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Dairy Australia - Market News


14 April 2015

Dairy Australia - Market News - 14 April 2015Dairy Australia - Market News - 14 April 2015


Dairy Australia - Market News

Fonterra announced its half-year results last week, revealing a 16% year-on-year drop in net profit after tax to NZ$183 million (A$179m) for the period to January 31st. The ‘subdued’ first half was blamed on market volatility; in particular the lag between high priced milk intakes last season and low priced commodity sales as prices fell in mid-2014. Although the cooperative maintained its NZ$4.70/kg MS (around A$4.55/kg MS) farmgate milk price forecast, its trimming of the forecast dividend range by 5 cents (to 20-30c/share) reduces the total forecast payout to $4.90-$5.00/kg MS for a fully shared up farmer. CEO Theo Spierings acknowledged that many farmers expected a better result, but maintained the company was committed to its ongoing transformation program and V3 (‘volume, value, velocity’) strategy.

Fonterra’s results announcement included updated New Zealand milk intake guidance, with a 2% reduction (instead of 3.3%) now forecast. Also on the global supply front, the European Union’s milk quota system finally came to an end this week, after 30 years of capping milk supply. Ireland, the Netherlands, Denmark, Germany and parts of northern France are all tipped to grow strongly in coming years, though stagnant domestic markets, volatile global prices and the vagaries of weather are likely to challenge the more optimistic projections. These factors, in combination with increased offer volumes didn’t make for a bullish backdrop to GlobalDairyTrade (GDT) event 137 on April 1st. The headline GDT Price Index fell 10.8% for a weighted average price of US$2,746/t as all products on offer lost ground – particularly contracts for later month delivery. The powders were hit hardest, with WMP finishing down 13.3% (averaging US$2,538/t) and SMP down 9.9% to an average of US$2,467/t. Butter averaged US$3,259/t while AMF averaged US$3,663/t (7.6% and 5.3% down respectively). See www.globaldairytrade.info.

Canterbury-based processor Synlait Milk also announced interim results in recent days, posting an NZ$6.4 million (A$6.3m) net loss after tax for the six months to January 31st. The company attributed the lower-than-expected result to delays in the shipment of infant formula and nutraceutical products, indicating that contracted sales to date will generate a full year net profit after tax result of NZ$10-15 million (A$9.8-$14.7m). The company last week announced an early increase in its market milk price from NZ$4.40/kg MS to a range of NZ$4.50-$4.70/kg MS. 

The Australian Front

Australian milk production continues to track ahead of the 2013/14 season, with 2.8% growth year-to-date (YTD) to February. Nationally, production grew 6.4% in February (compared to Feb-14). Gippsland (up 7.7% for February and 5.8% YTD) and New South Wales (+11.5%/+5.4% Feb/YTD) have moved towards levels seen in recent seasons, whilst another record season for Tasmania (+11.5%/+11.3% Feb/YTD) seems likely.

Western Victoria and southeast South Australia (+5.3%/- 0.6% Feb/YTD) have seen slower intakes this season; primarily the result of a difficult spring, though reasonable summer rainfall has some areas well placed to capitalise on a good autumn break. Western Australia (+6.4%/+4.8% Feb/YTD) has seen a recovery in milk flows with the assistance of favourable seasonal conditions and attractive pricing. Recent rains in Queensland (-3.7%/-5.4% Feb/YTD) have improved the situation for at least some farmers. Nationally, is expected that production will remain strong, but growth will slow relative to last season in the final months of 2014/15. Dairy Australia’s 2014/15 milk production forecast remains at growth of around 2%, to an adjusted range of 9.40 to 9.45 billion litres.

Australian supermarket milk (fresh and UHT) sales volumes are up 1.9% year-on-year for the MAT 08/03/15 (IRI-Aztec supermarket data). This includes increases in fresh milk sales volumes of 1.0% and UHT 7.1%. Supermarket dairy spreads sales volumes remain strong (+6.2%), driven by growth in butter (+5.8%) and blends (+6.7%).

Australian Consolidated Milk and Thailand’s Dutch Mill will buy farms and lease them to farmers who have a solid dairying history but lack the capital to purchase their own property. The lessee will have the opportunity to acquire equity over time. A farm at Waaia in northern Victoria forms the first purchase. The aim of the joint venture is broaden ACM’s supply base, while allowing Dutch Mill to source milk from “accredited farms”. ACM produce UHT in Shepparton through Pactum Dairy Group (a joint venture with Freedom Foods).

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