2. GREEN SHOOTS
Executive Summary
• Output moderating in NZ and EU, though still rising in US
• GDT recent positive results reflect lower NZ production
expectations and lower volumes being put forward by Fonterra
• Chinese demand picking up. Strong lift in NZ WMP sales to
China in last two months
• EU average dairy prices firming slightly, reflecting stronger
exports, boosted by weak Euro and strong US$
• Extension to APS to end Sept 2015 (from Feb 15) increases
market support for EU SMP and butter
• China may already be back, Russia still out, but more affordable
products mean demand from Africa, Mid East, SE Asia
• Market prices still weak, but have bottomed out and set to
recover over the coming months
• Negative side: low oil prices good for energy costs, but bad for
demand from oil producing countries
3. Global milk output
(a)
• EU output easing due to superlevy pressures and cold
weather. Also poorer profitability, culling of marginal
cows, less feeding.
• UK – poor prices and margins due to weak markets, distress
milk and strong Sterling. More moderate growth of 3% y-o-y
early Jan
• US output still rising despite recent dairy price collapse.
Large number of farmers have locked in margin, so no
impact on output. USDA forecast continued growth of
3.3% for 2015.
• NZ output growing more moderately due to drought,
lower profitability and less concentrate feeding.
Fonterra forecasts 14/15 output to be 3.3% less than
13/14.
4. Global milk output
(b)
• Ireland -17.1% in
Dec;
• +4.2% for
Jan-Dec 2014
• End Dec supplies
5.93% over quota
7. Global milk output (2)
New Zealand: +2.8% for Nov 2014
+4.3% for Jun to Nov 2014
Forecast for 14/15 = -3.3% v 13/14
US: +3.1% for Dec 2014
+2.37% for Jan to Dec 2014
Forecast for 2015: +3.3%
Source: DairyCo UK
8. Global milk output (3)
Argentina: -8.7% in November 14
- 4.3% down Jun-Nov
Australia: -1.6% in December 14
+2.62% for Jul-Dec 14 period
Source: DairyCo UK
9. Global milk output
China’s milk production rising
Imports of liquid milk (raw and
packaged) is rising faster.
Source: CLAL
10. Gross milk output (5)
Brazil has been growing its production
massively
for the last number of years, though
nowhere near self sufficient
Source: CLAL
11. Dairy prices
• Some slight firming in Europe, including in spot milk
prices
• Returns from EU average prices up nearly 1c/l in last 2
weeks to 25th Jan
• GDT
• 3rd/4th consecutive positive results overall
• 6th for butterfat prices
• 4th for powders
• Lower quantities offered, reflecting lower supplies expected
• US price collapse from Sept to end 14 – some very slight
uplift for butter and cheese in early 15
12. Dairy prices: EU
EU
SMP/butter gross
return = 30.29c/l
before processing
costs
IRELAND
SMP/butter gross
return = 29.93c/l
before processing
costs
Source: EU MMO
19. Dairy prices – GDT (2)
Gross returns €
c/l
GDT 3rd Feb EU avg 25th Jan
SMP/BUTTER 35.09c/l 30.29 c/l
WMP 31.18c/l 29.15c/l
Based on: GDT
20. A bit more info on
GDT – who sells
through it and what
do they sell? (1)
India
Sells SMP and
WMP
Co-op owned by Danish,
Swedish and German farmers
Sells BMP and SMP
Mostly Danish, largest whey
and lactose supplier in the
world
Sells lactose
US
Sells unsalted butter, lactic
and sweet cream
also SMP
Source: GDT
21. A bit more info on
GDT – who sells
through it and what
do they sell? (2)
US
Sells SMP
NZ
Sells AMF, SMP,
Cheddar, Ren Cas,
WMP, butter salted
and unsalted, BMP
Australia
Sells lactose
France
Subsidiary of
Sodiaal
Sells SMP
Germany
Sells SWP (sweet whey
powder)
Source: GDT
24. Market
developments (1)
• Latest Chinese stats suggest they are back buying
• WMP – strong increases in imports especially from NZ in last two
months
• SMP – trend less strong, excess stock still on hand
• IMF – stable ongoing import demand, Irl and NL featuring much
more in recent months
• Main markets for SMP
• South East Asia – this is where most of the NZ product goes
• Price sensitive
• Exchange rates a major factor in making EU exports
competitive, and helping EU prices lift
• Weak Euro further weakened v. US$ and GB£ by announcement
of QE
• Strengthening US $ reflecting stronger economy
• Lower oil prices affecting buying power of oil producing
countries
26. Exchange rates
Euro has weakened 9% against Stg in the last year
3.6% in the last month alone (some pick up in recent
days)
Euro has weakened 16.2% against US$ in the last year
5.6% in the last month alone (some pick up in recent
days)
27. Milk prices
• Milk prices have fallen globally
• Challenges to profitability will/are helping to tame
output, more in EU/NZ than in US
• EU milk prices down 15.5% between Jan 14 and Nov 14
– from €40.35/100kgs to €34.10/100kgs (LTO)
• NZ milk prices down 42% season on season (based on
current forecast payout for 2014/15, which may
change)
• US Class III (cheese milk) prices down over 27% since
peak in Sept 14 – but many farmers have hedged.
33. Milk prices - NZ
• 2013/14 final Fonterra payout:
• Milk price = NZ$ 8.65 per kg MS (February 2014)
• Dividend = NZ$ 0.10
• Total payout = NZ$ 8.75
• Current 2014/15 forecast payout:
• Milk price = NZ$ 4.70 per kg MS (10th December forecast)
• Dividend = NZ$ 0.25 to 0.35
• Total payout = NZ$ 4.95 to 5.05
• Drop by 42-43%
34. Irish milk prices
Irish milk prices down nearly 8c/l (21%)
VAT refund on Dec price, paid in Jan, should add
approx 0.06c/l to current VAT incl. milk prices.
Not all co-ops have passed this back, check
your milk statement!
Average
December price incl.
VAT = 30.73c/l
37. Outlook for milk
prices?
• Though recovery appears genuinely underway, current
returns remain weak.
• IDB equivalent is 29.10c/l incl. VAT
• EU average gross returns (before proc. costs) are 32-33c/l
• Price paid by co-ops average 30.73c/l incl VAT
• GDT (3rd Feb) SMP/butter equivalent is: 35.09c/l ; WMP is 31.18c/l
• UK developments?
• Distress milk (farmers who played the market when at peak, now
without a home) is keeping milk prices down except for those
directly contracted to retailers for liquid milk
• Impact on cheese market – cheap milk available, causing
pressure
• Likelihood of further price reductions?
• Current returns might suggest so, but change in market
sentiment and dairy price directions will make it more difficult.
