2. GREEN SHOOTS
Executive Summary
• Output moderating in NZ and EU though still rising in US
• GDT recent positive results reflect lower NZ production 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 very strong
exports in 2014, boosted recently 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. 2014 EU
exports well up on 2013.
• Market prices still weak, but have no started to recover
• Negative side: low oil prices good for energy costs, but bad for
demand from oil producing countries. Also, uncertainty re. EU
supplies post 31st March.
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 (50%) 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 in MS, which is over 10% in volume. North Island
output down 1%, drought declared officially by Govt.
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 = 31.90c/l
before processing
costs
IRELAND
SMP/butter gross
return = 29.93c/l
before processing
costs
Source: EU MMO
13. Dairy prices: EU
Based on EU MMO
Since Jan 1st:
Butter +€130/t
SMP +€210/t
WMP +€150/t
Cheddar +€120/t
Whey pdr +€ 80/t
14. Dairy prices and
returns - EU
EU gross returns
34.05c/l before
processing costs
2.23c/l up in last
4 weeksBased on EU MMO
8th February 2015
Calculations 13/02/15
Avg EU mkt price
at 08/02/15 - €/t
Trend
re
prev
wk c/l equiv
Estimated
coeff.
BUTTER 3040
SMP 2050 31.90 35% 11.17
CHEESE 3250
WHEY PWDR 950 39.17 41% 16.06
WMP 2510 31.13 8% 2.49
OTHER* 27.12 16% 4.34
34.05
ASSUMING THAT "OTHER" RETURNS 15% LESS THAN SMP/BUTTER
ESTIMATE OF RETURNS FOR REPRESENTATIVE IRISH PRODUCT MIX
19. Dairy prices – GDT
17/02 (2)
Gross returns €
c/l
GDT 17th Feb EU avg 8th Feb
SMP/BUTTER 36.09c/l 31.90 c/l
WMP 35.61c/l 31.13 c/l
Based on: GDT & EU MMO data
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 and outcome of Greek election
• 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.
34. 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%
35. 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
38. Outlook for milk
prices?
• Though recovery appears genuinely underway, current returns
remain weak.
• IDB equivalent is 28.66c/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 (Dec 2014)
• GDT (17th Feb) SMP/butter equivalent is: 36.09c/l ; WMP is 35.61c/l; Irish
equivalent product mix around 32c/l (due to GDT Cheddar prices< than
EU Cheddar prices)
• 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 milk price reductions?
• Though returns are still low, they are now rising. Change in market
sentiment and dairy price directions will make it less likely. Glanbia and
Aurivo announced price maintenance for Jan. Glanbia for Feb-Mar.
• EU supply growth after 31st March? Continued US supply
growth? Demand developments from China? End of Russian
ban?