Dairy Report DECEMBER 2013

Transcription

1 Dairy Report DECEMBER 213 TABLE OF CONTENTS Agrifax Dairy Index 2 Milk Production Global 2 New Zealand 3 Rest of World 4 Dairy Commodity Markets Prices 5-6 Whole Milk Powder 7 Skim Milk Powder 8 Milkfat Products 9 Dairy Company Milk Price 1 Dairy Company Information Fonterra surprises the market Fonterra s decision to hold its milk price forecast at $8.3/kgMS and the reduction to its dividend expectations came as a surprise to the market. We were more surprised by Fonterra deviating from their milk price manual calculations than the reduction in their dividend forecast. It is difficult to generate large profits when costs are high as is the case for the value add businesses which effectively buy dairy commodities and transform them into higher value products. Fonterra s product mix is limiting its ability to pay the theoretical milk price which is based on reference products (essentially milk powders) because products like cheese and casein have not increased in value to the same degree as the milk powders have, Fonterra just doesn t have the funds available to pay the $9/kgMS price which in theory it should be paying to its farmers and it is not prepared to go into debt in order to do so. Is Fonterra reducing the milk price in-order to insure that there is still a return for shareholders? From the data released by Fonterra it is not totally transparent which parts of their business they expect to generate a profit but we expect the 1c dividend will be generated by the value add businesses. So long as Fonterra s core NZMP business is returning all it can to farmers and not putting some funds aside to prop up the dividend (which we don t think is the case) then there should be no tensions between shareholders who supply milk and those that don t. Thanks for your support ove the past year and we wish you a very successful New Year. Susan Kilsby Dairy Analyst DAIRY INDEX NZ MILK PRODUCTION FORECAST WHOLE MILK POWDER PRICE AGRIFAX MILK PRICE PREDICTOR 213/14 1, % 5, /14 US$/TONNE NZ$/KG MS Ph Fax info@nzxagrifax.co.nz Page 1

2 The Agrifax Dairy Index The NZX Agrifax Dairy Index gained 5 points in December to finish the month at 1793 points. The Index was driven upwards primarily by a lift in land prices and an increase in the Agrifax milk price forecast for the current season. Dairy farms have been selling very well with the number of farms traded and the average price increasing. Fonterra shares fell in value this month following the reduction of the dividend forecast from 32c to 1c. The drop in the value of the Fonterra shares was partially offset by an appreciation in the price of Synlait Milk shares and shares in LIC. Dairy commodity prices pushed higher again in December adding 4 points to the index, but this was tempered slightly by a stronger NZ dollar. This month Last month 6 mths ago Last year Overall Index 1,793 1,788 1,588 1,378 Land Stock Fonterra Shares Dairy Company Milk Price Commodity Prices Industry Shares Exchange Rate The NZX Agrifax Dairy Index base line is 1 on January 1, Dec 11 Mar 12 Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 Sep 13 Dec 13 MILK PRODUCTION - Global The effect of strong milk prices is starting to show in global milk production figures. In volume terms the largest response is coming from the EU markets where solid expansion is being recorded in all of the main milk producing countries. The US is the country we are all watching as improvements in output in this market are likely to show up quickly on the global markets. The US is expected to export more than 15% of its total dairy production this year. Milk prices in the US have been slow to increase relative to other countries as relatively low domestic prices have kept farmgate milk prices in check. Milk prices are now increasing and the all important margin between milk prices and feed costs is expanding and forecast to continue to do so in 214. Production in China is reported to be improving but we don t expect to see a sudden turn around in this market as much of the recent slow down in production stems from the quick exit of small farms from the market and the associated culling of cows. Therefore it is unlikely that China will be able to rapidly expand production in the short to medium term despite recent improvements in milk prices and returns at the farm level. New Zealand continues to pump out the million tonnes Dec 11 Feb 12 Apr 12 Jun 12 Aug 12 Oct 12 Dec 12 Feb 13 Apr 13 Jun 13 Aug 13 Oct Global Monthly Milk Produc3on - Key Expor3ng Regions milk, with solid rates of growth recorded to date. Milk flows are always more variable in the post Christmas part of the season Source: DCANZ, Dairy Australia, USDA, Eurostat, Agrifax Global Milk Produc/on - Key Expor/ng Region Year on year change in milk produc/on Dec- 11 Mar- 12 Jun- 12 Sep- 12 Dec- 12 Mar- 13 Jun- 13 Sep but at present there is no indication that we will see a repeat of last season s devasting drought. NZ Australia Sources: DCANZ, Dairy Australia, USDA, Eurostat, Agrifax Note: Agrifax es8mates for recent months where official data not yet available US EU Total NZ Australia US EU Ph Fax info@nzxagrifax.co.nz Page 2

