6SEPTEMBER2017

AUSTRALIANINDUSTRYNEWS BOM:Warmerspring,rainforVic BureauofMeteorology(BoM)forecastsbelowaveragerainfallinsouthwestAustralia,withanequalchanceofbeingaboveorbelowaverageraininotherpartsofthecountry.Followingoneofthedriestwintersonrecord,lowerlevelsoilsarestilldrierthanaverageinpartsofNSW.However,followingAugustrainfallsouthernwaterstoragesarefilling,withtheNorthernVictoriastoragesreaching80%ofcapacitylastweek,upfrom53%inearlyJuly.Nearmediantolowstreamflowsareexpectedinthesoutheastandalongtheeasternseaboard.Springbringswarmerthanaveragedaysandnightsinthenorthandsoutheastofthecountry.IncreasedeasterlyflowacrossthesouthofAustraliameansslightlyincreasedchancesofwetterconditionsfortheeast.

Indexweaker–TheAustralasiandairyexportindextookabreatherthisweek.Spotquoteswerestable;WMPwastheonlycommoditytorecordachange,upUS$100/ttoUS$3,150/t.SMPremainedatUS$2,000/t,cheddarsatatUS$4,000/t.ButterstayedatarecordhighUS$6,000/t.TheA$rosemarginallytoUS$0.7967,shavingtheindexby0.16ofapointto199.6.

D A I R Y E X P O R T I N D E X

FUTURES

AUSFINENEWS

AUSFINENEWS

FROMPHILIPPINES

Sfd• Withthemajorityofinternationaldairytradeconductedin

USDthemovementofcurrencies(whendenominatedinUSD)haveaverybigparttoparttoplayinworldtrade.WithrecentweakeningofUSD,mostexportcurrenciesliketheNZDandAUDhavesuffered.ButthebiggestimpacthasbeenontheEurowhichwehaveseenclimbfromUS1.04tonownudgingUS1.20,closeenoughtoa20%increase.WhereyouseetheeffectmostisonSMP,wherecurrentpricingputsthevalueofEuropeanSMPonceagaintradingbelowinterventionlevelswhenpricedinEuro.Thismakesthewholeinterventionpieceofthepuzzleverytricky.

• TherehasbeenplentyofrainacrosswinterinNZ,butnottoomuch(justyetanyway),springisherewithpromisesofwarmerweatherandmilkpricesarereasonablyattractiveformostfarmers,thisshouldequatetoaverystrongmilkflowacrosstheNewZealandspring.Thisflushofmilk,combinedwithareboundingEuropeanmilksituationwillhaveabigbearingonthedairymarketsoverthenextfewmonths.OnepointtonotehoweveristhatitseemsinventorylevelsinNZarequitelowleadingintothisnewseasonanddemandseemstobeOKinmostregionssoitmaynotbeallbearishnews.

• WithrecenttroublesatMurrayGoulburn,itseemsthatthe'ForSale'signcouldbeoutthefrontfortherightbuyer.Wehavealreadyseensomeassetssold(ormothballed)sotheappetiteseemstobethere(forasale)iftheeconomicsstackup.Therewillbemanybarrierstonavigateofcourse,acomplexownershipstructure,competitionwatchdog,foreigninvestmentscrutinyandaveryparochialco-operativememberbase,buttherewillnodoubtbeacompanyouttherewitheyesonAustralia’sbiggestDairyCo.whowillbewillingtopaythepriceandrunthegauntlettogettothefinishingline.Therumourmillonwhothatmightbeisalreadyinoverdrive.

• ThemaingameintownisButter&DairyFat.SeemswiththerecentdietaryadvicemovingbacktowardnaturalfatsandDairyfatsinparticularthattheworld(ParticularlyWesternWorld)can’tgetenoughofthedeliciousmilkfat,beitinButterorCream.Asaresultpricescontinuedtosky-rocketasprocessorstrytokeepupwithdemand.However,therippleeffectacrossthedairycomplexcanbeseeneverywhere.Skim–ifyoutakeoutfatfrommilkyouhavetodealwiththeskimstream,SMPpricesremainlowasaresult.Alotofmanufacturersprefertomakecheeseastheydon’thavetheSMPheadachebutCheeseneedstostackuponpricetojustifyputtingmilkintheVatssocheesepriceshaverisen.WMPpricingshouldjumpbecauseoftheFatcompetent(whichithas)butWMPdemandisfiniteandseemstobewellsupplied,especiallywithNZseasonslookingstrong,sowheretoforWMP?IfWMPpricesfall,doesthatmeanmoremilktoButter/SMP?

