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Dairy Australia Fortnightly Update

25 March 2013
Dairy Australia

GLOBAL - A roundup up of the main dairy processing and trading news is provided by Dairy Australia in their fortnightly update.

Global Developments

Expanded drought declarations in New Zealand and reports of sluggish milk production in Europesaw GlobalDairyTrade (GDT) prices surge again this week, as the Trade Weighted Index climbed 14.8per cent.

Despite receiving some rainfall, the entire North Island is now drought declared, and this together with a reduction in WMP offer volumes to around 5,500 tonnes (from previous estimates of 8,000) saw earlier supply concerns compel buyers to bid up prices 21.2per cent to a record average price of US$5,116/t.

Prices are relatively constant across delivery periods out to August, with Contract 6 for September delivery attracting a markedly lower average of US$4,285/t – hinting that supply concerns extend out until the 2013/14 southern hemisphere season approaches its peak. SMP prices were up a solid 7.7per cent to US$4,050/t – nonetheless representing a huge discount to WMP.

There were increases for all other products as well, with fats and cheddar also firming significantly. Full results at Meanwhile, supply concerns have eased a little in the US, where the USDA has raised its milk production forecast for calendar 2013 to a shade under 94 million litres – representing growth of 0.8per cent on 2012 production.

February data confirms growth of 0.3per cent compared to February 2012 on a leap year-adjusted basis, despite the milking herd at 32,000 head or 0.3 per cent smaller.

The February Milk Production Report was the last for at least six months from the USDA’s National Agricultural Statistics Service (NASS), which has suspended the report’s publication until at least the end of the US fiscal year (30 September 2013) due to ‘sequestration’-related budget cuts arising from political stalemate.

Japan’s Prime Minister Shinzo Abe has announced a decision to take part in the Trans-Pacific
Partnership (TPP) negotiations, joining 11 other countries including New Zealand, the US and Australia.

Uncertainty remains as to the effect internal opposition within the ruling Liberal Democratic Party (LDP) will have on the timeline and outcomes of the negotiation process, given previous advocacy from within the LDP for exclusion of ‘sensitive’ agricultural commodities including dairy from the negotiations.

The Australian Front

Burra has announced its third step-up: 8c/kg butterfat and 20c/kg protein. In addition, the Korumburra-based company has brought forward the payment of its ‘Burra Supply Incentive’ of 4c/kg butterfat and 10c/kg protein.


Woolworths (WOW) are considering direct supply arrangements with farmers: the Australian Financial Review reported that WOW is looking at procuring milk directly from farmers and marketing it under a ‘Farmers’ Own’ brand. Without further details to hand, some are cautiously optimistic about the potential impact of supermarket-farmer supply arrangements on dairy farmers.

Murray Goulburn (MG) has flagged several changes to its supplier payment system, including: (1) replacing the three existing base prices with one base price; (2) flattening the price curve by increasing the base price over Sep-Dec peak months vs. off-peak months; (3) simplifying the flat milk incentive (‘Domestic Incentive’); (4) ‘amend’(ing) the protein/fat ratio to ‘better reflect the
recent increase in market value of fat products’; (5) simplifying productivity incentives/volume charges; and (6) ‘amend’[ing the] ‘pick-up’ charge to ‘better reflect true costs.’ MG also recently announced it is taking full ownership of its China-based infant formula JV MG Qingdao (MG previously had 51per cent). he says.


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