- Global dairy markets continue to experience oversupply and weak prices as output grows slowly but stocks continue to build up due to sluggish demand. While some positive factors remain, the key question is how soon in 2016 prices may recover for farmers. - EU output is still rising overall led by increases in Ireland, the Netherlands, and Poland, though some larger countries like France and Germany have seen declines or slower growth. - Stocks of skim milk powder, butter, and cheese continue to build up in the EU and US through intervention and commercial stockpiles. Demand remains a positive factor looking forward to the holiday season but issues around Chinese demand and low oil prices dampen the outlook.

1. Dairy Market Report
Tuesday 12th December, 2015

2. Market summary:
• Output easing or growing more slowly, but overhang of milk
output and stock
• Demand sluggish due reduced Chinese activity, Russian ban
and low oil revenue
• Stocks building (APS, intervention, commercial)
• Prices remain weak – worse globally than in EU or US
• Rebalancing of supply/demand: when, not if
• A good number of positive factors remain relevant
• Big question: how soon in 2016 will prices recover for
farmers?

3. EU output still rising
• EU: Milk prices holding up as good retail returns in
large domestic markets like France & Germany are
subsidising lower export/ ingredient returns.
• UK: Large scale, low cost models have become a bigger
part of the supply picture, making up for the exit of
smaller farmers. Any shift to spring calving will
compound summer processing capacity issues.

4. EU output up 1.5%
Strong lift in mid-tier
countries:
• Ireland +11.4% Jan-Oct
• NL +4.6% Jan-Sept,
+11.4% Oct alone
• Poland +2.2%
• UK +1.5%
Static to down in larger
countries
• France 0.5% down w/e
15th Nov, cow culls up
10%
• Germany Jan-Sep -0.5%
Static or well down in most
other EU member states.
Source: EU MMO

5. Source: EU MMO

6. Source: Ornua

7. French milk collections
down

8. Falling French milk price
will further curb output

10. Output elsewhere
• Global output only up 1.1% Jan-Sep – estimated1.2% up Jan-Oct
• US Oct output only 0.1% up
• Calif drought, slightly lower cow numbers and yields, more acreage in
Calif moving to nut growing, lower prices
• USDA forecast + 1% full year suggests drop by 0.2% Nov-Dec (after
+2.4% in 2014)
• Internal demand utilising all output growth
• Strong US$ hampers export competitiveness
• NZ output down 7.2% in Sep, 2.7% in Oct
• Cow culls significant (though slightly down in Oct)
• Official prediction is for 5-10% fall in 15/16 season
• Profitability seriously challenged: recent GDT could yield reduced milk
price forecast to 17-19c/l equivalent.
• El Nino impact expected Dec-Feb.
• Oz output down 0.4% in Oct due El Nino (moisture deficiency)
• First time this season it falls back on previous year

11. Source: Ornua

12. Stocks building
• SMP intervention: 23,638t
• SMP APS
• Old regime: 25,000t (over 50,000t offered since Sept 14)
• New regime: 3,154t offered todate (since mid Oct 15)
• Butter APS
• 85,000t approx (156,000t went through since Sept 14)
• Cheese APS
• 27,000 t approx from NL, It, F, UK, Sw, Irl
• US SMP stocks: 96,000t (Sept 15); butter stocks 81,000t (Oct
15)
• Commercial stock in NZ, reports of “distress” sales esp.
African markets

13. Demand remains
positive story – with
some issues
• Issues:
• Chinese buying activity remains lower than 13/14, higher domestic
production, but stronger infant formula imports
• Oil prices low => export revenues of many customer countries
reduced, demand suffering in consequence
• Russian ban extended a further year.
• Nov-April: 6 strong events for dairy demand:
• Thanksgiving, Christmas, New Year’s Eve, Easter, early Ramadan.
• Pre Xmas demand lifting UK spot prices to 20-21ppl (30cpl)
• Weak Euro making EU exports competitive
• Strong export growth for most products, incl. Cheese in recent
months.
• What of Russian ban and EU sanctions re. Syrian crisis?

14. Markets per product:
• SMP
• Market oversupplied, prices back to intv levels, trade at those prices.
• With stocks building, buyers build low prices into 2016 budgets.
• Butter
• Good domestic demand continues in western markets, despite increased output.
• Outlook more positive than for other products, but we’re now post holiday
demand period.
• WMP
• Chinese demand down, but has left room for other buyers.
• Continued weakness expected in early 16. NZ/China relationship will make
market.
• Cheese
• Alternative options and poor whey returns restrain cheese output. Demand
expected flat.
• Weak euro aiding exports despite Russian ban. UK demand in balance with
supply for mild cheddar pre-Xmas, some mature stocks building.
Source: Ornua

