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Dairy Australia - Market News

12 December 2014

Dairy Australia - Market News December 2014Dairy Australia - Market News December 2014

Dairy Australia - Market News

Global Developments

A sharp drop in average WMP pricing (down 7.1% to US$2,229/t) outweighed positive moves for every other product to see GlobalDairyTrade (GDT) event 129 conclude with the GDT Price Index down 1.1%. Butter and AMF extended recent gains, posting increases of 7.3% (to US$2,849/t) and 9% (to US$3,817/t) respectively. These two products are also the only two on GDT to be currently fetching higher prices than they were three months ago, though fortnightly movements have been less than consistent. SMP saw a 5.7% average gain to US$2,423/t, though European sellers (and India’s Amul) saw only falls.

Fonterra product saw some healthy gains, while US offerings remained absent. Later month offerings for both SMP and WMP saw price increases, with the former closing in on US$3,000/t for June delivery. Full results at Fonterra’s New Zealand suppliers received the long-awaited results of the cooperative’s December price review, in the form of a revised NZ$4.70/kg MS milk price forecast. The lower value (around $4.55/kg MS in Australian terms) reflects slower than anticipated progress towards a recovery in WMP prices, though a substantial recovery (to over US$3,000/t) is still forecast before the May 31 conclusion of the NZ production season.

The previous (September) forecast of NZ$5.30/kg MS had assumed that milestone would be reached by the end of this month. Still on Fonterra: the NZ co-op yesterday announced the establishment of a new milk intake subsidiary; mymilk is aiming to grow the milk supply pool by initially inviting applications from farmers in Canterbury, Otago and Southland regions. The unit will allow farmers to supply without having to ‘share up’ (purchase shares in Fonterra). mymilk supply from prospective suppliers will consequently be limited to a total of five years and total volume from the unit capped at 5% of Fonterra’s total intake volume, as the system aims to support both growth in the co-op’s milk intake as well as the ‘the co-operative principle that supply should be backed by shares.’

Kiwi farmers are not alone in facing further downside from the continued commodity market weakness. Muller Wiseman has become the fourth major UK milk processor to announce further farmgate price cuts, with a 4% reduction to take place from January 10th. Dairy Crest, First Milk and Arla have also announced farmgate price cuts in the past fortnight, blaming ‘extreme market volatility’, the halving of dairy commodity prices since February, and a general oversupply of milk. UK daily production is tracking almost 9% above the three year average, and around 5% above the same time last year.

The Australian Front

Australian exports to the Republic of Korea (ROK) will get some potential support from the relatively early introduction of tariff reduction under the Korea-Australia Free Trade Agreement after the National Assembly in Seoul ratified the agreement. Over recent years, Australia’s ROKbound dairy exports have averaged close to 25,000 tonnes, amounting to around $100 million per year. As Australian Dairy Industry Council Chairman (ADIC) Noel Campbell stated, ‘the agreement places Australia on a more level playing field with key commercial rivals such as the European Union and USA, which already have free trade agreements with Korea.’ Murray Goulburn released its December market update earlier this month: the co-op is holding firm on its full-year farmgate milk price forecast of $6.00/kg MS.

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