Irish Farmers' Association Dairy Market & Price Report February 2014

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Information about Irish Farmers' Association Dairy Market & Price Report February 2014
Business & Mgmt

Published on March 4, 2014

Author: IrishFarmers

Source: slideshare.net

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Irish Farmers' Association Dairy Market & Price Report February 2014

National Dairy Committee Meeting – 6th Feb 2014 Market and Price Report (compiled 22nd Jan 2014)

Executive Summary • Supplies growing strongly globally due higher prices/lower costs (i.e. improved profitability at farm level) and good conditions • Yet, demand being sustained (China, SE Asia, Russia, N. Africa) due to domestic shortages and depleted stocks after sustained undersupply • Dairy commodity prices, global and EU, have evolved at historically high levels, including “bounce” in Dec and start the new year relatively strong. • Relatively high dairy prices could last for some months - Fonterra auctions in Jan relate to trade for 6 x 1 mth contract to July 2014 • But higher output will eventually exceed demand growth, and high prices can be an issue on markets (e.g. Russia and substitution of butter with palm oil). • Could potentially see lower dairy prices in second half, but 2014 is expected to be a strong dairy year on average.

World supplies – commentary of next four graphs • 2013 calendar figures still reflect low supplies in early part of year • More recent season figures show massive increase with improved profitability – though US in Nov/Dec: heat in Calif, freeze in MidWest -> production stagnant. • % increases v. m litres increases – small % increase in EU and US = lots of milk! • Ireland very strong production increase into Nov (+20%!) – superlevy implications

World milk supply, key exporters Jan-Oct 13 Source: IDB

EU milk supply Jan-Oct 13 Source: IDB

Most recent output evolution (in m litres) (increase/decrease re. last year) 1200 1000 800 600 400 200 0 -200 -400 Source: DairyCo Ireland New Zealand USA EU Periods concerned: Irl: Apr-Nov 13 (Nov + 19.7%) NZ: Jun-Oct 13 US: Apr-Nov 13 EU: Apr-Oct 13 Australia Oz: Jul-Nov 13

Irish milk production +19.7% in Nov 13 Source: CSO

Up to the minute (most recent production trends) • • • • • • • France: week 52 = +3.3% Germany: week 52 = +3.1% UK: December: +10.7% NZ: season up to 5th Jan: +3.8% Oz: season up to Nov: -2.9% US: Nov +0.1% EU 28: Apr-Sep +0.7%

Institutional stocks at low level, and commercial stocks being replenished • Zero intervention in EU • APS down to 11,000t of butter on 07/01/14 (new CAP does not open APS automatically – unlikely this spring due good markets (?)) • US stocks falling: 54,000t butter, 280,000t cheese, approx 50,000t SMP (all lowish levels) • Some replenishing of stocks globally • Generally, operators not keen on letting them build up too high due to volatility: one could end up with dearly acquired stock when spot prices are low!

Outlook for supplies - 2014 • EU: good conditions + high profitability mean production to continue increasing in first half despite superlevy. • UK: output could hit 10-year high in 2nd quarter. Insufficient processing capacity -> distressed milk? • US: Cold/hot weather and poor feed quality reduced output growth in late 2013 early 2014. But lower cow culling means +1.8% production expected for 2014. • NZ: good weather conditions expected. Full season expected +8% (drought in Jan-May 13) • India: slower milk growth due F&M, but finish year +5.5% • No recovery expected in China and Oz • With strong production conditions, some N/S Hem overlap.

Market/price– commentary (1) • EU average prices for butter, powders and whey had weakened a little in Oct/Nov, only to bounce in late Nov/Dec. (Some easing in butter prices in early Jan). • Reflected in IDB index, up in both Nov and Dec despite expectations to the contrary (current forecast for Jan/Feb is 133.6/131.2 pts respectively). • Fonterra auction prices have also shown buoyancy, significant for certain products such as butterfat and cheese – though powders have been easier to stable. • USDA international quotes also show strengthening price levels for Oceanian products (though not back to Spring 13 peak) and steady firming for Western European quotes (with some 2014 easing in butterfat prices)

Market/price commentary (2) • EU SMP production recovering, but slowly, and demand remains robust. No burn-off despite long spell of high prices. Rumours that availability might improve, but tighter US stocks. • Eurex (European futures market) quotes relatively strong stable prices for SMP, despite Fonterra. However, buyers buying only small volumes. • Some increase in production of powders expected due higher milk supplies, but demand remains strong. Prices may burn off demand in less affluent markets, but Asia continues to look good. • Butter production rising in EU. US also, with competitive pricing for export (EU product is not). EU prices easing in early 2014, while recent Fonterra auction have seen a lift: still significant gap of over US$1,000/t. • UK Cheddar: stable strong prices short term, but stocks rebuilding with strong output and higher imports (incl. from Ireland).

