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Dairy Market and Price Report 30th july 2015
- 1. Dairy Market and Price Report 30th July, 2015
- 2. Short market summary • Global output growth slowing down • But stocks + output still exceeding demand short term • Demand strong (at a price) in Africa, SE Asia, M East • Demand also strong in US (utilising internal output) • EU output post quota a mixed, and unclear, picture, but overall no massive growth so far • EU exports well up in 2014 and into 2015 • But prices/demand depressed due to absence of China and Russia • Also buyer behaviour capitalises on negative sentiment and prolongs the downturn • Weather factors present/in the offing which could turn this around quickly. • Serious on-farm profitability crisis in many regions – especially EU and NZ, this will turn output around too, but more slowly.
- 3. EU output post quota: mixed picture • France and Germany (= 35%+ of EU milk) static or modestly up • Netherlands, UK, Poland, Ireland (=28% of EU milk) well up • Other MS – flat to down • Overall EU: static to May, but will grow thereafter. EU Commission prediction +1% for full year 2015
- 4. Global output growth slowing Source: Ornua
- 5. Output - outlook • Weather events – can rebalance supplies quickly • Heatwave/drought in parts of Europe (France in particular) • Long term and severe drought in California (20% of US milk) • El Nino event confirmed over Oceania. Impact on Australian and (possibly) NZ supplies, if any, expected from September. • Profitability – is slower at rebalancing markets • Problematic in Europe – increasing disquiet among EU farmers. French dairy farmers protesting, some national support measures. Demands for EU action (intervention, use superlevy to support dairy sector, production management measures…) • Very problematic in NZ – Fonterra admits milk price 20% below production costs • Output will fall, but it will take more time if no significant weather event, as farmers, even if not profitable, may chase cash flow.
- 6. Heatwave impacting French and German output
- 7. NZ profitability increasingly challenged by rising costs and lower prices Source: DairyNZ
- 8. Demand-side issues • China - has yet to return to powder purchasing in any significant way. Economic performance poor. • Russia – extension of embargo on EU imports announced, this time including lactose free products. GDP forecast down 3.5% due to sanctions and reduced oil revenues. Domestic dairy sector “superheated”. Product and milk prices rising massively, further discouraging consumption. Avg milk price is €0.5/kg (EU average around $0.31/kg). • GDT – a run of 9 negative results has driven the GDT index to just below 2009 levels, influencing sentiment
- 9. GDT headline results GDT milk price equivalent: SMP/BUTTER 23.8c/l before processing costs WMP 19.66c/l before processing costs These levels are unsustainable from a production cost point of view.
- 10. But, lots of positives on demand, too! • Strong internal US demand keeps US butter and cheese off world market, and could consume much of 2015 output increase. • Muslim countries - Ramadan now over, demand expected to pick up, with 3rd quarter powder tenders likely to benefit EU. • Heat wave in Europe favours ice-cream/cream consumption. • Also EU consumer confidence is returning, benefiting consumption of yoghurt, butter and milk drinks. • Weak Euro continues (esp with Gre-ferendum/Gre-xit), making EU products competitive on export – this is particularly good for EU butter prices, which have rallied a little) • Since Russian ban, US main EU export destination. Exports out of the EU continue to increase. • China – recent recalls of locally produced infant formula could reinforce import preference
- 11. EU prices easing further but above GDT. Gross returns approx 29.5c/l, around 5c/l above GDT
- 12. Irish SMP price almost at intv level, butter holding better.
- 13. EU milk price evolution last 12 mths Source: EU MMO
- 14. Average EU milk price Source: EU MMO
- 15. NZ – Fonterra milk price/pay out Approx 19c/l Approx 22c/l
- 16. US milk prices
- 18. Ornua June PPI = 28.08c/l incl VAT at 3.3%p 3.6%f (29.3c/l incl VAT at actual constituents) Source: Ornua
- 19. FJ/KPMG 2014
- 20. Price reductions April 14 to June 15 – avg 11c/l (net of VAT) 28% cut in milk price = 78% cut in margin peak to trough April 2014 = 39c/l incl VAT. June 2015 = 28c/l incl VAT. 11c/l cut = 28% Source: FJ Milk League – most recent available is May 2015
- 21. June milk price decisions • Glanbia – base price -1.5 = 26c/l + 1 co-op + 1 stab fund = 28c/l incl VAT • Kerry – Holding (27.77c/l incl VAT) – own estim. • Lakeland –0.75c/l to 28.00c/l incl VAT. • Aurivo – base price – 2 = 26c/l + 2 from volatility fund = 28c/l incl VAT (own estim.) • Dairygold – 1c/l = 27c/l incl VAT • Arrabawn -1.5c/l = 27.87c/l incl VAT • Carbery – 1c/l cut to 28.9c/l incl VAT (individual co-ops will pay farmer on this base) • Town of Mon – 1c/l to 28 c/l incl VAT
- 22. IFA milk price/EU support campaign • Lobbying of board members • Farmers cannot take further cuts (costs, margins, cash flow, need to fill new processing capacity…) • Co-ops need to renew focus on efficiencies, consolidation… • Fonterra/Friesland Campina doing just that for that reason • Intervention review • Legal mandate for the EU Commission in 1308/2013 • EU Commission must monitor costs and markets and adjust intervention prices where needed. • IFA has shown why it is needed now (paper) • IFA lobbying TDs, MEPs, Minister + Commissioner. • IFA persuaded COPA to support (unanimously) • Also in EP report • Minister’s statement after today’s (13th July) Ag Council • EU Commissioner extends APS and intervention dates – good, but not enough. • Superlevy use to support farmers • Only €441m factored into EU 2016 Estimates, leaving same again