15. Strong exports in 2015
compared to previous
years
Source: ZMB

16. Strong EU exports in
2015
Source: EU MMO

17. Three tier dairy market
(1)
Source: EU MMO

18. Three tier dairy market
(2)
Source: EU MMO

19. Three tier dairy market
(3)
Source: EU MMO

20. Global dairy prices: GDT
1st Dec auction + 3.6%
• New age guarantee (fresher
product) with price premium
(powders) appealed to buyers
• Smaller quantities to manage
market
• Mixed picture in NZX futures,
but positives for SMP and
butter
• Prices at this auction reflect
this, but impact on global
markets?
Gross return: 27.95c/l –
processing costs @5c/l =
22.95c/l

21. Spot milk prices in EU
Source: EU MMO

22. EU prices ease…
Source: Based on EU MMO

23. …but still underpin
current Irish milk prices
29.27c/l – 5c/l
processing costs =
24.27c/l + VAT =
25.53 c/l incl VAT
22nd November 2015
Calculations at 26/11/15
Avg EU mkt price
at 22/11/15 - €/t
Trend
re
prev
wk c/l equiv
Estimated
coeff.
BUTTER 3040
SMP 1740 29.03 35% 10.16
CHEESE 3030
WHEY PWDR 590 31.43 41% 12.89
WMP 2290 28.40 8% 2.27
OTHER* 24.68 16% 3.95
29.27
ASSUMING THAT "OTHER" RETURNS 15% LESS THAN SMP/BUTTER
29th November 2015
Calculations at 07/11/15
Avg EU mkt price
at 29/11/15 - €/t
Trend
re
prev
wk c/l equiv
Estimated
coeff.
BUTTER 2980
SMP 1720 28.66 35% 10.03
CHEESE 2870
WHEY PWDR 590 29.79 41% 12.21
WMP 2240 27.78 8% 2.22
OTHER* 24.36 16% 3.90
28.37
ASSUMING THAT "OTHER" RETURNS 15% LESS THAN SMP/BUTTER
ESTIMATE OF RETURNS FOR REPRESENTATIVE IRISH PRODUCT MIX
(GROSS RETURNS, BEFORE DEDUCTION OF PROCESSING COSTS)
ESTIMATE OF RETURNS FOR REPRESENTATIVE IRISH PRODUCT MIX
(GROSS RETURNS, BEFORE DEDUCTION OF PROCESSING COSTS)
28.37c/l – 5c/l
processing costs =
23.37c/l + VAT =
24.60 c/l incl VAT
Source: EU MMO

24. Futures trends: some
positives
• EEX Futures
• 19 lots (95 tonnes) traded on EEX yesterday (7th Dec), with all trade activity taking
place on SMP and the traded months settling higher.
• Q1 traded a combined 17 lots yesterday with Jan16 trading 10 lots, settling up €18
at €1,682, Feb16 , traded 5 lots also settling up €18 at €1,682 while Mar16 traded 2
lots settling up €4 at €1,721.
• A further two lots traded on Apr16 SMP as it settled up €5 at €1,760.
• NZX Futures
• NZX WMP continues to edge higher, though on relatively light traded volume.
• A total of 440 lots/tonnes traded overnight with 340 lots of WMP and 100 lots of
SMP. Dec15 WMP traded 40 lots settling unchanged at $2,250. Q1 2016 traded 20
lots per month settling up $5, $25 and $25 respectively.
• Q2 2016 traded 240 lots all settling up $50-$95. Apr16 traded 110 lots overnight,
settling up $70, May16 traded 95 lots settling up $50 and Jun16 traded 35 lots
settling up $95.
• A further 100 lots/tonnes of SMP traded on NZX overnight, all of which traded on
Feb16, settling unchanged at $2,080.
Source: FCStone

25. Teagasc Annual Review
and Outlook 2016
2015 ESTIMATE 2016 FORECAST
Milk price 30 c/l (down 24% on
2014)
31.5c/l
Milk production +10% on 2014 +7% on 2015
Production costs 23.5c/l 23.3c/l (largely due to no
change in fertiliser costs,
increase in use of feed,
but decrease in unit price
+ dilution over larger milk
volume)
Margin per litre 6.5c/l (45% down on
2014)
8.2c/l (+25% on 2015)
Margin per ha €770/ha (55% down on
2014)
€1030/ha (+34% on 2015)

26. EU Commission
Medium Term Report
positive
• Annual EU milk growth rate to 2024 expected 0.8% (2015 will be
1.5%+)
• Most growth in Germany, Netherlands, Ireland, Denmark, NW
France (Old EU 15, NW)
• Poland could develop at expense of Czech Rep and Hungary
• Consumption growth from export to third countries and some slow
domestic increases (EU consumes 90% of its own milk)
• Milk prices to remain “relatively firm” at around EUR350 per tonne
(34c/l) thanks to consumption growth.
• Prices unlikely to return to EUR402 per tonne at the height of the
2013 boom.
• Unless we have a repeat of the weather conditions which helped
contribute to that rise.

27. Milk Prices

28. Sept 15 milk league (no
change in Oct except -
1cpl West Cork)

29. IFA campaigns to hold
current milk prices
Base price at 3.3% p 3.6% b/f = 25c/l incl VAT

30. Thank you for your
attention!