Latest Quotations : week 2 ending 12/01/2014 WHEYPOWDER EMMENTAL GOUDA EDAM CHEDDAR WMP SMP BUTTER EU Average Product Prices 12th Jan 14, compared to 12 months ago in EUR/100 kg 408 326 378 405 383 382 452 104 % last week - 1.2% + 0.6% + 0.6% + 0.5% + 0.0% + 0.5% + 1.3% + 0.5% % year - 1 + 21% + 22% + 29% + 17% + 18% + 20% + 11% - 1% 12/01/2014

Fonterra auctions - weighted average prices per commodity. 6th Aug 13 to 21st Jan 14 14,000 12,390 12,000 10,000 9,657 AMF BMP 8,000 Cheese Lactose 6,000 5,641 4,000 MPC70 4,657 RenCas SMP WMP 2,000 20-Aug-13 03-Sep-13 17-Sep-13 01-Oct-13 15-Oct-13 05-Nov-13 19-Nov-13 03-Dec-13 17-Dec-13 07-Jan-14 21-Jan-14 0 06-Aug-13 US$ per tonne Butter 97 98 99 100 101 102 103 104 105 106 107 108

World prices for Oceanian products 2013/14 todate 5900 5400 4400 3900 3400 2900 2013 Week No. Butter SMP WMP Cheddar 3 1 51 49 47 45 43 41 39 37 35 33 31 29 27 25 23 21 19 17 15 13 11 9 7 5 3 2400 1 US$/t 4900 2014

World dairy market prices - Western European products 2013/14 todate 7400 6400 4400 3400 2400 2013 SMP WMP 3 1 51 49 47 45 2014 Week No. Butter 43 41 39 37 35 33 31 29 27 25 23 21 19 17 15 13 11 9 7 5 400 3 1400 1 US$/t 5400 B'oil Whey Powder

International Milk prices

Source: EU Commission U.K. Sweden Finland Slovakia Slovenia Romania Portugal Poland Austria Netherlands Malta Hungary Luxembourg Lihtuania Latvia Cyprus Italy Croatia France Spain Greece Irleand Estonia Germany Denmark Czech Rep. Bulgaria Belgium EU milk prices as report to EU Commission Average cows milk price per MS, in € per 100 kilos October 2013 70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00

Source: LTO Netherlands

Irish milk prices RECAP OF MILK PRICES JAN TO NOV 13 Arrabawn* Bandon Co-op* Barryroe Co-op* Boherbue Centenary/Thurles Co-op Aurivo/Connacht Gold* Dairygold * Drinagh Co-op Glanbia* Kerry Group* Lakeland Dairies* Lisavaird Co-op* Monaghan Co-op North Cork Tipperary Co-op Wexford Avg Jan-13 30.54 31.08 31.08 31.5 31.4 30.17 32.07 31.1 31.39 31.28 31.41 31.1 31.24 31.49 31.39 28.72 31.06 Feb-13 31.37 31.46 31.47 31.88 31.37 31.28 31.94 31.45 31.28 31.16 31.04 31.45 31.12 31.37 31.27 29.08 31.25 Mar-13 32.9 33.58 33.62 34 33.27 33.36 33.97 33.58 33.31 33.12 33.31 33.58 32.57 32.92 33.4 32.22 33.29 Apr-13 33.76 33.58 33.62 34 33.08 34.17 34.98 33.58 34.35 33.12 34.96 33.58 35.06 34.88 34.49 32.22 33.96 May-13 34.81 35.57 35.58 35.8 35.31 34.93 35.88 35.59 35.22 35.89 34.96 35.59 35.06 35.31 35.4 33.57 35.28 Jun-13 35.52 35.57 35.59 35.8 35.78 35.9 35.88 35.59 35.69 35.89 35.43 35.59 35.06 35.78 35.78 33.57 35.53 Jul-13 35.74 35.79 35.47 36 35.78 35.89 36.36 35.49 35.69 35.89 35.91 35.49 36.01 35.78 35.71 33.57 35.66 Aug-13 36.24 37.31 37 37.2 37.21 36.93 37.31 37.1 37.21 35.89 36.86 37.1 36.96 36.26 36.74 35 36.77 Based on FJ/John Boylan milk league (cents per litre only) Sep-13 36.71 37.06 37.02 37.2 37.21 36.85 37.31 37.1 37.13 36.81 36.86 37.1 36.96 37.21 36.98 35.01 36.91 Oct-13 37 37.06 37.02 37.2 37.21 36.86 37.31 37.1 37.13 36.81 37.13 37.1 36.96 37.21 36.98 35.01 36.94 Nov-13 37 37.06 37 37.2 37.21 36.85 37.31 37.1 37.13 36.81 37.13 37.1 36.96 37.21 36.98 35.01 36.94