3 MILK PRODUCTION - New Zealand Official milk production data shows NZ produced 5.8% more milk in October 213 than October 212. This brings production for season (June October) to +6.6%. Milk intakes across NZ are now slowing as hot weather sets in. Average intakes are likely to be about 1% higher this December than in December 212. The South Island, particular the Canterbury region, continues to drive the increase in milk intakes but strong rates of growth have also been recorded in the Bay of Plenty region of the North Island. The outlook is for warm temperatures for the remainder of December particularly in Eastern regions. Rainfall levels are anticipated to be about normal in the North Island while it may be a little drier than normal in the South Island. The dryness in the South Island will be partially mitigated by irrigation although restrictions on water use are now in place in certain schemes. In addition water has not been able to be applied to a small number of dairy farms in the Canterbury region as irrigators have not yet been repaired after being damaged by severe gale force winds earlier in the spring. The slow down in the rate of growth in recent months is in line with the projections made earlier in the season by Agrifax. We expected to see limited growth relative to the previous season during the months of December and January. During the later part of the season (February to May) growth rates are expected to look strong relative to last season due to drought restricting milkflows in the early part of 213. We continue to hold the Agrifax milk production forecast for the 213/14 season at +8.5%. Fonterra has now lifted its milk production forecast for the current season to +6.4%. If achieved this would result in Fonterra processing 1,556 million kgms this season. Fonterra acknowledges that while there remains a risk that dry conditions through summer will again impact milk supply, the record Milk Price forecast provides additional confidence that milk supply will increase above their previous estimate of +5%. Fonterra revises its milk production forecast on a quarterly basis inline with legislative requirements. The NZX Pasture Growth Index Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Source: DCANZ, Agrifax Note: Agrifax escmates for recent months where official data is not yet available improved during early December after falling well below average during the later part of November. Rain earlier in December was responsible for the rebound in the index and this positive trend is expected to continue throughout the remainder of the month. New Zealand Monthly Milk Produc>on NZ Milk Produc.on - Season to Date Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Source: DCANZ, Agrifax Note: Agrifax es1mates for recent months wehre official data not yet available Pasture growth rates typically reach a seasonal trough during February and then rebound during the autumn months. Last season was an exception when pasture growth virtually came to a standstill in March due to the severe drought /12 212/13 213/14 Ph Fax info@nzxagrifax.co.nz Page 3

