The latest US milk production figures show a continuation of increasing cow numbers and high milk production per cow. March data reveals an increase of 4.2% on the prior year, a similar result to the first two months of 2012. After correction for seasonal factors, milk production is 2.4% above the long term trend – giving an underlying growth rate of 2.5 – 3.5% since August 2011.  The lift in production has been achieved by pushing milk per cow to the top end of expectations for genetic potential as well as increases in cow numbers. The price signals of falling export prices, reducing domestic milk prices and a weak futures price outlook are now starting to bite. This however might come too late to prevent the pain of a margin over feed cost approaching the level of $5 / cwt.

To provide some context for this week's blog here is an estimate of the farmgate milk price comparison for Canada, the USA and southeast Australia. We are not sure if anybody knows what $11 / kg MS means so we’ve used the old language of cents per litre. This is calculated on a like for like basis at 4.1% fat and 3.3% protein. Both Canada and the US have a regulated system but, clearly, an entirely different view of how to go about it. For added reference the average price for 2L of milk in Montreal is about $1.70 / litre – roughly the same as branded milk here in Australia. In the US the average consumer price is $0.95/litre.

Danone has posted good first quarter sales for 2012 with sales increasing by 7.6 per cent to a value of €5,117 million (US$6.68 billion). Chief Financial Officer, Pierre-Andre Terisse, described it as “a good start to the year”.

Baby nutrition sales rose by 9 per cent, compared to a 3.8 per cent rise for fresh dairy products. Dairy sales experience double digit growth in Latin America and Africa/Middle East but were held back by decreasing European demand. Sales in Russia also increased and the country now equals France, comprising 11 per cent of Danone’s sales.

Danone continues to have success in the booming U.S. Greek yoghurt market with their Oikos brand gaining market share. Terisse, commenting on Kraft’s decision to discontinue Athenos Greek style yoghurt, said that “this shows that it’s not a market that anyone can go and tap very easily.”

Danone keeps goals, Russia, U.S, improving
Dominique Vidalon, Reuters, 17 April 2012

Kraft withdrawal shows penetrating US Greek yogurt market isn’t easy: Danone
Ben Bouckley, dairyreporter.com, 17 April 2012

2012 First-Quarter Sales
Danone Press Release, 17 April 2012

Kraft discontinues Athenos Greek yogurt
Reuters, 12 April 2012

Dairy Crest has announced that Tesco has chosen not to renew their contract to supply milk to the British supermarket chain.

Tesco have said that their reasons for the decision are “commercial and therefore confidential". Dairy Crest are staying positive, pointing out that the Tesco contract was only 3 per cent of their milk sales and that Tesco still “remains a large and important customer for our key UK brands”.

Dairy Crest has also announced the forthcoming closure of two of their UK plants. While Dairy Crest denies any relation between this and the loss of the Tesco contract, it comes at a time when Dairy Crest is under financial pressure. The closure is attributed to shift in consumer preferences from delivered glass bottles to supermarket purchases of plastic bottles.

Dairy Crest loses Tesco milk supply deal
Abhishek Takle, Reuters UK, 17 April 2012

Dairy Crest closures put 500 jobs at risk
Josephine Moulds, The Guardian, 17 April 2012

Dairies Business Update
Dairy Crest Media Release, 17 April 2012

Fonterra has unveiled plans to build a blending and packing plant in Indonesia, just days after announcing their intentions to invest NZ$100 million in two new Chinese farms.

Indonesia is Fonterra’s tenth largest market and Fonterra Ceo, Theo Spierings, predicts “rapid growth” and an increase in dairy demand of “50% over the next eight years”.

Indonesia's National Milk Agency President, Teguh Boediyana, says that the plant "will not benefit local farmers" because it will use New Zealand, rather than local ingredients. The plant is expected to be operational within 18 months.

Indo-Kiwi dairy relations may also be becoming even closer with plans to export sheep milk from New Zealand to Indonesia.

