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Dairy Australia - Market News


29 May 2015

Dairy Australia - Market News - 29 May 2015Dairy Australia - Market News - 29 May 2015


Dairy Australia - Market News

Global Developments

A more stable result, but there was little hint of a price recovery in last week’s GlobalDairyTrade (GDT) auction results. Event 140 on the online platform saw prices dip by an average of 2.2% across all products, with a weighted average value of US$2,472/t. At just over 26,500 tonnes, the total volume sold was 3% below the previous event, and 21% below the same time last year. In a departure from recent trends, it was the New Zealand offerings that brought SMP prices down, falling 3.6% to an average of US$1,992/t. Arla’s European-sourced medium heat product for July delivery actually achieved a 1% higher value of US$1,970/t, while the equivalent Fonterra SMP fetched the same price – representing a 6% fall as the ‘Oceania premium’ was eliminated. Buttermilk powder generated a rare positive result, increasing 3.2% to average US$1,930/t after crashing 14% last auction. A slight (0.5%) decrease to US$2,390/t for WMP has largely been interpreted as a harbinger of stability, however with only US$106/t between July and November delivery contracts, New Zealand’s farmers (see below) might be forgiven for their lack of excitement. Butter and AMF dropped 3.2% (to US$2,911/t) and 4.8% (to US$3,337/t) respectively, with slower demand weighing on prices in the broader fats market. Full results at www.globaldairytrade.info

A steady WMP price is not what New Zealand’s dairy farmers will be hoping for, after Fonterra’s announcement this week of a 2015/16 farmgate price forecast of NZ$5.25/kg MS (A$5.21). Although it is broadly in line with market expectations, the forecast and associated advance rate of NZ$3.66/kg MS will maintain the cashflow pressure on a large number of farms, with milk cheques through the approaching winter likely to be particularly grim. Rival processors have also announced forecasts, with Westland anticipating NZ$5.60-6.00/kg MS and Open Country flagging a payout in the range of NZ$4.75-4.95/kg MS. Farmgate prices are also under pressure in Europe, with major cooperative Arla Foods announcing a 3% price cut for its suppliers in the United Kingdom. The move reverses an equivalent increase in April, and was blamed on global markets. It’s unlikely to be the last such announcement in Europe, with year on year milk production growth showing little sign of easing, and spot milk trading at a significant discount post farmgate.

The first of ‘enough mozzarella to top more than 300 million pizzas a year’ has been produced by Fonterra’s new NZ$72 million individual quick frozen (IQF) plant at its Clandeboye site in South Canterbury. Created from milk in a single day (rather than the conventional two months), the mozzarella is part of Fonterra’s foodservice strategy, and will be served up on pizzas across Asia and the Middle East.

The Australian Front

Fonterra Australia has announced its Fixed Base Milk Price and Milk Price Range for season 2015/16. Following the tender allocation process, participating suppliers can expect the Milk Price Range (which allows suppliers to lock in a volume of milk within a set price range) to provide a minimum weighted average price of $5.54 per kilogram of milk solids (kg/MS). The Fixed Base Milk Price (allowing suppliers to lock in a volume of milk at a set price) is equivalent to a weighted average of $5.80 kg/MS. Both programs are separate to Fonterra Australia’s standard milk pricing model.

Burra Foods are projecting the farmgate milk price to reach $6.20/kg MS in 2016, and a closing step up for the current season to take the price over $6/kg MS. According to media reports, CEO Grant Crothers recently told supplier meetings that available returns and a strong order book had Burra expecting to pay suppliers over $6/kg MS for the third consecutive year in 2016, although the forecast could change if exchange rates or global commodity prices moved dramatically.

Lion have opened their upgraded specialty cheese plant, The Heritage, at Burnie, Tasmania. The plant has a processing capacity of over 80 million litres per year, to produce around 11,000 tonnes of cheese. According to Lion, it is the largest specialty cheese factory in the southern hemisphere. The upgrade took 4 years, and cost $150 million. Having sold their everyday cheese business to Warrnambool Cheese and Butter, Lion plan to increase market penetration of their specialty cheese range within Australia, and in Asian markets.

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