GDT plummets nearly 11 percent
The GlobalDairyTrade (GDT) Index fell 10.7 percent to US$2,082/ton at the July 15 auction, the lowest level in more than six years. It was the 9th straight auction decline and the second drop of more than 10 percent since April.
The market continues to struggle with a milk oversupply. Not only does China remain largely on the buying sidelines, other significant import regions—the Middle East, North Africa and Southeast Asia—appear to have their short-term needs covered. On the supply side, milk production growth remains excessive, and the Southern Hemisphere flush is around the corner. Auction volumes will begin escalating in August.
Based on the continuing imbalance, New Zealand futures markets predicted this week’s GDT drop. WMP led the declines, as the average winning price sunk 13.1 percent to US$1,848/ton. Also posting double-digit declines were SMP (-10.1 percent to US$1,702/ton), AMF (-10.6 percent to US$2,621/ton and cheddar (-13.9 percent to US$2,613/ton). Butter was not far behind at -9.5 percent to US$2,694/ton.
The average winning price for buttermilk powder decreased 4.4 percent to US$1,794/ton, while casein declined 8 percent to US$5,430/ton.
Fonterra Co-operative Group is expected to release an updated payout projection for the 2015/16 season on Aug. 7, and analysts anticipate a reduction from NZ$5.25/kgMS, which is already lower than most estimates for farmers to break even. Analyst payout estimates are as low as NZ$3.75/kgMS.
The July New Zealand Federated Farmers confidence survey showed producers are already pulling back, and cull numbers have been running much higher than average.
Widespread supply contraction has been elusive so far, however. Therefore USDEC staff expects bearish market conditions to persist into 2016. A price floor hasn’t been firmly established and further declines are possible. In this environment, U.S. exports will likely need aggressive pricing to protect volume and market share. (USDEC staff; GDT; Federated Farmers; Agriland, 7/13/15)
Who deserves to be Exporter of Year? Nominate your choice now.
Dairy Foods magazine is seeking nominations for the 2015 “Tom Camerlo Exporter of the Year Award.” The recognition is bestowed upon a U.S. company that exhibits exceptional leadership and commitment to the international market. Nominees should demonstrate an active role in driving global dairy demand; industry leadership in advancing U.S. dairy exports; a commitment to export market development; and export sales success.
USDEC member Dairy Farmers of America earned the honor last year. Previous winners include Agri-Mark, Glanbia USA, Leprino Foods, United Dairymen of Arizona, Hilmar Ingredients, Schreiber Foods, Darigold and Davisco International. To nominate your company or another USDEC member as the 2015 “Exporter of the Year,” visit Dairy Foods’ confidential online nomination page here. The nomination deadline is Aug. 5.
MARKET CONDITIONS
EU extends PSA, intervention; dairy sector seeks more support
EU Ag Commissioner Phil Hogan announced plans to extend the bloc’s private storage aid (PSA) and intervention programs beyond the scheduled Sept. 30, 2015, end date. He refused, however, to lift the intervention price despite steady calls from farm groups and agricultural representatives from individual member states to raise the safety net.
Current intervention prices cannot “credibly be described by the EU Commission as a safety net,” noted the Irish Farmers Association. (The current butter intervention price is €2,218/ton; the current SMP intervention price is €1,698/ton. In today’s U.S. dollar, those equate to $2,442/ton and $1,869/ton, respectively.) The EU has not made intervention purchases since 2008/09.
Hogan acknowledged times were challenging for many in the EU dairy sector and would likely continue to be so through the end of the year. But he maintained that the industry was not in crisis and its prospects remained as bright as ever. An “artificial” intervention price hike “would only take away from the long-term sustainability of the sector, he said, adding that “the goal is not to produce as much as we can but . . . to develop demand and to make sure this is matched by production.”
