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Dairy Australia - Market News

28 November 2014

Dairy Australia - Market News 28 November 2014Dairy Australia - Market News 28 November 2014

Dairy Australia - Market News

Global Developments

Further falls for milk powders caused the GlobalDairyTrade (GDT) Price Index to decline 3.1% at event 128, with WMP down 5.1% (averaging $2,400/t) and SMP down 5.7% (averaging $2,299/t). Cheddar provided a bright spot and some relief for the index, however, lifting 5% to average $2,861/t: cheddar’s first positive price move since June.

AMF and butter were both up 6% (averaging $3,490/t and $2,656/t, respectively). The total volume sold was down 13% compared to the previous auction, and 24% below the quantity sold at the same time last year. Fonterra announced this week that they will begin offering Australian SMP on GDT from 20 January 2015, Trading Event 132.

Further investment in milk powder, infant formula and UHT processing and packaging is planned in New Zealand, with Chinese giantYili (Inner Mongolia Yili IndustrialGroup) announcing thatthey will invest NZ$400 million in diversifying their product range via their NZ subsidiary Oceania Dairy. Also in New Zealand, a joint venture with Mengniu will allow Miraka to expand its new UHT plant four times in the next five years, to meet Chinese demand. New Zealand’s Westland Milk Products announced that it would reduce its forecast farmgate payout for 2014/15 by 40c a kg of milk solids to a range of NZD$5.00-$5.40 kg/MS.

As described by Westland Chairman Matt O'Regan ‘unwelcome news for shareholders, but not unexpected’ given the low commodity price environment. Westland too is keen to reduce its exposure to bulk commodities, having moved into base infant formula powders and recently announced investment in a UHT plant at the Rolleston manufacturing centre.

The European Commission (EC) has announced a €28m (A$40m) aid package for dairy farmers in the Baltic states (Estonia, Latvia, Lithuania)to help deal with the falloutfrom the Russian embargo on food imports from the EU. The ‘financial envelope’ will assistindividual farmers who, as a result ofthe ban, are ‘encountering liquidity problems in exceptional circumstances’. The Australian Front The Australian Dairy Industry Council (ADIC) has welcomed the signing of the China-Australia Free Trade Agreement (ChAFTA), as an important moment for Australian dairy.

The deal, for which a Declaration of Intent was signed on 17 November 2014, will ultimately see the total removal of all dairy export tariffs faced by Australian dairy exports to China. The FTA will also enable the Australian dairy industry to further develop its long-term relationship with China and to compete on a more level playing field in the Chinese market against key competitors such as New Zealand. As a result of the deal, the industry expects ‘positive flow- on effects throughout the supply chain, in particular through substantially reduced tariffs on key dairy products  such as infant nutrition, cheese, milk powder and packaged milk.’

Accredited infant formula players are especially advantaged, given the relatively quick removal of tariffs: a phase-out ofthe 15% tariff on that period overfour years; while other categories such as butter and cheese, for example with 10% and 12% tariffs phased out over a range of four to nine years, and milk and cream at 15% phased out over nine years.

Now the challenge is for Australia’s dairy farmers and dairy companies to take advantage of the benefits of the deal. Murray-Goulburn (MG) directors and management at MG’s annual general meeting yesterday signalled that the co-op plans to press on with its capital restructure. Significant items on the agenda included the re-election of supplier directors Natalie Akers, Ken Jones and Graham Munzel and proposals for buybacks of preference shares designed to simplify the share register.

Aside from queries on the sale of the Laverton logistics centre and the co-op’s financial performance and debt levels, members’ questions in the open Q&A session reflected significant interest in receiving a clear and concise explanation of how the proposed unit trust structure and share transfer mechanisms would work in practice under the proposed capital structure. Camperdown Dairy (CD) getting in on the fresh dairy export trade to China: announced this week that it would be exporting fresh milk out of Victoria to China within the coming weeks. Local media reports volumes are expected to reach 500,000 litres a month within six months.



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