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Dairy Australia - Market News


06 March 2015

Dairy Australia - Market News - 6 March 2015Dairy Australia - Market News - 6 March 2015


Dairy Australia - Market News

Global Developments

Dairy commodity prices appeared to consolidate recent gains at the latest (3 March) GlobalDairyTrade auction, event 135. The weighted average price across all commodities was US$3,374/t, producing a 1.1% increase in the headline GDT Price Index. Some increase in offer volumes may have contributed;total volume sold was around 4% up on last event, though 46% lower than the same time last year. Results were mixed at the individual product group level: WMP lost 1% to average US$3,241/t, while SMP jumped 5.9% to US$2,935/t. There was also some convergence between the fat-based products, with AMF easing 2.2% to US$4,237/t, as the average price for butter lifted 2.5% to US$3,912/t. The famously uniqueGDT cheddarindex continued its volatile run, bouncing a further 10.8%, with an average price of US$3,377/t. Looking ahead, forecast volumes for the rest of the season (to May) have been bumped up slightly for WMP, SMP, AMF and butter. Full results at www.globaldairytrade.info.

Fonterra has held its New Zealand farmgate milk price forecast steady at NZ$4.70/kg MS as part of its most recent quarterly review. Chairman John Wilson said that the recent recovery in dairy commodity markets was not sufficient to increase the farmgate price (which some analysts had predicted). The comments echo his recent remarks that current commodity prices were 'about where [Fonterra] needs to be' to achieve the current forecast.

Quota-busting dairy farmers in the European Union (EU) are to be offered concessional paymentterms to reduce the chance of liquidity problems ‘and provide considerable flexibility’ as the final year of superlevy fines is collected. The European Commission has previously resisted calls to soften the soon-toexpire quota system, but Agriculture Commissioner Phil Hogan last week confirmed rumours ofthe concession, while maintaining that there is no EU-wide ‘dairy crisis.’ Each member state breaching its quota volume will still have to pay the fine by the end ofNovember as legally required, but can collectthe corresponding penalty from its farmers in equal instalments across up to three years, interest free. The Commission has also announced a further extension to the Private Storage Aid (PSA) subsidised storage scheme, which will now continue until at least 30 September. The temporary removal of around 44,000 tonnes of butter and 21,000 tonnes of SMP so far has ‘helped ease short-term market pressures’ according to the Commission. 

The Australian Front

A brighter export outlook, pointed at during the Australian Bureau of Agricultural and Resource Economics (ABAREs) annual Outlook Conference: ABAREs forecasts an 8% rise in Australian dairy export earnings for 2015/2016, based on supply being supported by average seasonal conditions and demand by global economic activity growing around 3.3% in 2015.

Murray Goulburn (MG) has expanded the reach of its rural merchandise business: local media announced earlier in the month that MG acquired Tasmanian farm services business AgriCorp Pacific's (AgriCorp) stores in Smithton and Deloraine in Tasmania’s north and north west. With the AgriCorp stores to be rebranded under the MG Trading banner, the co-op’s rural merchandise footprint covers ‘25 trading stores, five fertiliser depots and a feed business, [and more than 250 staff] servicing…livestock and crop producers’ across southeastern Australia. The move enlarges MG’s presence on the island state where it has a controlling interest in milk powder-focused manufacturing at TasmanianDairy Products (TDP) in Smithton and dairy beverages at Edith Creek.

Saputo-controlled Warrnambool Cheese & Butter (WCB) is bolstering its presence in consumer branded cheese by acquiring the ‘everyday cheese business’ (EDC business) of Kirin-owned Lion Dairy & Drinks (LDD). The deal sees WCB take the EDC business ‘for $137.5m on a cash free, debt free basis.’ WCB’s announcement to the ASX noted that the purchase price included ‘$106.5 million [representing] the value of inventory net of a minimal amount of assumed liabilities.’ Situated adjacent to WCB’s plant at Allansford (in property leased from WCB), the EDC business cuts and wraps cheese manufactured by WCB that is sold under ‘everyday cheese brands [including] Coon, Mil Lel…Cracker Barrel [and Fred Walker].’ Recent IRI-Aztec data shows that the Coon and Cracker Barrel brands combined enjoy shares of close to 9% and 10% of total Australian supermarket cheese retail sales volume and value. The EDC business is reported to employ 170 people and generate annual sales of around $160 million. LDD Managing Director Peter West stated that the proceeds of the sale would be ‘invested behind [LDD’s] turnaround strategy.’

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