The document summarizes the current state of the global dairy market and prices. Key points include: global output is growing more slowly than demand, but stocks still exceed demand in the short term; weather events could impact supply and rebalance markets; profitability is very challenging, especially in the EU and New Zealand, which will cause output to fall over time; demand remains strong in some regions but China and Russia continue to be absent from the market, keeping prices depressed. The document outlines market details and pricing trends for various regions.

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

17. Irish 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