A World Dairy Commodity Markets Overview - Brian...
Transcript of A World Dairy Commodity Markets Overview - Brian...
© Gira 2013 GDC 2013 – EXTRACTS
To thank our interviewees who kindly gave their
time and shared their opinions with us
A World Dairy Commodity Markets Overview
Composed of extracts from the
GIRA DAIRY CLUB 2013
October 2013
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Thank You Very Much
The following extracts from the Gira Dairy Club (GDC) 2013 are presented in thanks to those who were kind enough to be interviewed by our consultants and to give us their opinions on matters of current interest in the world dairy markets. They are taken directly from the extensive Synthesis volume of the GDC.
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Extracts
The Big Issues in 2012-13 Page 4
Milk production through 2017 6
The dairy commodities, consumption & trade 7
Commodity prices – a chartist approach updated 9
Fresh dairy products in China 17
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Widespread weather problems in 2012/2013
Severe drought in NZ : the Summer/Autumn drought conditions slashed milk collection by over 1.3 bn litres, as the 2012-13
season came to an end in May. Even with the best prospects for a favourable start to the 2013-14 production season (a third
consecutive bumper spring), calendar year milk collection for 2013 will record a 6.6% drop over 2012, before returning to trend.
Severe drought in the US: after an historic drought in 2012, conditions have improved in 2013 but are uneven among states. Some
areas in the West of the country remain in severe drought compared to the historic average. Feed prices should decrease, which
should improve profitability.
EU: a wet summer in 2012 and a cold spring in 2013
Drought in Russia in 2012
Prices
Feed prices have remained a key concern as the highest feed prices of the last ten years were reached in the second half of 2012
At the same time, milk prices were down in 2012, causing profitability problems for the farmers in the main feed-based producer
countries (US & EU)
On the commodity side, SMP and WMP prices had been increasing steadily from mid 2012 and reached record levels in April 2013
World milk production
World milk production decreased in the first half of 2013 by around -2%, but the trend appears positive for the five years ahead,
with milk production expected to increase by 2.2% p.a. between 2012 and 2017. The production and consumption of the five dairy
commodities studied should follow the same trend, increasing together at 2.3% p.a. over the same period
Intensive Merger & Acquisition activity in 2012
In 2012, the leading dairy companies carried out several major acquisitions
2013 has seen less opportunities for acquisitions. Most leading companies are now targeting organic growth and launching
ambitious investment plans in their existing facilities.
THE BIG ISSUES in 2012/3
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THE BIG ISSUES (2)
Strong indications that the world’s dairy industry is at a turning point
It appears very much that the world’s dairy supply chain is now at a turning point:
We are still in a Sellers’ Market, but for how much longer? There are already signs of levelling off and of substitution. Segmentation
and added-value will become the order of the day as we head (slowly) into a more price-competitive market.
The step-increase of milk price paid to farmers in importing countries post 2008 appears to be holding
• Many of these countries’ milk prices have reached a (much) higher level than in the EU and the US
• In several countries, this will accelerate the growth of local production and supply-chain (re)structuring
• In conjunction with a push for up-stream efficiency which will primarily come from the dairy processors themselves (a never-before seen trend)
• The impact of the resulting economic model is still largely unforeseeable
Foreign companies are starting to invest seriously in emerging markets in SE Asia and China (and even Africa), thus ensuring future
markets for their products and developing added value through B2C (FrieslandCampina, Arla, Danone – Alaska, Mengniu, Yili…)
But at the same time Chinese dairies are investing in processing abroad, to secure volumes and quality for their domestic market
Substitution will grow as suppliers are not able to produce enough dairy ingredients at a "reasonable" price. Demand is exceeding
production. FFMP growth is already an important example of this trend.
Sustainability is starting to be more than just a buzz-word. Whatever it is, it is becoming a commercial prerequisite for many end-users
Real commercial advantages for exporters will come from new FTAs and agreements: NZ/China, India/NZ, EU/USA, TTIP, ASEAN, …
The end of quotas in the EU will be important, although its impact still remains far from clear. It may still be a turning-point for the
recovery of European dairy production – even challenging NZ’s export supremacy. And EU milk prices are now relatively “cheap”…
The awakening of the US as a dedicated exporter: there is a strong possibility of quite slow but long term export growth, built on milk
production growth, a competitive milk price and a much more structured export effort.
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Having survived a year of major weather problems across all the key dairy regions, and of record high feed and
commodity prices, all operators are learning how to navigate in new waters. This will stand them in good stead for the
future, since although the sky is decidedly blue ahead, the boat is moving fast and the waves will get higher.