4 MILK PRODUCTION - Rest of the world Milk intakes in Australia this year are expected to contract a little, predicts the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) in its latest Agricultural Commodities report for the December 213 quarter. ABARES anticipates milk intakes will decline slightly in the 213/14 season to 9.13 billion litres. Increased production in dairy regions in northern Victoria is likely to be offset by reduced production in western Victoria and northern New South Wales because of dry seasonal conditions. Australian milk production declined 4%year-on-year in the first quarter of , with the largest decline in western Victoria. Dairy cow numbers are thought to have remained stable this season at approximately 1.71 million head. In the 212/13 season there was a small increased in the number of dairy cows, mostly in New South Wales and Western Australia. While cow numbers have remained constant this season output per cow appears to have contracted slightly. ABARES anticipate that farmgate milk prices this year will be 19% higher than they were a year ago. Most of the east coast of Australia received above average rainfall during November. Water storage levels are generally very high in the main reserviors meaning there should be plenty of water available for irrigation through the remainder of the dairying season. US milk production for the 213 calendar year was revised down in the latest World Agriculture Supply and Demand Estimate report, while production for 214 was revised up. Milk flows in the US have been expanding but at a slower rate than previously anticipated. Dairy cow cull numbers have slowed down in recent weeks indicating farms are rebuilding their herds. Profitability at the farm level is improving as the margin between milk and feed expands. Additional cows, combined with an increase in productivity per cow, is expected to result in higher milk flows. In 214 milk supplies are forecast to expand by 1.8% compared with the.6% expansion expected to be achieved this year. In recent weeks milk flows have been curbed as a spell of cold weather has negatively impacted output. Milk returns have been expanding in recent months but the allmilk price received by farmers in November of US$21.3/cwt was still 8c short of the November 212 price. Corn prices have dropped considerably from a year ago with November prices 38% below year ago levels. Soyabean prices have dropped by 11%, Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec while alfalfa hay prices have fallen by 12.5%. Alfalfa prices continue to be underpinned by strong demand from China. Milk production in Europe is rapidly expanding with solid growth rates being recorded in all of the main milk producing countries. UK milk deliveries were up a massive 9.5% during November according to provisional data. In France milk intakes in recent weeks have been about 5% up on the same time last season and milk flows in the Netherlands are up by about 8.5%. While in Ireland production is up a whooping 16%. This indicates many milk producers are willing to incur any superlevy fees that will Australia Milk Producon - Monthly Source: Dairy Australia Note: Agrifax esmates for recent months where official data not yet availabe US Milk Produc.on - Monthly Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec EU Milk Produc.on - Monthly Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: USDA Source: Eurostat, Agrifax apply for excess milk produced this season as they gear up towards the removal of milk quotas in 215. Data collated by LTO Nederland shows milk prices reached a record average price of 39.86/1kg in October. At that time a number of companies including: Milcobel, Nordmilch, and Friesland Campina were paying over 4/1kg. More recent increases mean average prices being paid in Germany are now above the 4/1kg level. Milk prices in Europe are currently about 2% higher than they were a year ago. Virtually all companies are now paying record prices for farmgate milk. Ph Fax info@nzxagrifax.co.nz Page 4

5 DAIRY COMMODITY MARKETS - Prices Dairy commodity prices show little sign of easing up as we head towards the end of the year. There is still a fundamental shortage of dairy products available on the global market which is why prices have remained so high for a record length of time. The question remains as to when prices will ease back to more sustainable long-term levels, and what that level will be. Analysis conducted by Agrifax indicates prices are most likely to turn in the second quarter of 214 when global supplies of dairy commodities are picked to increase. We may see a slight softening in prices ahead of this time but it is just as likely prices could firm a tad further in the coming months depending on just how desparate buyers are to replenish their stocks. Dairy products from NZ have been flying out the door as quickly as they can be manufactured. By this time of the season stocks in NZ typically start to increase but this year demand is such that there is very little product in storage facilities. NZ did export less product during Q3 213 than in Q3 212 but this was because there was no carry over in product from the previous season, rather than any build up of new season product. US$/tonne 16-Dec Nov Sep Dec Dec-11 Butter Skim Milk powder Whole Milk powder Cheddar Casein - Acid Anhydrous Milkfat Weighted Average Price US$ per tonne 7 Dairy Commodity Prices Dec 11 Feb 12 Apr 12 Jun 12 Aug 12 Oct 12 Dec 12 Feb 13 Apr 13 Jun 13 Aug 13 Oct 13 SMP WMP AMF Product Mix Value Comparison Dec 11 Mar 12 Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 Sep 13 WMP SMP+Bu9er/WMP SMP+AMF/WMP GlobalDairyTrade US$ per tonne Results from Auction dated - 17 DECEMBER 213 Contract Period Shipping Month 1 January 2 February 3 March AMF n/a BMP n/a n/a n/a n/a BUTTER n/a n/a CHEDDAR n/a n/a n/a LACTOSE n/a n/a n/a n/a n/a n/a MPC n/a n/a n/a n/a REN CAS n/a n/a n/a n/a SMP WMP N/A n/a GDT Price Index 1466 * GDT prices averaged across all grades/specifications and suppliers, reported in USD/metric tonne FAS. 4 April 5 May 6 June Ph Fax info@nzxagrifax.co.nz Page 5