Anlene to Set Up Plant in Indonesia
vivanews.com, 17 April 2012

Fonterra plans to invest in new Indonesian plant
Business Desk, NZ Herald, 17 April 2012

Fonterra Announces Plan to Invest in Plant in Indonesia
Fonterra Press Release, 17 April 2012

NZ sheep milk heads to Indonesia
Patrick Gower, 3news.co.nz, 16 April 2012

Here's an important message to the global milk traders

The Crafar Farms saga has finally come to an end. This morning the New Zealand government granted approval of the sale to Shanghai Pengxin.

Land Information Minister, Maurice Williamson, said that “on even the most conservative approach this application meets the criteria”. The decision has been supported by Federated Farmers but not New Zealand's opposition political parties.

Sir Michael Fay who led an alternative consortium bidding for the sale has accused it of being “a one way deal” because “[n]o Kiwi will ever own a farm in China and that’s a fact”.

Shanghai Pengxin are happy with the decision declaring that it was "the end of a marathon" and that “it's now a matter of getting on with the job”.

Crafar Farms sale approved
John Hartvelt, Andrea Fox & Kate Chapman, Business Day, 20 April 2012

Crafar farms sold to Chinese
3news.co.nz, 20 April 2012

Crafar Farms sale to Chinese buyers approved
David Williams, The National Business Review, 20 April 2012

Fonterra’s end of season payout is predicted to fall after the huge drop at the most recent GlobalDairyTrade auction and the worldwide trend towards lower dairy prices.

Fonterra’s current predicted end of season payout, excluding shareholder dividends, is NZ$6.35 per kg of milk solids. However analysts are predicting that the actual price will be much lower. Agri-fax’s estimate, non-inclusive of shareholder dividends, is NZ$5.90 per kg of milk solids. ANZ National Bank chief economist, Cameron Bagrie, also thinks that the end of season payout "will have a five in front of it."

Federated Farmers dairy chairperson, Willy Leferink, says that while “New Zealand dairy farmers should begin preparing for a potentially lower milk price”, global demand remains steady and “will provide a floor for prices”.

Fonterra will not finalise their end of season payout until October.

Dairy farmers face payout cut after big fall in global auction prices
Jamie Gray , New Zealand Herald, 19 April 2012

Sharp drop forecast for next season's dairy earnings
Radio New Zealand, 19 April 2012

Milk price drop no reflection on demand
Federated Farmers Media Release, 18 April 2012

A2 Corporation has signed a deal with Synlait Milk that will allow the Kiwi firm to export milk powder to growing Asian markets. Synlait will source milk form A2’s farms and then manufacture A2 brand milk powders and infant formulas.

The Chinese and South East Asian infant formula market is estimated to have a combined value of US$9 billion and the Chinese market is expected to grow by 12 per cent a year. A2 Managing Director, Geoffrey Babidge, says the agreement “is a key step in our strategic plan to launch a2TM brand infant formula products into high growth Asian markets”.

A2 is also conducting a strategic review of their business as a way of “ensuring that we lay the appropriate platform for growth in new markets”, according to chairman Cliff Cook. A2 says they have been approached by potential business partners and will begin sales in Britain with Robert Wiseman Dairies in September.

A2 closer to Asia
Business Day, 16 April 2012

A2 Corporation Enters Nutritional Powders Supply Agreement
A2 Corporation Press Release, 16 April 2012

A2 seeks strategic review to accelerate growth
Paul McBeth, Business Desk, 18 April 2012

The global dairy price has again rocketed down at Fonterra’s latest GlobalDairyTrade auction. The GDT-TWI index dropped by 9.9 per cent relative to the previous sale two weeks ago and is now below the 10-year average.

While this is the single largest decrease since July 2010, Westpac’s Imre Speizer cautions that Tuesday “night's fall was not a sudden and a new occurrence”, because “Milk prices [have] been falling since early 2011”.

The price decrease for whole milk powder and cheddar were 11 per cent and 12.2 per cent respectively, with the smallest decreases in anhydrous milk fat, of 6.9 per cent, and milk protein concentrate, of 3.9 per cent.

The next auction will take place on May 1.

Prices plunge at Fonterra auction
Jason Krupp, Business Day, 18 April 2012

Dairy prices fall 9.9pc in overnight auction
Business Desk, NZ Herald, 18 April 2012

Trading Event 66
GlobalDairyTrade, 17 April 2012