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Milk Production – growth Sustained growth in almost all GDC countries
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The major growth in 2012 to 2017 is set to take place in the following countries:
The highest growth in volume terms will happen in: India (30.2 mio t over the whole period), China (9.8 mio), US (7.6 mio), Brazil (4.0 mio) & EU (4.1 mio)
Russian and Japanese production is expected to decline by 1.1 mio and 0.5 mio tons respectively through 2017.
Milk Production Change by GDC Country,
2007-2012
Continuous growth in almost all countries
From 2007-12, the average annual growth was 1.8% p.a.
The main growth in 2007-12 took place in just a few countries, notably: India (19.3 mio t over the whole period), China (8.0 mio), US (6.7 mio), NZ (5.4 mio) & EU (5.1 mio)
550,000
560,000
570,000
580,000
590,000
600,000
610,000
620,000
630,000
2012 EU RU BL UA US MX AR BR VE NZ AU IN** CN JP ID MY PH VN TH EG SA DZ2017f
('000 t
on
s o
f m
ilk)
Source: Gira - **IN: includes cow & buffalo milk
490,000
500,000
510,000
520,000
530,000
540,000
550,000
560,000
570,000
2007 EU RU BL UA US MX AR BR VE NZ AU IN* CN JP ID MY PH VN TH EG SA DZ 2012
('000 t
on
s o
f m
ilk)
Source: Gira - **IN: includes cow & buffalo milk
Milk Production Change by GDC Country,
2012-2017f
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Global Commodities Consumption EU largest consumer of the five commodities; good growth elsewhere
The 5 Commodities together – Global Consumption ('000 t product weight), 2012
Europe is still the main
consumer of dairy
commodity products.
However, future EU
consumption growth is
unlikely to be as strong
as other areas of the
world
Including: cheese, butter, WMP, SMP, & standard whey powder
EU12,89735%
US7,27720%
IN4,25512%
CN2,4117%
BR1,6244%
RU1,4914%
MX8952%
JP6932%
AR6722%
AU5101%
UA4911%
EG4681%
ID3951%
SA3901%
DZ3571%
Others*1,5184%
Source: Gira and FAO/OCDE* Others = IR, VE, VN, MY, TH, PH, BL, NG, NZ
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Major exporting countries
Trade flows in ‘000 t
100
160
200
600
Summary of main (GDC) Dairy Commodity trade flows, 2012 Only individual flows of over 100KT are shown here
Products included here:
WMP, SMP, Cheese,
Butter & AMF, Whey
Powder
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Commodity Prices
The roller-coaster continues, but becomes clearer
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Tracking Prices And trying to make some sense out of them
The very relative coherence of price movements across the whole commodities spectrum – more or less valid
through 2011 – is now a thing of the past.
Increasingly now, only “obviously” related commodities move together, but those links seem to getting stronger
again…
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Links between related commodities’ movements appear to
have strengthened more recently
EU and US milk prices come together again as the links to & between dairy commodities strengthen
The speculative money seems (again) to be flowing equally into the main speculative commodities: oil, wheat
and gold. But they no longer appear to influence dairy
Palm Oil seems largely uncorrelated with dairy.
The links (R²) between
different parts of the
dairy chain appear to
have strengthened
further recently (green
bars here)
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Links between dairy commodity movements have
strengthened recently, & prices have again come together
Each of the last four (including 2003) strong upward price movements has been preceded by a coming-
together of the commodity prices.
We have just seen another one – is it going to be a repeat of 2010? Or will it be the proof that it’s all just by
chance…?
?
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The dairy commodity market is showing signs of
becoming a more mature, liquid market
During GDC12, we remarked on the appearance of floor resistance lines on our commodities price charts –
for all 4 basic commodities and on most quoted markets:
? ?
Looking back to 2002, we established that there was probably a floor resistance level…
one whose slowly rising trend reflected demand and/or cost inflation.
The question at that time was whether the then current prices would fall to that line (or even below), or bounce
upward earlier.
There were also other lines, but it was too early, or too silly, to project them forward
And there was no sensible ceiling resistance line visible.
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Another year – we’re a little bit wiser,
and the “charts” appear to be a little bit clearer
In fact, the line of downward resistance held well this time last year, and prices shot up again, to the levels of 2008
and 2011.