6 DAIRY COMMENTARY MARKETS - CONTINUED Stocks of dairy products are also relatively low in Europe and have been rapidly eroded in the US. Typically stocks in these Northern Hemisphere countries do decrease at this time of the season but the rate of decrease has been quicker this year. Festive season demands mean more milk is heading into the liquid milk market. Demand for cream is strong at this time of the season, for whipping and in the use of festive drinks such as eggnog (a sweetened alcohol drink made from milk and cream). This leaves less milk available to be manufactured into commodities such as milk powders and butter. Despite the increase in milk production in the EU this is yet to find its way into the export markets. More EU milk/dairy product appears to have been consumed by domestic markets. Russia is also soaking up a lot of cheese and butter from Europe. In recent months Uruguay has become the largest supplier of butter to Russia. Pedantic import regulations are making it difficult for product from some countries including NZ to enter this market. tonnes US$ per tonne Oct- 1 NZX Dairy Futures monthly trading volumes Jan- 11 Apr- 11 Jul- 11 Oct- 11 Jan- 12 Apr- 12 Jul- 12 WMP SMP AMF NZX Dairy Futures - forward price curves Oct- 12 Jan- 13 Apr- 13 Jul- 13 Oct- 13 Source: NZX Data Jan 214 Feb 214 Mar 214 Apr 214 May 214 Jun 214 WMP SMP AMF Source: NZX Data WMP Futures US$ Open Interest Jan Feb Mar Apr May Jun SMP Futures Jan Feb Mar Apr May Jun AMF Futures Jan Feb Mar Apr May Jun Ph Fax info@nzxagrifax.co.nz Page 6

7 Focus on Whole milk powder Strong demand from China continues to dominate the whole milk powder (WMP) markets. The demand stems from the slow down in domestic milk production in China combined with growing demand for dairy products. The reduced tariffs associated with the NZ:China Free Trade Agreement (FTA) always boost buying in the later part of the year for delivery early in the New Year. But the portion of product that enters China under the agreement continues to reduce despite annual increases in the reduced tariff volume. In 214, tonnes of NZ milk powder will be entitled to enter China at a 4.2% tariff rate, as opposed to the general tariff rate of 1%. However much of this quantity will have already been filled with product that missed the 213 quota cut-off but was on the water destined for China. The exact quantity of product that fits this category has not yet been released but in 213 more than 5, tonnes of milk powder was carried over after missing the 212 quota cut. The volume that this applies to is likely to be significantly more this year so we expect that the entire 214 quota limit will definitely be filled within January 214. All of this product that will enter under the 214 quota will currently be on ships bound for China. Essentially while NZ has been concentrating on meeting as much of China s demand for imported WMP, other markets have missed out. During the first 9 months of this year Algeria imported 3, tonnes less milk powder (WMP and SMP) than they did during the same time last season. So it is not surprising that recent demand for imports into this market has been very strong. Other big importers of WMP such as Venezuela, Brazil and Sri Lanka have also imported a lot less WMP this year they typically would. A big unknown is how much latent demand currently exists for WMP and how much demand has been eroded by prices simply being too high for consumers to afford. Demand elasticity for dairy products varies between countries and end users. In China it appears the high prices may have stilted demand growth a tad but certainly has not reduced overall demand at the consumer level. The slow appreciation of the Chinese Yuan is another factor that is working in Chinese consumers favour. The gradual increase in the Yuan against the US dollar reduces the cost of imported products that are traded in US currency as dairy commodities typically are. Whole milk powder prices - US$ per tonne Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec New Zealand whole milk powder exports Oct 12 Dec 12 Feb 13 Apr 13 Jun 13 Aug 13 Oct 13 Whole milk powder exports (main expor<ng countries) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec The very high price that WMP is now returning is encouraging additional investment in milk powder processing plants. Dairy Farmers of America plans to open a new plant next year that will be capable of producing milk powders to export specifications. The plant is relatively small by NZ standards with an annual estimated throughput of 4, tonnes of product China whole milk powder imports ArgenTna Australia United States EU 27 New Zealand Oct 12 Dec 12 Feb 13 Apr 13 Jun 13 Aug 13 Oct 13 Note: EU data yet to be released Source: GTIS Europe Former Soviet Union Australia/Oceania Central America North America Africa - Sub Sahara South America North Africa Middle East China & Hong Kong Asia (Excl China & HK) Total last year Source: Sta+s+cs NZ Source: China Customs that equates to just 3% of the total volume of WMP NZ exported in 212. Europe is also adding milk powder drying facilities in regions where they expect milk production to increase but to date remains focused on meeting its domestic market needs which largely relates to the liquid milk markets and cheese. However, this may change if milk production continues to rapidly expand. Ph Fax info@nzxagrifax.co.nz Page 7

