SEPTEMBER 2018 GLOBAL DAIRY UPDATE AUSTRALIA • Strong production continues in New Zealand Following our bi-monthly price review, we are increasing our and the US. Slowing production in Australia farmgate milk price for the 2018/19 season by 13 cents per and Europe. kilogram of milk solids (kgMS), comprising 9 cents per kg of butterfat and 18 cents per kg of protein. This brings our average farmgate milk price to $5.98kgMS. • Strong export growth in New Zealand, Given the current challenges with rising costs for feed and water, Australia and the US in July. European we know cashflow is critical and that receiving this increase now, exports weaken in May. rather than later in the season, will help you make important • Imports in Asia show continued strong farm input decisions and plan for the remainder of the year. demand. Middle East and Africa remain flat We have also revised our forecast closing average milk price while Latin America declines. range to $5.98 to $6.10kgMS for 2018/19, down from $6.20kgMS. A weaker currency has only partially offset an increase in production in some other dairy-producing countries, which is putting downward pressure on the upper end of the forecast range announced in May. While it’s disappointing to have a reduction in the forecast • Our Australian Foodservice business, the long-trusted partner closing price range, it’s important that we provide our farmers of thousands of foodservice businesses across Australia, has with clear, early signals on how the market is likely to impact the farmgate milk price. now aligned with our global foodservice brand – Anchor Food Professionals. We will continue to monitor currency and global dairy prices closely and keep you updated throughout the season with the latest market conditions. CONTACT US • Bridging the gap between food waste and food insecurity: Farm Source Service Centre Fonterra marks 2.5 million kilos of dairy donated to +1800 266 674 hunger relief. 1 OUR MARKETS Global production AUSTRALIA NEW ZEALAND EUROPEAN UNION USA 2% 0% 3% 1% Production change Production change Production change Production change for the 12 months to for the 12 months to for the 12 months to for the 12 months to July 2018 August 2018 July 2018 July 2018 Australia milk production New Zealand milk production EU milk production increased US milk production was up 1% decreased 4% in July compared increased 5% in August 1% in July compared to July in August compared August to July last year, driven by compared to August last last year as conditions became last year, despite the hot and rising on-farm input prices, year, driven by favourable more favourable. humid weather conditions droughts, and increased cow weather conditions in Taranaki, Growth for the month of July which had the potential to cull rates (July up 14% y-o-y). Central Districts, Canterbury, was predominantly driven by slow growth. An improvement The likelihood of an El Niño Southland and Otago. Some of Germany, France and Spain up in cow numbers regardless of developing remains at 50% this increase has been reduced 3%, 2% and 4% respectively. heavy slaughter rates sets the which will continue to pressure by heavy rains in Bay of Plenty. US up for continued growth production this season. into autumn. Global exports AUSTRALIA NEW ZEALAND EUROPEAN UNION USA 5% 2% 4% 10% Export change for the 12 Export change for the 12 Export change for the 12 Export change for the 12 months to July 2018 months to July 2018 months to May 2018 months to July 2018 Australia dairy exports New Zealand dairy exports EU dairy exports decreased by US dairy exports increased increased 4% in July compared increased 6% in July compared 6% in May, compared to May by 12% in July compared to to July last year. This growth was to July last year driven by WMP last year, driven by declines July last year, growth in SMP spread across most categories, and butter, up a combined in liquid milk and SMP, down and lactose of a combined up a combined 10,000 MT, 32,000 MT. Declines in SMP a combined 30,000 MT. This 17,000 MT, the primary driver. though offset by declines in of 16,000 MT dampened was partially offset by gains in Growth for the 12 months butter, SMP, cultured products, infant formula, up 6,000 MT. this increase. For the 12 months to July was driven by the five other powders and caseinate to July, WMP, AMF, cheese and For the 12 months to May of 8,000 MT. For the 12 months exports were up 4%. Continued largest export categories, SMP, declined a combined SMP, lactose, cheese, whey to July, liquid milk and infant 116,000 MT while liquid milk upside in SMP and infant powder and WPC and WPI, formula continued to comprise and infant formula continued formula remain the primary up a combined 185,000 MT. the majority of growth, up a