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Dairy Australia - Market News

28 June 2013

Dairy Australia - Fortnightly Update 28 June 2013Dairy Australia - Fortnightly Update 28 June 2013

Trade-Weighted Index (TWI) increased 1.1% after three successive declines, Euroserum to offer SMP on GDT from November 2013, China Mengniu Co Ltd has announced a US$1.6 billion (AUD$1.7 billion) takeover offer for Yashili InternationalNZ milk production fell 33% in April and further details on the Synlait Milk IPO have been released.
Dairy Australia - Market News

Global Developments

Prices clawed back some ground at GlobalDairyTrade (GDT) event 94 (18 June), with the TWI increasing 1.1% after three successive declines. Butter was the most significant winner in price terms, increasing 4.7% to an average of US$3,925/t. The key powders also saw gains, with SMP prices averaging US$4,284/t (up 3.2%) and the WMP average overcoming a continued (22%) drop in prices for July deliveries to reach US$4,668/t (up 2.2%). Average WMP prices for October, November and December are back above month-ago levels and within US$200/t of each other, as buyers respond to indications that the current period of elevated pricing may extend into 2014. See:

In other GDT news, dairy ingredients giant Euroserum—a business unit of French cooperative Sodiaal—will offer SMP on GDT from November this year, making it the fifth seller of SMP on the platform. Sodiaal is the largest cooperative in France and fourth-biggest in Europe, and a major producer of whey for infant formula.

China Mengniu Co Ltd has announced a US$1.6 billion (AUD$1.7 billion) takeover offer for Yashili International—one of China’s leading infant formula and baby food manufacturers. Both companies were caught up in the 2008 melamine scandal, with Yashili later distancing itself from local milk by sourcing all of its raw milk powder from overseas, mainly New Zealand. Mengniu also recently acquired 28% of large-scale raw milk supplier China Modern Dairy Holdings Ltd, and has indicated it has received ‘irrevocable acceptances’ of its Yashili takeover bid from both the Zhang family and Carlyle Group, which respectively control 52% and 24% of the company’s shares.

Data released by the Dairy Companies Association of New Zealand (DCANZ) confirms that NZ milk production fell sharply in April—down 33% on April 2012. Year-to-date production for the season to April was 0.4% down on the previous season, as the effects of the drought eclipsed a strong start to the season.

Further details have been released concerning the Synlait Milk IPO, with the company confirming the intention to raise NZ$120 million (AUD$101 million) from listing in New Zealand. NZ$75 million will be raised by issuing new shares and will help fund debt reduction and capital expenditure, with the balance of NZ$45 million to come from a sell-down by Synlait Ltd. China’s Bright Dairy and Food Co (which owns a 51% stake in Synlait Milk) will retain its stake, which would fall to around 38-40%, whilst Synlait Ltd investors will retain 24-26%.

The Australian Front

A flurry of 2013/14 farmgate price announcements has been noted over the last fortnight:

United Dairy Power (UDP): an opening price of $6.05/kg MS

Australian Dairy Farmers Co-operative (ADFC): ‘an average total price’ of $6.20/kg MS. ADFC is expected to offer its suppliers a choice of 1 or 2-year supply contracts with base price options of either a ‘flat monthly milk price’ or a ‘variable month milk price.’

Burra Foods: a range of $5.25-$5.65/kg MS, after Longwarry Food Park (LFP) declared a ‘weighted average’ price of $5.70/kg MS.

Bega Cheese and Tatura: an opening price of $5.62/kg MS and an expected range between $5.40-$5.90/kg MS.

Having already announced an opening price of $5.60/kg MS on 5 June 2013, including an ‘option to take up the pre-payment of a special step-up, Murray Goulburn (MG) have made a ‘re-departure’ from tradition—lifting the previously ‘announced opening base price by $0.13/kg MS to an available weighted average of $5.73/kg MS,’ citing the ‘recent major shift in the currency’ as the driver enabling step-up-like increases in its opening prices.

Export Index

Australian Export Index (Base = 100 at Jan 2000)

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