Fonterra has failed in its third legal attempt to not supply raw milk to competitors who don't process the milk themselves. Fonterra is required to supply independent processors 600 million litres of milk each year, but sought to argue that Grate Kiwi Cheese and Kamai Cheese were not 'independent processors' because they outsource much of their processing to Open Country Dairy. The Supreme Court ruled that to allow them to do so would be "unnaturally restrictive" and not "conducive to efficiency in the relevant dairy market”. The Court of Appeals and the High Court have previously rejected the same case. 

Third court knockback for Fonterra
Andrea Fox, Business Day, 15 March 2012

Supreme Court rejects Fonterra’s appeal over supply of raw milk to rivals
Paul McBeth, Business Desk, 15 March 2012

Yesterday Fonterra revised down their end of season payout forecast by 15 cents due to a higher New Zealand dollar, increasing levels of global milk production, falling commodity prices and greater uncertainty in international markets. Their current predicted milk price in the 2011/12 season is $6.35/kg MS, down from $6.50 in December and well below their initial forecast of $6.75. Fonterra CEO Theo Spierings says that "While we have had a strong start to the season in New Zealand, with record milk flows, we are also seeing higher milk production levels in the US and Europe”. Luckily for Fonterra’s farmer-owners, forecast shareholder profit remains unchanged at 40c-50c per share. With approximately 70% distributed to farmers this gives a cash payment forecast of $6.63 - $6.70/kg MS. If you are confused about the numbers read this article on the Fonterra Payout by Dr Hauser.

Fonterra slashes payout forecast
Andrea Fox, Business Day, 12 March 2012

Fonterra cuts dairy forecast by $200m
Owen Humbry, NZ Herald, 13 March 2012

Fonterra Revises 2012 Payout Forecast
Fonterra Press Release, 12 March 2012

UK dairy foods company Dairy Crest announced last Friday that they will be conducting a strategic review of St Hubert, their French spreads business. The relationship began in 2007 when Dairy Crest acquired St Hubert. Up until now it looked like it was going well with St Hubert being “the most profitable” part of the business, according to Panmure analyst Damian McNeela. Dairy Crest “envisaged” that this relationship would result in further “synergistic acquisitions” and apparently these have not eventuated. Unfortunately all good things must come to an end and the review will investigate the option of “a potential divestment of St Hubert”. While the decision will only be made according to “strict financial criteria”, doing so would allow Dairy Crest to expand further into the UK market where there is increasing competition from German Theo Müller.

Review of French branded spreads business
Dairy Crest Press Release, 9 March 2012

Dairy Crest mulls sale of most profitable business
agrimoney.com, 9 March 2012

Dairy Crest's hints at 'au revoir' to French spreads as acquisition strategy stalls
Ben Bouckley, dairyreporter.com, 9 March 2012

"Why should I drink milk?" you might say. Well, here's your answer!

The EU dairy industry continues to consolidate with the recent merger of British Robert Wiseman Dairies and German Müller, as well as northern-European Arla with German Hansa-Milch and Swedish Milko. In their latest company report Arla has identified retailers as their key competitors due to the popularity of private dairy brands and the increasing price sensitivity of consumer preferences. In response to this, and despite increasing their overall profits by over 12 per cent in the last year, Arla intends to cut DKK 500m (€67m) from their expenses in order to maintain competitiveness. The Arla report also states their goal of becoming “the best dairy in Northern Europe and the UK” as well as "expanding further into MENA (Middle East and North Africa) and Russia, where we have expanded with 27 and 33 per cent respectively over the last year.”

Discount Dairy retailers are out key competitors in Europe and the US says Arla
Ben Bouckley, dairyreporter.com, 6 March 2012

Arla Annual Report 2011
Arla Foods, 22 February 2012

Robert Wiseman Dairies delists from the Stock Exchange
BBC News, 7 March 2012

A small NZ grocer is on a "quest" to get cheap milk and their latest mission is to find a partner in a venture to bottle their own. Nosh Food Market made headlines last month by reducing their retail milk price to NZ$ 1/litre and director Clinton Beuvink says the mainstream supermarkets approach to pricing milk and other beverages is "anti kiwi". Nosh's ideal partner would be an existing milk bottler who are willing to join them in a NZ$2 million investment in a pasteurising unit.

Nosh in milk bottling bid
Business Day, 15 March 2012

Nosh to bottle milk?
Nosh Food Market, Press Release, 15 March 2012

Fonterra has announced their plans to open the world's largest dairy drier. The new Darfield processor, their first new one in 14 years, will be able to process 4.4 million litres a milk per day, double that of their existing processor at the site. Milk flows have been growing by 4-6 percent in the surrounding area and Fonterra Trade and Operations Manager Gary Romano says that the "Darfield site has always been about future proofing Fonterra's operations for milk production growth in the South Island" and being able to "meet the existing demand and further growth." The new plant will begin taking milk in August and create 60 new jobs. 

Darfield milk deal set to bring billions
Tim Cronshaw, The Press, 14 March 2012

Fonterra unveils first new processing site in 14 years and 'key megatrends'
Ben Bouckley, dairyreporter.com, 13 March 2012

Fonterra Confirms Second Drier At Darfield
Fonterra Press Release, 14 March 20012

USDA predicts U.S. dairy prices will fall throughout 2012 because of increasing production. In their latest ‘World Agricultural Supply and Demand Estimates’ report USDA says that increasing herd sizes and mild weather will push milk production up to 199.7 billion pounds, but unluckily for farmers the invisible hand of the market will strike back with lower milk prices. Processors will be happy as both Class III and Class IV milk pries are down to $16.35-16.95/ctw and $15.85-16.55/ctw respectively. The predicted all milk price also continues on its downward trend to $17.60-18.20/ctw compared to $18.00-18.70/ctw last month, well below its $20.14/ctw price during March last year. The prices of cheese, butter, non-fat dry milk and dry whey are also predicted to decrease.

World Agricultural Supply and Demand Estimates
USDA, 9 March 2012

USDA lowers its milk price forecast again
Tom Quaife, Dairy Herd Network, 9 March 2012

More Milk, Lower Dairy Prices Ahead, USDA Says
Catherine Merlo, Agweb.com, March 9, 2012

This chart shows the milk price equivalent of the Bledisloe Cup. Fonterra New Zealand’s cash payout to farmers since 02/03 has been converted to Australian dollars and milk units. Alongside this we have plotted MG’s price range from a highly seasonal production curve to a (now) more typical curve with about 40% off peak production. An aggressive currency hedging strategy has given NZ the advantage in the past two years but that bites back the other way when currency runs against you. The latest forecasts from Fonterra and MG put them neck and neck at this stage of the 11/12 season. We will need to wait until the Fonterra AGM in September before the final siren sounds.

Postscript 14th March 2012 - Fonterra NZ reduced their milk price forecast this week and this chart now shows the latest estimates

Rabobank's Kevin Bellamy says Australian farmers should embrace new opportunities rather than fret over the price of spilt milk. Australia's current supermarket wars are very similar to what has happened to the UK dairy industry in the last 10 years and UK dairy farmers have still managed to survive. According to Bellamy there is a general shift towards private label sales and increasing supermarket control. Despite this, Bellamy thinks that for farmers there "are ways around the supermarket price games, particularly as world milk demand continues to grow and new export markets for milk begin to develop". 

Milk price wars to point to new markets
Tom Clapin, Farm Weekly, 9 March 2012