its toe in fresh dairy export into Southeast Asia. The partnership is expected to enable a four-fold increase in capacity along with a new $20 million processing plant.

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