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Dairy Australia - Market News

01 May 2015

Dairy Australia - Market News - 1 May 2015Dairy Australia - Market News - 1 May 2015

Dairy Australia - Market News

Global Developments

Many New Zealand farmers experienced a further blow from depressed global dairy markets this week, as farmgate price forecasts were cut again. Westland Milk Products cut its payout forecast (before retentions) to a range of NZ$4.90-5.10/kg MS (around A$4.74-$4.93) on Wednesday, citing a recent change in customer sentiment after the early-year commodity price rally collapsed. Aggressive peak-season sales out of Europe are expected to make the next three months ‘very tough’ according to Westland, but the cooperative is ‘well placed…due to sales decisions made earlier in the season’. Fonterra followed a day later, with an early announcement of a reduced farmgate milk price (NZ$4.50/kg MS, A$4.35) due to ‘continuing and significant volatility in international dairy commodity prices caused by oversupply’. Combined with an unchanged dividend, the revised price produces a forecast cash payout of $4.70-$4.80/kg MS (A$4.55-$4.64) for the current season.

As part of its announcement, Fonterra also acknowledged a turnaround in production expectations in recent months, flagging a 1.5% full season increase in milk collections, compared to the 2.1% drop forecast previously (and 3.3% before that). Despite ongoing dry conditions in parts of the South Island, solid output in the North Island is expected to boost the last two months of the season sufficiently to exceed the 2013/14 record.

The Australian Front

United Dairy Power (UDP) was put into administration last week (having been in receivership since last year), following the sale of its Caboolture Cheese brand, some processing equipment, and its Gippsland assets. Murray Goulburn acquired Caboolture, UDP’s main cheese brand, and reportedly, will move the cheese cut-and-shred equipment to their Cobram site. Burra Foods is set to buy the Gippsland assets, a key part of the acquisition being the milk depot at Poowong, and will underwrite the payment terms to UDP’s suppliers. Media reports this week have Burra picking up around 50 million litres of milk; Warrnambool Cheese and Butter 90% of the South Australian and 70% of the Western Victorian UDP suppliers; and Parmalat around 6 million litres close to Adelaide. Three factories and the fleet of trucks belonging to UDP were not part of the recently announced sales.

As the doors are set to close on former UDP factories at Murray Bridge and Jervois, meat processor Midfield Group advanced its plans to move into dairy manufacturing. The company will invest $60 million building a milk powder facility at a former McCain Foods potato factory at Penola in southeast South Australia, to take advantage of export opportunities.

Meanwhile Tony Esposito, founder of UDP, has started a new milk brokering business: National Dairy Products. Purchasing milk based on the UDP farmgate “price structure from before it went into receivership”, he hopes to secure more than 100 million litres of milk from former UDP suppliers across western and northern Victoria. Mr Esposito sold UDP to Hong Kong-based private investor William Hui in February 2014.

Moxey Farms is set to be acquired by the Australian Fresh Milk Holdings consortium (AFMH) (subject to FIRB and regulatory approval). The AFMH consortium consists of Leppington Pastoral Company, New Hope Dairy and Freedom Foods. The Moxey family will continue to run the 3,400 cow, 50 million litre operation, while acquiring a strategic stake in AFMH.

Fonterra Australia are expanding their fixed base milk price (FBMP) options for next season, introducing a product which includes a range between a minimum and maximum farmgate milk price. Suppliers will nominate a price range for up to 70% of their milk in a tender process: if the 2015-16 closing price is within this range, the farmer will receive that price. If it moves outside the range, the minimum or maximum price received will be capped by the nominated range. The two FBMP offerings are expected to account for only 10% of Fonterra Australia’s milk supply next season.

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