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Dairy Australia - Market News

14 November 2014

Dairy Australia - Fortnightly Update 14 November 2014Dairy Australia - Fortnightly Update 14 November 2014

Dairy Australia - Market News

Global Developments

Despite almost universal falls, GlobalDairyTrade (GDT) event 127 teased with signs of the price stability that the market has been searching for: WMP bucked the trend, averaging US$2,522/t (up 1.6%) and keeping the GDT Price Index to a 0.3% decline. SMP eased 1.2% to an average of US$2,457/t, but with contracts for May delivery averaging US$2,822/t the forward curve is looking more positive than in recent events. Butter and AMF were punished further, losing 4.1% (to US$2,505/t) and 1.6% (to US$3,292/t) respectively, though the forward curves for these products also hints at improved prospects in 2015.

The big loser atthe 4November event was cheddar, down 9.2% to US$2,728/t. The total volume sold was down 10% on the previous event, but 19% higherthan the same last year. Fullresults at Fonterra chairman John Wilson has reaffirmed the cooperative’s forecast NZ Farmgate Milk Price of NZ$5.30/kg MS (A$5.13/kg MS) at this week’s Annual General Meeting. Industry commentators have widely anticipated a sub NZ$5.00/kg MS price for some weeks now, with some suggesting the current forecast is unrealistic in light of recent market movements.

Rival processor Open Country Dairy recently cut its own payout forecast to a NZ$4.70-4.90/kg MS range, while Canterbury-based Synlait is to review its NZ$5.00/kg MS early next month. News reports late this week suggest that China’s biggest dairy company Inner Mongolia Yili Industrial Group (Yili) has agreed to partner with Dairy Farmers of America (DFA) to set up a milk powder plant in the United States. Few details are available at the time of writing, however reports suggest the plant will have a potential annual capacity of 80,000 tons and the venture will involve a capital investment of US$100 million: US$30 million from Yili and US$70 million from DFA. DFA recently opened its newest powder plant on a greenfield site in Fallon, Nevada.

The Australian Front

Lion has raised farmgate milk prices for its West Australian suppliers: the processor announced last week that top grade quality milk under new contracts would attract an average 53.6 cents per litre while the company’s base milk price would rise by 2 cents to 49 cents per litre with a base payment option. Western Australia’s milk production has fluctuated around an average of approximately 350 million litres over the last decade while the population of the state’s capital and major domestic dairy market has grown around 2.8%. Lion’s move should support farmers positioned to take advantage of the continued opportunities presented. Still on farmgate pricing in WA: the Collective Bargaining Group of WA (CBGWA) a group of dairy farmers looking to switch from supplying Parmalat-owned Harvey Fresh, has reportedly reached an agreement to supply local private equity-owned processor Brownes. Local media cited CBGWA chairman Mike Norton stating that the farmgate prices under the prices could reach between 55.5 and 60.5 cents per litre over next several years.

Mr Norton was also reported as stating that Brownes was looking to ‘source an extra 50 million litres a year to push its supply towards 200 million litres.’ Tasmanian-based Van Diemen’s Land (VDL) has been reportedly close to sale or the subject of co-investment several times over the last couple years. The management view now after a profitable 2013/14 and in view of a decent increase in raw milk production for 2014/15 seems to be more about growing the dairy business, according to Mike Trousellot, CEO of Taranaki Investment Management (TIM), owner of Tasman Farms, VDL’s parent company. Mr Trousellot was quoted as saying that VDL’s owners are now looking at ‘achieving a combination of expansion opportunities and also sell-down opportunities.’ With 25 farms and just over 18,000 cows, VDL made a net profit after tax of $7.5 million for the 12 months ended 31 May 2014.

VDL’s continued growth should support the Tasmanian industry’s 2017/18 target of 1.152 billion litre target. Gina Rinehart, chairwoman of Hancock Prospecting Pty, is planning a $500 million dairy farm-to-factory investment, according to Bloomberg. The mining billionaire reportedly plans to invest via a Hancock Prospecting-controlled company called Hope Dairies into farm and factory assets in Queensland. Bloomberg reports that Mr David Garcia, a Hope Dairies director and co-investor, said the company is looking to purchase over 12,000 acres to farm in Queensland’s South Burnett region and establish infant formula and UHT manufacturing in the Mary Valley. Another China-focused plan to watch closely.

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