Steve Spencer Freshagenda What we do 2 Track world market in milk Simulate future dairy trade Market surplusshortage Product values Translate impacts on suppliers traders buyers Forecast value of products milk ID: 604036
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Slide1
New realities of the dairy market
Steve Spencer
Freshagenda Slide2
What we do
2
Track world market in milk
Simulate future dairy trade
Market surplus/shortage
Product values Translate impacts on suppliers, traders, buyersForecast value of products, milkBut alsoStudy trends across foodAnalyse supply chain conditionsPublished analysis of food pricingSlide3
Realities
3
Some that are not news
No immunity from global forces
We can’t influence global situation
You’re on a rollercoasterDomestic market is a tough landscape“Value-adding” is elusiveNew?Structure of global supplyLow value of oilWe’re in a slow recovery Slide4
Theme park ride
4Slide5
The global market
5
Who supplies (2015)
Who buys
Product mixSlide6
Milk use
6
Exposed to trade
ExportsSlide7
The grocery playing field
7Slide8
How we got here?
8
China’s bubble deflating
EU slowed to avoid fines
Russian embargo
EU sped up outputEU slowing, NZ downSlide9
How we got here?
9
Quota + grassSlide10
How we got here?
10Slide11
The market for milk
What
HASN’T
changed
Global market sets value
Weather drives volatilityGeopolitical stuff happensLimited transparencyChina’s buying bubbleOil, feed, milk track closelyLong-term demand is sound (…but…)11
What
HAS changed
EU is unshackled
Oil is cheap
Russia is closed
Faith in the Chinese miracle
Power of BRICsSlide12
Outlook: Highlights
Fundamentals: bottom of the cycle
Slow firming in prices expected in 2016, improving stronger in 2017
Large stocks overhang the market
Powders (EU), Cheese (US)
Several risks remain Sustained growth in EU?How will intervention be used?US now expanding – adding to cheese stocksWeak demand-side growth 12Slide13
EU unshackled
Growth sustained longer
Will add 13bl (2013 to 2016)
Country level variation
Milk prices tumbling, but…milk growing (at least) to Q3-2016
Growth milk into SMP Intervention going to 500KtMilk +5.8bn, Stocks (5.6bn)When does it come back?Alters milk use for 3-4 yearsWeather and feed prices critical13Slide14
NZ supply
14
2016/17 output is a crucial variable
Far more resilient
3 years at <NZ$5.00/
kgms?Weather will drive resultDebt, fertility, supplementsCulls not increasing … yetExpecting 3% less milk in 16/17Longer impacts?Investor confidence?Retreat to lower cost systems?Cap on output?Slide15
US market
A glut getting worse
Growth steadily improving
Mostly about feed quality
Demand not keeping up
Cheese is flying off shelvesMilk sales, exports weakPressure on cheese pricesMilk growing into 201715Slide16
Low oil: good or bad?
16
Pros (stronger
prices)
Cons (weaker prices)
Demand Better affordability for oil importers?Lower fuel prices in developed regions – more cash for eating out?Oil exporters have weaker demand economiesWeaker economic activity, slows growthSupply ?Weakens biofuel demand = lower feed costsLower fertiliser costsImpact of “low oil” on dairy prices Slide17
Oil, feed, milk powder
17Slide18
The China bubble
18Slide19
China
Good and bad
Smaller powder market
Return to 2012 for WMP
Cheese (fast food), IMF strong (
pref for EU brands)19Slide20
Price sensitive buyers
20Slide21
Price sensitive buyers
21Slide22
Price sensitive buyers
22Slide23
What does it mean for you….
23Slide24
10 major exporters
Our approach
24
Import demand growth?
Historical dairy production and trade
Milk output growthProjected short-term trade balanceMarket tension index(SMP and WMP)Products
Impact on projected Commodity values
Dairy Trade Simulator
Product mix
Domestic demand
Export availability
Milk equivalents
(10 exporters into all regions)
Milk price outlook
StocksSlide25
Milk value
25
Commodity milk value
Outlook for trade
Expected commodity values
Product mixConversion costsCapacity to add higher valueProjected 2016/17 full year price range$4.80-$5.20/kgms
$4.10/
kgmsSlide26
Milk value
26
Commodity milk value
Outlook for trade
Expected commodity values
Product mixConversion costsCapacity to add higher valueProjected 2016/17 full year price rangeOpening price range
$4.50 - $4.75/
kgms
$4.80-$5.20/
kgms
Prices rise slowly over H2-2016, faster in early 2017
Lagged translation of spot into achieved prices
Dollar weakens slightly
Better execution
Assume returns to FY15 levelSlide27
Milk value – following year
27
Commodity milk value
Outlook for trade
Expected commodity values
Product mixConversion costsCapacity to add higher valueProjected 2017/18 price range$5.80 - $6.30/kgmsSlide28
Is the dairy game stuffed?Slide29
Australia – medium term
29
Likely to shrink - 3 years back to 2014/15 volumes
Little chance of spur to sustained growth
Domestic shares will continue to creep higher
Increasing diversity of business models and specialisationsFurther consolidation?Proposition: agile, tailored, nicheDon’t forget:A strong co-op is critical to capture and pass returns to farmersSlide30
The long term
30
After 2017
Market keeps growing at 4.4% (last 6 years at close to 5%)
Developing markets slow from current rates
EU and NZ expand export capacity by largest volumesNotional gap = 5.4bn litres
Key supply side assumptions
EU grows at 2% slowing to 1%
NZ grows at 3%, slowing to 2%
US grows at 1.5% (steadiest)Slide31
The long term
31
A lot can go wrong?
Outlook still finely balanced
Most sensitive to EU growth rate after quota shake-out
US longer-term riskChina still a significant variable
What does it mean?
Upward trajectory for prices, but remaining volatile!Slide32
For farmers, the challenge remains
32
Are they up for the rollercoaster?
Volatility is assured?
Beware of the “value-add” cordial
What’s the destination outcome?Is the business capacity OK?Yield, cost structures, marginsCan they manage the lows and harvest the highs?Slide33
Thank you