Average Irish milk price Irish milk price Jan-Nov 13 46.00 44.00 Cents per litre 42.00 40.00 38.00 Avg FJ/JB league* CSO** 36.00 34.00 32.00 30.00 Jan-13 Feb-13 Mar-13 Apr-13 Avg FJ/JB league* 31.06 31.25 33.29 33.96 CSO** 35.02 34.06 33.49 33.87 * for milk at 3.3% p 3.6%p, net of VAT, no cond bonuses ** for milk at actual constituents, net of VAT, but incl. bonuses May-13 35.28 35.59 Jun-13 35.53 36.45 Jul-13 35.66 36.16 Aug-13 36.77 38.64 Sep-13 36.91 41.6 Oct-13 36.94 44.27 Nov-13 36.94 44.94

IDB INDEX - 2011 to 2013 140 135 133.5 130.3 130 125 120.6 120 115 110 105 124.7 131.1 109 107.6 106.4 90 131.9 133.59 126.6 114.5 111 107.6 104 111 109.7 108.8 106.3 106 110.4 109.7 109.7 100 95 133.7 96.7 106.9 98 95.1 94.9 91.8 107 104.9 108.3 111.1 109.1 107.6

Gross returns for Irish product mix, based on avg EU mkt prices 12/01/14 ESTIMATE OF RETURNS FOR REPRESENTATIVE IRISH PRODUCT MIX BUTTER SMP CHEESE WHEY PWDR WMP OTHER* Avg EU mkt price at Estimated 12/01/14 - €/t c/l equiv coeff. 4080 3260 47.40 35% 4050 1040 47.93 41% 3780 46.89 8% 40.29 16% ASSUMING THAT "OTHER" RETURNS 15% LESS THAN SMP/BUTTER 16.59 19.65 3.75 6.45 46.44

More could have been paid during 2013 Theoretical v. actual milk price paid 39.10 39.08 39.13 38.61 38.37 38.14 39.00 37.06 36.50 37.00 35.30 35.00 33.00 35.28 35.53 33.51 33.96 32.49 32.49 33.29 36.77 35.66 37.006.94 37.00 3 36.94 Theoretically possible milk price* Actual average milk price paid** 31.06 31.25 31.00 December November October September August July June May April March February January 29.00 2013 * based on 2010 base 100 for PPI, and CSO milk price of 29.27c/l + VAT for that year ** based on simple average of John Boylan/FJ League for each month for 3.3% p 3.6% f (December estimated)

Outlook for 2014 markets/prices ? • Supply/demand balance continues to favour high prices for early 2014 • Seasonality -> Irish milk prices are sustainable at current levels (37-38c/l + VAT), possibly for entire first half • Continued strong supplies thereafter (assuming no weather shocks) may overwhelm demand growth • Some concern over high prices/burnout/substitution • Overall 2014 will see continued strong average milk prices to farmers, in Ireland and elsewhere. • Shorter term: IFA looking for “fat” from 2013 to be passed back to farmers, and for commitment by co-ops to holding current prices at least, at least until after peak.

Action by co-ops todate • Dairygold: – 0.5c/l top up on 2013 supplies for contracted producers – €7/t rebate on feed (also €5/t rebate on fert already announced) • Kerry – 0.3c/l top up on 2013 supplies (“leading milk price”) • Glanbia – €5m “volatility fund” to be paid out within 2 yrs • Aurivo – €1m “volatility fund” to be paid out within 2 yrs • Other co-ops? • Transparency of “volatility funds”?

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