Indeed, it is this third top of the cycle that makes us believe that there is a real price “ceiling” in formation… i.e. a price above which buyers stop buying. And it’s pretty flat, i.e. it doesn’t appear to be affected by demand or cost inflation.
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However, if, as it seems is the case, the downward support floor continues to rise, then this could imply that, in the
future, prices might be trading within a more limited, but higher range than until now.
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Other related commodity markets appear to be more
established and mature (flat…)
But the CME cheddar support floor
has also been rising in recent
years, as has the EU butter price (black dotted arrow on the two graphs)
So these markets might also be
trading within tighter limits.
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Chinese dairy consumption was small & limited to long life
products… but now the “fresh” taste has been awoken!
Fast evolving Chinese fresh demand
But still limited to basic products… & the major urban centers
Traditional fresh demand was only near to the traditional dairy herds
Very limited in both volume & product range
For fresh milk & some limited natural yogurt
Lack of chill-chain prevented fresh product development
Otherwise dairy is essentially limited to UHT milk & powders
UHT is defined as “fresh”… this protects domestic milk producers from
competition from imports for liquid milk reconstitution!
Yogurt
Was a fresh, locally supplied, largely artisanal product
Development of the chilled supply chain has opened the market to
commercial supply
Now we see yogurts that are: imported, of Chinese origin… and even
imported brands made in China
Ice Cream is the major new product
Frozen distribution is still more reliable
New and sexy… especially for younger generations
Imported brands as well as domestic brand development.
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UHT milk category is well developed… but now being superseded
UHT is defined as a “fresh” category
Domestic production well
established, but not trusted by
consumers (since the melamine & subsequent
scandals)
The import category now dominates
More expensive
Imported using back-freight shipping
advantages
Available also in small cartons,
multi packs
Suits local consumption.
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Pura,
from Australia,
RMB49.20
($8.00)/ lt
1, from South
Korea
RMB38.80
($6.31)/ lt
2, from South
Korea
RMB34.80
($5.66)/ lt
Asahi
(Japanese), from
single farm,
RMB25.80
($4.20)/ lt
Beijing San
Yuan, base
option,
RMB11.50
($1.87)/ lt
$6.57/lt spread for premium
Air Freight (a new sector) Local Production UHT
Mengniu,
LOCAL base
UHT,
RMB8.80
($1.43)/ lt
Arla,
EU
top UHT,
RMB19.90
($3.23)/ lt
Food fears & affluence translate into real profit margins
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Real fresh milk is now available – but at what price!
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Ice cream One of the major growth categories
The Western image of ice cream has boosted demand with younger generation, helped by fashionable
import brands, e.g. Haagen-Dazs
Chinese branded ice cream has developed alongside western imports
But it lacks the kudos of import brands… even when they are made in China
Example: New Zealand ice cream manufacturers who cannot meet NZ domestic demand due to export commitments!
Demand has historically been for out-of-home consumption, but now retail options are developing fast.
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Yogurt An old category, with new potential
Some limited traditional
consumption
In reusable earthenware jars
Consumed close to production
Developed import production
Some use of reconstitution
Fast evolving into a premium
product
Imported and local premium brands
JV with major Global brands
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What’s driving increased Consumption?
Easier for those with lactose intolerance to digest
Consumer appeal
• Functional yogurt (health)
• Drinking yogurt (convenience)
Development of Ambient yogurt aids distribution
• Momchilovtsi by Bright Food, Just Yoghurt by Mengniu,
etc.
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Cheese The market has just started moving
Relatively limited demand, mainly from: returned overseas Chinese, foreign residents in China, children, etc.
High and increasing demand in foodservice (McDonald’s, Pizza Hut…).
Acceleration of the development of Pizza Hut in China : 625 restaurants at the end of 2011 and more than 800 at the end of
2012
For the moment, « New World » cheeses prevail over European style cheeses.
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Milkana attracts Chinese children
Chinese consumers have adopted the
wine… so why not the cheese ?
- Western style of life, health, safety…
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Evolving dessert consumption model Huge opportunities for dairy based products
Specialised desserts restaurant
Meeting places, mainly students and young
people as clients… with long queues
Seen as highly fashionable.
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Fresh milk bar
Products : pasteurized milk, yoghurt, ice-cream,
milk shake, cheese, milk tea, iced coffee…
Made from fresh milk directly supplied by the local
farms.
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Please feel free to contact us for any information
on the full report of the Gira Dairy Club 2013
Christophe Lafougère
or
Rémi Valençot
Website: www.girafood.com
Proposal of the GDC 2013
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