8 Focus on Skim milk powder Skim milk powder (SMP) prices have firmed further during the past month for product sourced from Oceania. Prices are currently 4% higher than they were a year ago. Despite the massive rise in SMP prices over the past year WMP continues to provide a greater return to manufacturers. Buyers who purchase product on GlobalDairyTrade now have a range of suppliers to choose from. At present Fonterra, Amul, Arla, DairyAmerica, and Euroserum all sell SMP on the GDT platform and the US based dairy company Land O Lakes is scheduled to commence selling SMP on the online platform in March 214. Fonterra is still achieving a premium price for the SMP they sell on GDT but the range of prices between sellers has closed recently as buyers become more accepting of product from suppliers such as India s Amul. NZX SMP Futures prices are pretty stable at present with the monthly contracts for Q1 214 trading in the range of US$494 US$498 per tonne. In the US market the swing away from nonfat dry milk (NFDM) production in favour of SMP has tightened NFDM supply and prices have firmed. The main difference between NFDM and SMP is that SMP must have a protein content of at least 34%, and not all driers are capable of producing SMP. In 212 the ratio between NFDM and SMP production was 82:18 but during the first 1 months of 213 this ratio reduced to 7:3. At the end of October there was still more NFDM in stock than at the same time in 212 but stocks rapidly decreased that month. A recent hike in NFDM prices indicates that stock levels have reduced further. NFDM prices are currently at the highest level seen since late Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Skim milk powder prices - US$ per tonne Skim milk powder exports (main expor:ng countries) Oct 12 Dec 12 Feb 13 Apr 13 Jun 13 Aug 13 Oct 13 New Zealand skim milk powder exports Oct 12 Dec 12 Feb 13 Apr 13 Jun 13 Aug 13 Oct 13 Skim milk powder in storage Jan 11 May 11 Sep 11 Jan 12 May 12 Sep 12 Jan 13 May 13 Sep ArgenTna Australia United States EU 27 New Zealand Note: EU data yet to be released Source: GTIS Former Soviet Union Europe North America Central America Australia/Oceania Africa - North Africa - Sub Sahara South America Middle East China & Hong Kong Asia (Excl China & HK) Total Last Year Source: Stascs NZ EU US Sources: USDA, CLAL Ph Fax info@nzxagrifax.co.nz Page 8

