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US dairy exports fall, Australia, Europe strong, NZ slows

Dairy exports from the US down, Australia and Europe remain strong, NZ slows, Fonterra says

By Fiona Rotherham

Dec. 14 (BusinessDesk) - Fonterra Cooperative Group, the world’s largest dairy exporter, says US dairy exports are down due to domestic demand in the world’s biggest economy but exports remain strong for Australia and Europe while New Zealand's shipments have slowed.

In a global dairy update released today, Fonterra said New Zealand total exports were up 2 percent from January to September compared to the same period last year although they decreased 5 percent in the September month.

Over the same period, US dairy exports fell 9 percent to satisfy increased demand in that country. However, September has shown a turnaround, with US exports rising 9 percent as skim milk powder sales climbed 48 percent and lactose gained 15 percent.

Last month, Fonterra said it would exit a 15-year joint venture with Dairy Farmers of America, selling its share of DairiConcepts, where Fonterra contributed key ingredients to the US dairy and cheese flavours business, while the American cooperative supplied a number of cheese and cheese-powder assets. Fonterra signed a long-term supply agreement as part of the sale.

Meantime, Australia's dairy exports have increased 8 percent from January to September compared to the same period in 2014, led by a 30 percent rise in skim milk powder and a 12 percent gain in cheese. In the September month, skim milk powder was up 41 percent.

European exports have lifted 6 percent from January to August with fluid and fresh dairy up 19 percent, both SMP and whey powder up 9 percent, and infant formula up 7 percent. In the month of August exports were up 22 percent, with significant increases from Poland, Italy and Germany.

On the import side, China imports increased 12 percent in October, the fourth consecutive month the figure has risen, with increases in most dairy categories apart from whole milk and skim milk powders. A lack of sales to China due to high inventory levels has contributed to a steep decline in global dairy prices in the past year as supply outweighed demand. Despite the recent growth, imports remain 13 percent lower from January to October compared to the same period last year.

The rest of the Asia remains strong with imports up 10 percent over the year across all categories while Latin American imports were also up 10 percent during that period, with demand strongest for WMP and SMP.

The global update also included a comparison of milk prices in its different milk pools globally – New Zealand, Australia, China and Chile.

In New Zealand, Fonterra’s board last week retained its forecast milk payout for this season of $4.60 per kilogram of milk solids, which is in line with the same period last year. Global milk prices still need to lift significantly though in the first half of next year to achieve that level.

Milk prices in China are slowly recovering from the second half of last year when a decline had a major impact on 2015 earnings for Fonterra's international farming business. They are currently at around 315 Chinese yuan per 100/kgMS.

Fonterra’s Australian and Chilean businesses largely source product locally so the local milk price is more relevant than the global one for input costs in those markets.

The milk price in Australia is currently at A$6/kgMS, which is lower than the 2015 financial year but still a higher level than global dairy prices. The milk price is set by the performance of cheese, butter, and liquid milk volumes and sales sourced from Australian milk.

The Soprole milk price in Chile is significantly lower than last year, at 196 Chilean pesos per litre. There is a lag from declining global dairy prices to local milk prices which were pushed up in the second half of last year due to drought in Chile. In spring, when milk volumes increase significantly, the weighted average milk price typically falls.

Fonterra said it wouldn't provide a kgMS comparison to the NZ payout given "differences in the payment structure, calculation approach, foreign exchange, seasonality and product mix".

Fonterra’s milk collection for the month of November was 4 percent lower than the same month last year and the forecast is for a 6 percent reduction this coming season due to farmers reducing stocking rates and supplementary feeding to cut costs in the low milk price environment.

(BusinessDesk)

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