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Dairy Australia - Market News

03 November 2014

Dairy Australia - Fortnightly Update - 31 October 2014Dairy Australia - Fortnightly Update - 31 October 2014

Dairy Australia - Market News

Global Developments

Chinese dairy imports fell 13% last month, compared to September 2013, according to GTIS data. The main contributors were a reduction in purchases of SMP (down 45% to 16,132 tonnes) and WMP (down 63% to 9,510 tonnes). The change is not as dramatic across the entire calendarthird quarter, however:total imports were up 1%, SMP down 20%, and WMP down 8%. For 2014 to date, volumes are up 30% on 2013 (SMP 35% and WMP 56%), however, following strong first half demand, third quarter imports account for a smaller proportion of total year to date trade than in recent years. Japanese authorities have announced plans for emergency imports of butter and SMP, to cover an anticipated shortage over the Christmas period.

The country’s Ministry of Agriculture, Forestry and Fisheries reportedly indicated that 3,000 tonnes of butter and 10,000 tonnes of SMP will be sought in time to meet the needs of manufacturers producing cakes for the Christmas/New Year period. New Zealand’s current season milk production is tracking ahead of last season’s as the spring peak pushes processing capacity to the limit. Official data to August also suggests a higher milk solids content than last season, with a 6.8% growth in milk components outpacing the 5.1% season to date growth in overall volume. Fonterra continues to work towards increasing its processing resources, reportedly beginning consultations ahead of lodging consent applications for a pair of proposed powder dryers for its Studholme site in South Canterbury.

According to local media reports, the dryers would be built sequentially in the next 5-10 years, at a cost of around NZ$600 million (A$533m). US dairy farmers looking to participate in the new Dairy Margin Protection Program have been given extra time to apply. Producers will now have until 5 December to enrol in the voluntary scheme, which provides compensation when the margin (theUSDA-calculated difference between the price of milk and feed costs) falls below the coverage level selected by the farmer.

The Australian Front

Murray Goulburn has postponed deliberation on its capital structure proposal:the co-op earlier indicated thatits planned capital structure proposal would be an item for consideration at its next annual general meeting (AGM) [scheduled for 27 November 27].

In communication to suppliers/shareholders earlier this week, MG Chairman Philip Tracy stated that consideration of the proposal has been pushed back to an extraordinary general meeting (EGM) [some time in the first half of calendar 2015]. Consequently, depending on the EGM outcome, the potential capital raising [involving the listing on the Australian Stock Exchange (ASX) of an investment trust] might not take place until some time mid-calendar 2015. Mr Tracy explained that ‘the Board [had] considered a range of factors including the interruption ofthe Christmas period and other key project parameters and…decided to extend the timeline.

Bega Group (BGA) expects flat earnings for 2015: Executive Chairman Barry Irvin told shareholders at the AGM that the cheese, whey and nutritionals-focused company was expecting financial year 2015 profit to be relatively unchanged from 2014’s (normalised profit of just under $30 m). Mr Irvin emphasised that increased global milk supply, lower global dairy commodity prices and greater uncertainty were key factors constraining the outlook. Atthe same time however, as CEO Aidan Coleman noted, BGA now sees around 65% of its revenue generated by ‘value-added non-bulk formats,’ reflecting the company’s penetration into food service and consumer channels. Warrnambool Cheese & Butter (WCB) announced the outcome of its 2014/15 farmgate milk price review: WCB is holding firm on its price, expecting that ‘the average closing price range this season will be between $5.86 and $6.00 per kilogram milk solids.

’WCB’s next review is scheduled for January, barring any significant changes to the outlook. Australian Dairy Farms Group (ADFG) relisted under the AHF code (as it was born out of the ‘shell’ of listed APA Financial Services Group) on the ASX earlier this week. The relisting followed a capital raising of $9.3 m at 0.20 c; independent experts Pitcher Partners put a fair value (high) of 14.9 c on the security back in July. Having followed through on the listing (foreshadowed in announcements by APA Financial Services Group and related party Trustees Australia since November 2012), from the current 2 farms, ADFG’s directors have ambitious aims to build a corporate dairy farming operation in Western Victoria encompassing up to 16 farms.

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