Hogan also said he is developing a series of indicators for the EU’s Milk Market Observatory that would increase transparency and “provide a shared understanding of the dairy market.” (Dairy Markets, 7/14/15; Farmers Weekly Interactive, 7/14/15; Sofia News Agency, 7/10/15)
TRADE POLICY
Congressional leaders criticize WIPO Lisbon Agreement
Leaders of the Senate and House Judiciary committees, the Senate Finance Committee and the House Ways and Means Committee sent a strongly worded letter to the World Intellectual Property Organization (WIPO) criticizing recently approved treaty changes that are likely to restrict use of generic food names in export markets (see Global Dairy eBrief, 5/21/15). “Our faith in WIPO as an institution has been seriously undermined by WIPO’s departure from longstanding practice when it allowed a limited group of WIPO members to amend the Lisbon Agreement, without full participation of all WIPO members in a consensus fashion,” the committee leaders wrote. The letter also questioned whether the treaty provisions would lead to violations of other international trade agreements. “We are very concerned that parties to this agreement will implement it in a manner inconsistent with existing international trade obligations, including under the World Trade Organization’s Agreement on Trade-Related Aspects of International Property Rights,” it said. To view a copy of USDEC’s press release, click here. To view a copy of the congressional letter, click here. (USDEC staff)
Australia and India continue bilateral FTA efforts
Australia and India this month completed an 8th round of talks toward a Comprehensive Economic Cooperation Agreement. The two nations, who set a goal to complete negotiations by the end of 2015, say they are narrowing their differences on major outstanding issues. Dairy access to India, however, remains sensitive and unresolved. (The Economic Times, 7/10/15)
LOGISTICS
Wal-Mart warehouses are just a slice of China trade infrastructure upgrades
Wal-Mart opened four new warehouses in Tianjin to expand distribution in northern China. Two of its supply chain partners—Nestlé and Unilever—have reportedly already moved into the space—more than 850,000 sq. ft. in all. Journal of Commerce cites “incredible” amounts of money being poured into logistics facilities in China primarily to cope with huge increases in online shopping.
And that is only a piece of the trade infrastructure spending taking place in the nation. China embarked on an initiative called One Belt, One Road, aimed at improving connectivity across regions inside its borders as well as between the nation and its trading partners. One Belt, One Road will focus on the land route connecting China, Central Asia, Russia and Europe and the sea route linking China to Africa, India and Southeast Asia—the “Silk Road” and the “Maritime Silk Road.”
The government has approved a range of domestic projects related to the plan, including a network of roads and railways, power grids, gas and oil pipelines, and 15 ports along the Maritime Silk Road, costing upwards of $240 billion. The longest freight train route in the world, which links the city of Harbin in northeast China and Hamburg, Germany, opened earlier this year. The route takes half the time of current road and sea trade routes, but can cost up to five times the price tag of typical ocean freight shipping. (Journal of Commerce, 7/13/15, 7/10/15; Russia Beyond the Headlines, 6/16/15)
COMPANY NEWS
Bel builds in Vietnam
France’s Bel Groupe is building a $17-million cheese plant in Vietnam’s southern Binh Duong Province. The plant, its second in the region, will have an annual capacity of 15,000 tons. Bel expects to open it in the third quarter of 2016. The company also said it is planning an R&D facility for Binh Duong. (USDEC Vietnam office; Thanh Nien News, 7/10/15)
Mergers and acquisitions
KKR and CDH Investments are paying $245 million for a 9 percent stake in China Modern Dairy. China Modern will in turn acquire the 82 percent stake held by KKR and CDH in two other Chinese dairy farms. This is the second time KKR and CDH will own a portion of China Modern. They bought a stake in 2008, but sold it to Mengniu Dairy in 2013 . . . Vietnam’s Vinamilk paid $3.5 million to raise its stake in New Zealand dairy processor Miraka from 19 percent to nearly 23 percent. (USDEC Vietnam office; China Money Network, 7/15/15)
Company news briefs
Starbucks plans to open its first Sub-Saharan Africa outlet in Johannesburg, South Africa, via a franchising deal with management group and Domino’s Pizza franchisee Taste Holdings Ltd. The companies expect to debut the unit in the first half of 2016 . . . Nutribio, subsidiary of French dairy Sodiaal, expanded its relationship with Chinese distributor Century International Trade (CIT), which has been distributing Nutribio’s French-made Nactalia infant formula brand in China since 2012. Starting next year, CIT will import and distribute Nactalia Organic to meet rising demand from parents concerned about food safety as well as environmental responsibility . . . The government in the Indian state of Karnataka plans to build a $47 million milk powder manufacturing facility near the town of Ramanagaram. (The New Indian Express, 7/15/15; Wall Street Journal, 7/14/15; People’s Daily, 7/14/15)
From the U.S. Dairy Exporter Blog
