Dairy Market Report14th July, 2014

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Global supplies still strong• Strong output continues due to still high milk prices, low costs,

and farmers gearing up in Europe• In EU, fear of superlevy has had little moderating impact.• However EU now past peak, and dry spell means most recent

production has eased slightly – though not in Ireland +7% in May; 8.5% for Jan-May.

• Lower prices could slow production. EU Com preditcts +2.8% for 14, and 2.3% for 15.

• US – prediction by USDA +2.3% for 14 and +3.2% in 15, with lower milk prices in 15. 40,000 extra cows in the milking herd

• China has increased production 6% in most recent period• Australia and NZ reported to have strong early new season with

+8% and +10% respectively• Russian supplies are back• India – about to overtake EU as world’s biggest producer, but now

reported to be fist victim of “El Nino”• El Nino likelihood estimated at 90% - drought conditions could

impact Australia/NZ supplies in coming months

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GLOBAL SUPPLIES CONTINUE STRONG

PeriodNZ 15.68% Jan to Apr 14USA 1.60% Jan to May 14EU28 5.44% Jan to Mar 14OZ 3.40% Jan to Apr 14

15.68%

1.60%

5.44%

3.40%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

NZ USA EU28 OZ

Evolution of Milk Supplies Jan - Mar, Apr or May 14

Estimate: +4.9% global

extra supplies Jan-

April

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GLOBAL SUPPLIES CONTINUE STRONG

Tables and graphs - absolute quantities12/13 13/14 Period

NZ 6,294 7,281 Jan to Apr 14USA 37,600 38,200 Jan to May 14EU28 35,165 37,077 Jan to Mar 14OZ 2,615 2,704 Jan to Apr 14

6,294

37,60035,165

2,615

7,281

38,20037,077

2,704

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

NZ USA EU28 OZ

Mill

ion

Litr

es

Milk Supplies in Main Producing RegionsJan-Mar/Apr/May 14 v 13 (million litres)

12/13

13/14

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Demand a mixed picture• Chinese buyers have stayed off the market the last few

months after a buying frenzy. They must use up high stocks before coming back later in the year. 16m newborns predicted for 2014 – a fair amount of extra demand for IFM.

• Lower prices bringing some buyers back onto markets (Africa in particular)

• Ramadan ongoing = limits to demand from MENA (however, Ramadan over by end July, so demand in those regions should pick up then)

• Holiday period always quieter as buyers are off• High EU butter prices mean export demand is lower.• However, strong bulk butter demand reported in Europe.

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MOST PRICES TO EARLY JULY CONTINUE FIRM IN EU…

Source EU Commission’s Milk Market Observatory

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… MORE MIXED ELSEWHERE

Source: USDA

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Source: EU MMO

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Source: EU MMO

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Source: EU MMO

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Outlook?• Still a lot of milk being produced, and high stocks in hand• El Nino may help rebalance supplies – if so, prices will be

impacted positively sooner• Current product price levels, once translated back into

producer prices, deemed “unsustainable” (Rabobank), so supplies will fall back due to prices also.

• Relatively good demand within Europe • Demand from price sensitive countries (Africa, some parts

of SE Asia) is picking up – though not making up for loss of China

• A lot of stock to be worked through before buyers come back in earnest.

• Could be late this year, early next before dairy prices recover properly.

• Goldman Sachs doomsday prediction: 5 years of poor dairy prices – no more basis to predict this than to predict the opposite.

Milk Price Strategy

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15

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Source EU Commission’s Milk Market Observatory

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6th July 2014

Calculations 11/07/2014

Avg EU mkt price at 06/07/14 - €/t c/l equiv

Estimated coeff.

BUTTER (Irish) 3240SMP (Irish) 2780 39.36 35% 13.78CHEESE 3810WHEY PWDR 990 45.16 41% 18.52WMP 3250 40.31 8% 3.22OTHER* 35.62 16% 5.70

41.22ASSUMING THAT "OTHER" RETURNS 15% LESS THAN SMP/BUTTER

ESTIMATE OF RETURNS FOR REPRESENTATIVE IRISH PRODUCT MIX

6th July 2014

Calculations 11/07/2014Avg EU mkt price at 06/07/14 - €/t c/l equiv

Estimated coeff.

BUTTER 3570SMP 2900 41.90 35% 14.67CHEESE 3810WHEY PWDR 990 45.16 41% 18.52WMP 3250 40.31 8% 3.22OTHER* 35.62 16% 5.70

42.10ASSUMING THAT "OTHER" RETURNS 15% LESS THAN SMP/BUTTER

ESTIMATE OF RETURNS FOR REPRESENTATIVE IRISH PRODUCT MIX

Net price equivalent (assuming 5c/l costs)

36.22 c/l + VAT38.03 c/l VAT incl

Net price equivalent (assuming 5c/l costs)

37.10 c/l + VAT38.95 c/l VAT incl

Returns from EU average dairy prices @ 6th July 14

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IDB forecasts

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* based on 2010 base 100 for PPI, and CSO milk price of 29.27c/l + VAT for that year** based on simple average of FJ League for each month for 3.3% p 3.6% f(Assumption of no change in milk price paid for July and August) Note: Jul-Aug

above based on IDB

forecast PPI