Hogan called the package “a decisive and robust response” to difficult market conditions.
From July 2014 (the month prior to the start of the Russian embargo) through August 2015, the EU-28 weighted average farmgate milk price declined 21 percent. But a number of individual countries fared worse: Belgium, Germany, Estonia, Hungary, Latvia, Lithuania and the Netherlands saw declines of 25-30 percent. Denmark, the Czech Republic, Ireland and Sweden were not far behind. A survey of UK farmers purportedly showed that 49 percent expect to leave the sector if prices do not improve over the next six months. Farmers in some regions continued to protest this week, despite the aid program. (European Commission; Milk Market Observatory; Dairy Markets, 9/15/15; Western Morning News, 9/9/15)
U.S. makes case for lower sanctions at COOL arbitration hearing
The United States outlined its case for reduced sanctions related to U.S. Country of Origin Labeling (COOL) this week before WTO arbitrators in Geneva, Switzerland. Canada and Mexico claim COOL labeling jointly costs the two nations $3.7 billion annually and are seeking to impose tariffs to recoup the losses (see Global Dairy eBrief, 5/21/15). The United States contends the true costs are no more than $44 million for Canada and $48 million for Mexico and presented its argument to the three-person WTO panel. The panel could take months before issuing a final decision. Canada has included some dairy tariff lines on its draft list of potential target products for sanctions; Mexico has not yet released a list of intended retaliation targets. (USDEC staff; Politico.com, 9/15/15)
TPP talks continue; USDEC board meeting to analyze the latest developments
Trans-Pacific Partnership (TPP) negotiators are continuing work to resolve the three biggest roadblocks to concluding a deal: dairy market access, auto market access and protection for biologics (biotech pharmaceuticals). Canada, Japan, Mexico and the United States most recently met for two days of talks to find a solution to automotive rules of origin but failed to reach a compromise. They are planning to resume automotive talks next week.
No date has been set for the next TPP ministerial meeting, but Canadian elections are slated for Oct. 19. Whether or not a ministerial takes place prior to those elections, USDEC Senior VP, Trade Policy, Jaime Castaneda will lead a special session to analyze the latest TPP developments at the USDEC fall 2015 Board of Directors and Annual Membership Meeting, Oct. 14-16, at Chicago’s Swissôtel. Alexis Taylor, deputy under secretary, Farm and Foreign Agricultural Services, has been invited to participate in the session.
Nearly 100 dairy industry executives have registered for the meeting so far (a list of registered attendees is available here). Visit the USDEC website here for links to register yourself, download the preliminary agenda, and learn about the Export Supply Chain Best Practices Forum that precedes the meeting on Oct. 14. (USDEC staff; Inside U.S. Trade, 9/16/15, 9/13/15)
U.S. Dairy Conference explores innovative solutions to meet global trends
Eighty-four attendees, including food and beverage formulators and manufacturers from China, Egypt, Mexico, Taiwan, Vietnam and the United States, came to Boise, Idaho, for the U.S. Dairy Conference, Sept. 9-10, to explore how U.S. dairy ingredients can be used to create new, innovative food and beverages with high customer appeal. The conference, organized by USDEC in conjunction with United Dairymen of Idaho, featured a series of global dairy experts sharing their knowledge in three key growth areas: dairy proteins, milk powder and cheese, and dairy co-products.
Speakers highlighted the nutritional and functional benefits of U.S. dairy ingredients, applications and marketplace trends. A tour of Idaho’s Sun Ridge Dairy on Day 2 of the event highlighted U.S. dairy farmers’ commitment to safe, efficient milk production practices. For more on the U.S. Business Conference, including links to USDEC ingredient resources, click here.
MARKET CONDITIONS
GDT soars 16.5 percent
The GlobalDairyTrade (GDT) Index jumped 16.5 percent to US$2,568/ton at the Sept. 15 auction, the third straight double-digit increase. While analysts expected an increase prior to the event, the magnitude of the surge surprised almost everyone.
Milk powder, butterfat and cheddar all posted double-digit gains. The average winning price for WMP increased 20.6 percent to US$2,495/ton (the highest since the start of April); SMP rose 17.0 percent to US$1,992/ton; AMF jumped 13.7 percent to US$3,440/ton; butter grew 13.3 percent to US$3,108/ton; and cheddar rose 10.7 percent to US$3,206/ton.
Reduced volumes on offer (Fonterra cut another 22,050 tons from GDT projections—15,200 tons over the next three months, mostly milk powder) and concerns over the New Zealand milk supply moving forward sparked the gains. Buyers appear uneasy over the severity and duration of this year’s El Niño (expected to last into 2016) and the elevated risk of Oceania drought that accompanies the phenomenon.
Although Fonterra expects a 2-3 percent decline in output for 2015/16, other analysts are citing drops in New Zealand production as high as 10 percent. Early reports from the dairying regions of Waikato, Taranaki and Manawatu cite farmers pulling back on production by 4-8 percent. Poor weather on the South Island has deterred pasture growth and shows little signs of easing, and prices do not justify supplemental feed use. Analysts report that many farmers are planning further culls once they are through calving and this season’s peak milk production.