strong growth, up 76,000 MT. drivers behind growth, up a combined 45,000 MT combined 222,000 MT. Global imports CHINA ASIA MIDDLE EAST & AFRICA China has suspended trade data, citing system technical issues. Based on exports % % % to China, we estimate June volumes grew 15% 17 2 4 compared to the previous Import change for the 12 comparable period. Import change for the 12 Import change for the 12 months to March 2018 months to May 2018 months to May 2018 2 OUR MARKETS DAIRY COMMODITY PRICES Global pricing GDT Event 221, held 2 October resulted in an index decrease of 1.9%. SMP WMP BUTTER CHEDDAR 5.1% 7.9% 2.7% 1.3% Change vs. 12-month Rolling Change vs. 12-month Rolling Change vs. 12-month Rolling Change vs. 12-month Rolling Average of USD 1,897/MT Average of USD 3,035/MT Average of USD 5,758MT Average of USD 4,046MT USD1,993 USD2,795 USD5,600 USD4,100 September Average Price September Average Price August Average Price August Average Price (USD/MT, FAS) (USD/MT, FAS) (USD/MT) (USD/MT) SOURCE: Global Dairy Trade SOURCE: Dairy Australia, August Pricing Australian dollar trend . The Australian dollar eased . towards US$0.72 at the beginning of October, compared to US$0.73 in the last GDU at the . end of August. The RBA’s decision to hold rates at record-low levels . was widely expected by the AUDUSD market, with falling house prices . and stubbornly-low inflation. Ongoing concerns about global . trade with China, and tighter US monetary policy, are also . expected to contain the AUD at SEP NOV DEC JAN MAR APR MAY JUL AUG SEP lower levels in the near term AUDUSD SPOT RATE SOURCE: news.com.au SOURCE: Reserve Bank of Australia Local factors affecting Hay Grain Weather farming conditions The continued dry and warm Grain prices continue to climb August was a particularly dry weather conditions across as supply tightens. Average end to winter. Rain deficiencies large regions of Australia spot prices for wheat and barley continued across eastern states combined with diminishing ex-Melbourne were reported and central Western Australia supply of carryover fodder has at $397/MT this August, an while the majority of Tasmania led to surging demand and increase of $75 from July and and areas in northern Australia prices. Reports suggest that well above the 5-year average. recorded above average falls. hay for immediate and future Recent rainfall in NSW and QLD After an exceptionally dry delivery is increasingly scarce, was welcomed but did little year to date, there looks to with lucerne and pasture hay to improve already stressed be little let-up with the BOM firming to an average price crops. Further south, crops in predicting average to below- of $498/MT and $215m/MT Victoria and SA are holding average rainfall nationally from respectively in July. BOM’s but need more rain to yield September to November. High three-month outlook indicates well. Locally, strong demand day-time temperatures and below average rainfall and if and unfavourable weather increased winds have resulted this prevails it will continue is keeping domestic grain in high evaporation and below to pressure markets. This is values at elevated levels. The average soil moisture. This is leading to some cereal and international market slightly forecast to persist over most of oilseed crops being cut early for softened over the past week the mainland this spring. With hay or silage which will provide with the Russian government clear skies and low rainfall, frost some additional short-term not taking action to limit wheat is quite likely as seen in the supply to fodder markets. exports this year. past month. SOURCE: Dairy Australia SOURCE: Dairy Australia SOURCE: Bureau of Meteorology 3 OUR BUSINESS Anchor Food Our Australian Foodservice “Foodservice is one of the Jeff said the team is gearing Professionals launches business, the long-trusted largest industries in the world up for another big year, and is partner of thousands of and is predicted to be worth excited about the move to the in Australia foodservice businesses across US$3 trillion globally by 2021. Anchor Food Professionals Australia, has now aligned with “This presents a great brand and the opportunities our global foodservice brand – opportunity for us, and it presents. Anchor Food Professionals. Anchor Food Professionals “The strength of the brand not While the name may be new, is well positioned to capture only represents the world-class Anchor Food Professionals will this demand and work with dairy products that we make still include such popular, dairy- customers to keep up with for restaurants, cafés and focused foodservice brands as this growth.” quick service eateries across Perfect Italiano, Western Star, The Australian Foodservice Australia, it also signifies the Mainland, Anchor and Bega.