9 Focus on Milkfat Products Butter and anhydrous milkfat (AMF) were well supported at the most recent GlobalDairyTrade auction where prices for both of the products increased. AMF products were particularly well supported in the later delivery periods which fall in the NZ winter period. Premium grade AMF with a June 214 delivery date was priced at US$6,385/tonne while regular grade product for February delivery traded at US$5,5/ tonne. AMF prices were on average up 5% from the previous auction. Global demand for butter has also picked up. Oceania butter prices remain above US butter prices but significantly below the EU domestic butter price. Russia has increased its butter import volumes by 2% this year as its own domestic milk production has been lacklustre. Russia is the largest buyer of butter followed by Egypt and China. NZ supplies most of the butter imported by China and Egypt while the EU supplies much of Russia s needs. In recent months it has been difficult for some suppliers to get product into Russia, including NZ product. As a result we have seen less NZ butter entering this market than normal and an increase in butter from South American exporters, namely Uruguay and Argentina. Stocks of butter have been reducing in recent months. European stocks are 2% below year ago levels. In the US stocks are still above year ago levels but have been rapidly decreasing in recent months. In the US butter prices have been increased having gained 11% over the past month. European butter prices have also crept up as have Oceanic prices. Cheese negotiations for sales into Japan have recently been concluded. This market is becoming less and less lucrative for Oceanic exporters. In this round of negotiations stiff competition came from US exporters, who are now doing a better job of supplying the types of cheeses demanded by the Japanese. US exporters continue to gain assistance from the industry funded group, Cooperatives Working Together (CWT). This year to date CWT has provided financial assistance to US companies for the export of nearly 59, tonnes of cheese. This year to date the US has exported 258,5 tonnes of cheese. The main markets are Mexico, South Korea, and Japan. Australia is currently the largest supplier of cheese to Japan with around 4% market share, followed by NZ whose market share has dropped to around 27%, EU countries supply around 18%, while the US Bu#er & anhydrous milkfat prices - US$ per tonne AMF AMF Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Anhydrous milkfat exports (main expor?ng countries) Jan 11 May 11 Sep 11 Jan 12 May 12 Sep 12 Jan 13 May 13 Sep 13 has grown its market share to about 13%. The US is the largest supplier of cheese to South Korea where they hold a market share of 49%. This is followed by NZ (29%), the EU (13%), and Australia (6%). Recently Australia and South Korea signed a free trade agreement this is expected to assist cheese exports from Australia. The Bu#er in storage Bu?er 212 Bu?er 213 ArgenFna Australia United States EU 27 New Zealand Oct 12 Dec 12 Feb 13 Apr 13 Jun 13 Aug 13 Oct 13 Note: EU data yet to be released Source: GTIS Bu#er exports (main expor?ng countries) ArgenFna Australia United States EU 27 New Zealand Oct 12 Dec 12 Feb 13 Apr 13 Jun 13 Aug 13 Oct 13 Note: EU data yet to be released Source: GTIS Sources: USDA, CLAL US and the EU already have agreements but NZ does not. We expect NZ will gradually loose market share in this heavily protected market as the impact of the free trade agreements increases over time. At present only a relatively small portion of US and EU cheese is allowed into the country at a reduced tariff rate. EU US Ph Fax info@nzxagrifax.co.nz Page 9

10 DAIRY COMPANY MILK PRICE Fonterra has held its milk price forecast for the 213/14 season at $8.3/kg milksolids despite acknowledging that in theory they should be paying a milk price of $9/ kgms. They have stated that they are unable to pay a higher milk price due to actual revenue not being as high as theroretical revenues. The theoretical return based on the milk price manual calculations assumes all of the milk is made into a mix of whole milk powder, skim milk powder, butter milk powder, anhydrous milkfat and butter. At present these reference commodities are providing a higher return than other product streams such as cheese and casein which Fonterra also must also make during the peak of the milk production season when all processing facilities must operate at full capacity. Fonterra had expected the relative returns from the various income streams to realign as they typically do, but this has not yet occurred due to the extreme demand for milk powders from the developing nations versus steady demand for cheese from the developed nations. Prior to Fonterra s announcement we revised up our milk price forecast for the 213/14 season to $8.7/ kgms. The reason for this increase was the large volume of product that was exported out of NZ in October. There has been a general shift forward in sales of product this season due to the strong global demand for dairy products. While this forecast of $8.7/kgMS was 3c short of Fonterra s milk price manual calculation of $9/kgMS we continue to hold our independent forecast at this level. Fonterra has indicated it is unlikely that they will pay their suppliers at this level this season. But there is no reason why other dairy companies, especially those who primarily produce milk powders, will not be able to pay a milk price around this level. Our milk price forecast for the 214/15 season has eased back a tad to $6.4/kgMS. An increase in the forecast NZD:USD rate was responsible for our 15c downwards revision in next season s forecast. Looking out to the 215/16 season we predict milk prices will still be relatively low at around $6.6/kgMS Milk Price Predictors 213/14 USD per tonne FOB 214/15 USD per tonne FOB 215/16 USD per tonne FOB % change from season to date NZD/USD EXCHANGE RATE % % % % % % % % change from season to date NZD/USD EXCHANGE RATE % % % % % % % % change from season to date NZD/USD EXCHANGE RATE % % % % % % % NZ$/tonne Dec 11 Dairy commodity prices - weighted average Feb 12 Apr 12 Jun 12 Aug 12 Oct 12 Dec 12 Feb 13 Apr 13 Jun 13 Aug 13 Oct 13 Fonterra Milk Price (per kgms) and Dividend (per share) /6 26/7 27/8 28/9 29/1 21/11 211/12 212/13 213/14 Milk Price Dividend Source: Fonterra Ph Fax info@nzxagrifax.co.nz Page 1

