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Dairy Australia - Market News

04 September 2015

Dairy Australia - Market News - 4 September 2015Dairy Australia - Market News - 4 September 2015

Dairy Australia - Market News

Global Developments

GlobalDairyTrade (GDT) event 147 added to hopes for a recovery in prices, with the September 1st auction producing a 10.9% index increase, and an average of US$2,226/t across all products. Powders showed the most promise, with SMP up 11.7% to average US$1,698/t, and WMP jumping 12.1% (returning US$2,078/t overall). Forward pricing for both commodities suggests few bidders are expecting dramatic increases in the months ahead: only US$21/t separating the highest (October) and lowest (March) priced SMP contract periods, for example. Buttermilk powder saw a dramatic turnaround, increasing 30% (to an average of US$1,829/t) after being left behind last fortnight. Milkfat products also continued to make gains, with AMF breaking through the US$3,000/t mark (up 11.7% to US$3,029/t) and butter hitting US$2,746/t (up 8.1%). Lactose was the only product to lose ground, down 4% to US$483/t. Volumes were sharply down at this event (-37%) in year-on-year terms.

Fonterra is not alone in pursuing a strategy of redirecting milk in an attempt to mitigate falling commodity prices. Arla Foods’ first half results statement reports similar efforts to push volume growth in branded products, and reduce the emphasis on ‘less profitable commodity products’. The cooperative’s key brands Lurpak, Castello and Arla delivered 2.4% growth in revenue over the first half of 2015, with China (doubling), Africa and the Middle East (up 15%) producing solid sales growth. The tough global market has hit overall revenue and profit however, and planned capital expenditure has been cut by 30% as part of an effort to ‘minimise the effect of the general global market situation’ which is creating a ‘tough situation’ for Arla’s 12,700 farmer owners.

The US Dairy Export Council (USDEC) has warned US exporters not to expect a ‘meaningful price recovery’ until at least mid- 2016, citing ‘unrelenting global milk production growth and heavy inventories’ worldwide. In particular, the organisation notes reported growth of 4% for China’s own milk output, of which the excess continues to be diverted to powder production, keeping inventories as high as ‘300,000 to 400,000 tonnes’. Slower imports by both China and Russia are expected to keep aggregate demand weak as global supply slowly drives a return to market balance.

The Australian Front

Murray Goulburn (MG) has announced its financial results for FY15. Revenue was $2.87 billion, down 1.5% compared to FY14. Statutory Net Profit After Tax (NPAT) was $21.2 million. With strong growth in the ‘ready-to-consume’ Dairy Foods business, revenues were up 29% at $1.13 billion. Milk intake rose 5.5% to 3.58 billion litres, giving MG 38% of Australia’s total milk supply. $500 million in new capital was raised, and $126 million invested in “strategic capital projects to support growth in the capacity and capability of ready-to-consume dairy foods”.

Bega Cheese also announced its FY15 results, with EBITDA of $55.7 million and a normalised profit after tax (PAT) of $22.0 million. The normalised result excludes the impact of the Milk Sustainability and Growth Program: when the effect of the program is included the statutory results reflect an EBITDA of $42 million and a PAT of $12.4 million. Revenue generated totalled $1.1 billion, an increase of $43 million. The consumer packaged goods and nutritionals platforms grew by a combined $72 million in revenue. Bega is also considering acquiring interests in micronutrient companies which produce ingredients for nutritional products such as infant formula. Executive Chairman Barry Irvin said, “We have a very good foundation and knowledge around micronutrients and their usage, so … it's appropriate for us to look in that particular area because it's not a step away from our core competencies”.

Burra Foods has sought to clarify recent media reports the company is to be sold, with CEO Grant Crothers confirming that ANZ and Moelis have been tasked with a ‘strategic review’ of capital raising options. The review is expected to take six months, with the ultimate objective a capital injection for further investment in manufacturing capability ‘to make the business more robust and maximize [market] opportunities’.

Beston Global Foods listed on the ASX on the 28th of August, with an initial market capitalisation of $127m, and share issue price of 35c. Media reports suggest that around 50% of the investment in the IPO was from outside Australia. Beston plans to use the IPO funds to expand and diversify its business.

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