MattCooper,Director,AusfineFoods

FromtheTradingFloorKEY MARKETDRIVERS

Ø Curr enc ie s p l ay ing a b i g par t i n t rade f l ows Ø NZ read ies fo r b i g sp r ing Ø MG– rumours o f buyers c i rc l i ng Ø Dai ry F a t thema in game in town and the r i pp le e f fec t

GLOBALDAIRYMARKETS

2

Weatherhighlights • Unseasonablycoldweatherhittingmuchofthe

southeastAustralia.ShowersacrosseasternVIC,NSWmostlydry.

• InNZ,raininthewestoftheSouthIsland.HeavyfallsexpectedacrosstheNorthIslandintheweekend.

• Heavyrainacrosstheeast.MixedweatherintheMidwestandanotherhurricaneeyeingthesouthernAtlanticseaboard.

• WarmandsunnyinBrazil.SomeraininArgentina,mostlywarmandsunny.

• RainandthunderstormsacrossGermany.RainintheNetherlands,mixedweatherinFrance.

GDTandEEXevaluateplatformTheEuropeanEnergyExchange(EEX)andGlobalDairyTrade(GDT)havesignedaLetterofIntenttoevaluatethepossibilityofadairyauctionwithproductsoriginatinginEurope.EEXcurrentlyoffersfinanciallysettledfuturesonSMP,butterandwheypowderandtheEEXderivativesmarketcontinuesachieverecordvolumesandsteadygrowth.Overthenextmonth,EEXandGDTwillconsultwithdairyproductbuyersandsellersaboutjointlyofferingpricediscoverymechanismforEuropeandairymarkets.

LittlechangeinglobaloutlookFreshagenda’slatestGlobalDairyDirectionsanalysisindicatesmarkettension–areflectionofingredientinventoriesinthehandsofexporterswillweakenthroughtherestof2017andsteadyinthesecondhalfof2018.ThereischangeintheoutlookforSMP,withhigherproductionbeingbroadlymatchedbygainsindemand.ThestrongerspringproductioninNZ,coupledwithweakerSMPpricesthatmakefat-filledalternativesattractive,willalsosoftenWMPvalues.ThecheddarcheesemarketisexpectedtoremainreasonablystablewithtightmilksupplyintheEUintheshort-term,buttheriskofgrowingUSstocksisexpectedto

weakenvaluesinlate2017andinto2018.

CheesemarketweakensCMEcheeseblocksendedlastweekUS$242/tweakeratUS$3,394/t-atwo-monthlow.AccordingtoanalystMatthewGould,manyinthelocalindustryweresurprised

withtheonlybearishnewsduringtheweekbeingasurgeintheMidwestmilkoutputduetocooler-than-usualAugustconditionsandimprovedpercowyields.

GDT:smallchange,butfatsweaker Thisweek’sGDTindexrosejust0.3%onthelargestofferingofyearat33,501t.Fatsandpowderspulledinoppositedirections;WMPwasdown1.4%toaverageUS$3,100/t,allcontractwerelower,withtheexceptionofFebruarydeliveries.SMPshed1.2%,averagingUS$1,944,withtheJanuarycontractdown7.5%toUS$1,891/t.AMFlifted3.3%toUS$6,402/t,pricesforOctoberdeliveryrising7.8%toUS$7,025/t.ButteraveragedUS$5,954/t,up3.8%onmixedresults,contractsforOctoberdeliverydropping9.2%toUS$6,0131/t.Cheddarpricesincreased2.8%toUS$4,118/t.

Futuresmixed–NZXpowderswereflat,whileCMEpowderslostground.Fatsweremixed.AllpricesquotedinUS$/t.

6-Sep SMP NDM WMP Cheese AMF ButterExchange NZX CME NZX CME NZX CME

Oct-17 2,000 1,906 3,260 3,695 6,455 5,440Nov-17 2,000 1,925 3,245 3,677 6,460 5,423Dec-17 2,000 1,953 3,235 3,649 6,380 5,357Jan-17 2,010 1,992 3,230 3,631 6,240 5,221Feb-18 2,035 2,021 3,210 3,655 6,200 5,241Jan-18 2,050 2,052 3,210 3,660 6,100 5,241Change 0% -1% 0% -1% 2% -3%

Opinterest 6,334 4,111 25,344 11,316 561 3,650

D A I R Y F U T U R E S