11 DAIRY COMPANY SHARE PRICES Foreign Exchange rate forecasts Q1 14 Q2 14 Q3 14 Q NZD/USD Mean Range Standard Deviation EUR/USD Mean Range Standard Deviation EUR/USD Mean Range Standard Deviation The value of Fonterra shares and units in the Fonterra Shareholders Fund plummetted following Fonterra s announcement that they have slashed their dividend forecast for the 213/14 season from 32c to 1c. The profitability of Fonterra s value add business units are being negatively impacted by their high ingredients costs which are based on market prices for dairy commodities. This fact has been long known but previous earnings guideances indicated Fonterra would take a longer term view on earnings levels equating to the 32c dividend expectation. In Fonterra s core NZMP business the cost of ingredients is the price paid to farmers for the raw milk supplied. NZMP will benefit from Fonterra holding its milk price forecast at $8.3/kgMS rather than raising it to the $9/kgMS theoretical farmgate milk price (as per the Milk Price Manual calculation) but we assume that this part of the business will not be contributing to the dividend this year. In the previous financial year NZMP accounted for approximately 5% of Fonterra s earnings before interest and taxes. Should the board have not taken their current stance of ignoring the theoretical milk price then company profits would be negatively impacted which would have further impacted their ability to pay a dividend. Analysts have downgraded their share value forecast to $5.5, which was the price the shares were initally listed at just over a year ago. At the beginning of December Fonterra shares were trading at $6.5 but then eased in value over the first 1 days of the month before taking a big dive when the reduction in the dividend forecast was announced on the 11 December. Synlait shares have meanwhile appreciated in value this month. Shares were valued at $3.8 at the beginning of the month but then shot up over the $4 mark. On the same day that Fonterra Source: Bloomberg.5 Jan 11 May 11 Sep 11 Jan 12 May 12 Sep 12 Jan 13 May NZD:USD Fonterra Shareholder Fund last traded price & daily trading volumes Source: Bloomberg 6. Dec 12 Feb 13 Apr 13 Jun 13 Aug 13 Oct 13 Dec 13 Volume Price advised the market of the reduction in their dividend forecast, Synlait advised they expect to outperform financial targets due to commodity prices favouring their milk powder and anhydrous milk fat dominant product mix Source: NZX Share Prices NZX Listed This Month Change Last month 3 months ago Last year NZSX PGW Allied Farmers Fonterra Shareholders' Fund Synlait Milk NZAX LIC A NZZX Fonterra Share Price Source: NZX, Unlisted Ph Fax info@nzxagrifax.co.nz Page 11

12 Dairy Company Information Dairy Stock Prices Dairy Cows Delivery Northern North Island Southern North Island Northern South Island Southern South Island New Zealand Range New Zealand Average High BW herd June 1st Low BW herd June 1st Budget Cows June 1st In Milk Cows Immediate Carry Over Cows (not in calf) June 1st In calf R2 heifers May 1st Young Stock In calf R2 heifers Immediate R1 heifers June 1st R1 heifers Immediate thousand head New Zealand Weekly Cow Kill /12 212/13 213/14 Season starts as at 1 Oct, data includes beef and dairy cows New Zealand Dairy Land Prices $/kgms Feb 11 Jun 11 Oct 11 Feb 12 Jun 12 Oct 12 Feb 13 Jun 13 Oct 13 High Low Average New Zealand Dairy Land Sales Dec 11 Apr 12 Aug 12 Dec 12 Apr 13 Aug Sales volume (previous 3 mths) Land price $/kgms Source: REINZ Ph Fax info@nzxagrifax.co.nz Page 12