Analysts raised their forecast New Zealand farmgate milk price by NZ$0.46-$1.20 to the range of NZ$4.50-$5.00/kgMS, compared to Fonterra’s current estimate of NZ$3.85/kgMS. While welcomed by Kiwi farmers, the higher payout estimates are still below cost of production for most operations.
And despite the positive price movement, global markets remain imbalanced. Steady milk production from the United States and Europe, Chinese stockpiles and lackluster purchasing, and the continuation of the Russian dairy embargo suggest a full market recovery is further down the road. (USDEC staff; GDT; FXStreet, 9/16/15; Agrimoney.com, 9/16/15, 9/15/15; NZFarmer.co.nz, 9/16/15, 9/14/15; AgriHQ/FWPlus, 9/16/15, 9/11/15; 3 News, 9/16/15)
TRADE POLICY
Another Doha deadline looms
Major WTO economies met this week in Geneva, Switzerland, to discuss achievable outcomes for the fading Doha Round at the upcoming WTO ministerial meeting in Nairobi, Kenya, Dec. 15-18. The Doha Round, which began in 2001, averted shut down in 2013 when WTO members sliced off a piece of the agenda and concluded the Bali Package centered on trade facilitation. After Bali, negotiators were supposed to agree to a work program to complete the full round, but they failed to do so. The question now facing them is: can they slice off another piece of the agenda as they did in Bali or will they finally admit Doha Round failure.
With entrenched positions blocking progress on agricultural subsidies and market access, the United States, Europe and Japan are pushing to focus on a narrow band of issues that could realistically yield a consensus. The United States has been advocating for a deal on export competition that would cover ag subsidies and programs with an equivalent subsidizing effect, but Europe, Brazil, China and India rejected that plan. (WTO; Politico.com, 9/11/15; Inside U.S. Trade, 9/10/15, 8/6/15)
COMPANY NEWS
CDI commissions Visalia evaporator for high-specification products
California Dairies Inc. (CDI) commissioned a new evaporator at its Visalia, Calif., facility. The evaporator, the third at Visalia, provides CDI the ability to produce low-spore NFDM and SMP, in addition to high-heat, heat-stable and low-spore milk powders for UHT applications. The company says it made the investment to increase its presence in the global marketplace by producing the high-specification, value-added and specialty dairy products that the world market demands. (Company reports)
Fonterra completes Edendale expansion to boost MPC, AMF output
Fonterra completed an NZ$157 million expansion at its Edendale manufacturing plant on the South Island. The three-pronged project added MPC and AMF capacity as well as a reverse osmosis line to increase capacity on an existing dryer. The effort is part of Fonterra’s broader strategy to improve production flexibility and product mix to respond to shifting demand and maximize returns.
Together, the three projects increase Edendale’s production capacity by 10 percent. The company did not report increased volumes by product, but the plant had been manufacturing about 420,000 tons of dairy products annually, prior to the upgrade. New Zealand MPC exports were already up 29 percent to 52,000 tons through the first seven months of 2015. (Dairy Markets, 9/14/15; NZFarmer.co.nz, 9/11/15)
Mergers and acquisitions
Mondelez International quashed rumors that it was looking to sell its European cheese and spreads business, despite having spun-off the unit earlier this year. Kraft Heinz was reportedly interested in acquiring the business, which sells Philadelphia cream cheese and other grocery brands overseas . . . Ireland’s Carbery Group divested its 50 percent stake in Brazilian joint venture Nutrifont. Lactalis acquired the company’s interest when it purchased Carbery’s joint venture partner BRF earlier this year . . . Shanghai Maling Aquarius, a subsidiary of China’s Bright Foods, took a 50 percent stake in New Zealand meat supplier Silver Fern Farms. (Irish Examiner, 9/16/15; Reuters, 9/15/15; BusinessDesk, 9/15/15)
Company news briefs
The New Zealand government, against the advice of the nation’s foreign investment watchdog, blocked a Chinese bid to purchase a 34,000-acre North Island sheep and cattle farm. The government said the benefits of the deal were not substantial enough. Pure 100 Farm, a subsidiary of Shanghai Pengxin Group, had made the bid . . . Egyptian snack maker Edita is building a new factory to produce Hostess brand products. Edita owns the right to manufacture Twinkies, Ho Hos, Tiger Tail and other Hostess labels across the region . . . A high-level Chinese dairy delegation with representatives from China Food & Drug Administration, Alibaba Group, Hong Kong retailer Vanguard and five major dairy manufacturers toured the Irish dairy sector this week to learn about the nation’s dairy industry and review China’s food safety regulations . . . New Zealand’s Westland Milk Products is conducting a strategic review of its business with an eye to eliminate jobs and increase efficiency. The company’s new NZ$102 million infant formula line at its Hokitika plant on the South Island is slated to start-up this month. (USDEC Middle East office; Dow Jones Newswires, 9/17/15; AgriHQ, 9/14/15; Agriland, 9/13/15)
Data Updates on USDEC.org
Have you checked out the interactive charts of market and trade data on the USDEC website? Key metrics like milk production, exports and imports and prices are updated regularly. This week we learned:
- EU-28 milk production in July is estimated to be up 2.3 percent from a year ago.
- In July, the EU’s exports of milk powder, cheese, butterfat and whey were up 2.2 percent from last year.
- Price and currency graphs are updated as well.
To browse the full Market Data section of usdec.org, click here.
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