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Dairy product prices fall to lowest since October 2012

Dairy product prices slumped to the lowest level since October 2012 in the latest GlobalDairyTrade auction, paced by whole milk powder and cheddar.

Since the last auction three weeks ago, Fonterra Co-operative Group [NZX: FCG] has slashed its forecast 2015 farmgate milk payout to $6 per kilogram of milk solids from $7 kg/MS, citing strong global production, a build-up of inventory in China and falling demand in emerging markets. The ANZ Commodity Price Index fell for a fifth month in July, led by a 12 percent drop in whole milk powder.

The GDT price index dropped 8.4 percent to US$3,025 a tonne, down from US$3,309 a tonne three weeks ago. Some 48,380 tonnes of product was sold, up from 36,656 tonnes three weeks ago.

In the latest GDT auction, whole milk powder shed 11.5 percent to US$2,725 a tonne, while cheddar dropped 10.2 percent to US$3,742 a tonne.

Butter milk powder sank 10.1 percent to US$3,852 a tonne, and butter declined 9.6 percent to US$2,800 a tonne.

Skim milk powder fell 6.5 percent to US$3,264 a tonne, while rennet casein slipped 0.7 percent to US$9,701 a tonne.

Anhydrous milk fat jumped 6.0 percent to US$3,457.

Neither lactose nor milk protein concentrate were offered at the event.

The New Zealand dollar was trading at 84.76 US cents before the release. It dropped as low as 84.52 cents and was recently trading at 84.59 cents.

There were 153 winning bidders out of 178 participating bidders at the 11-round auction. The number of qualified bidders rose to 668 from 663 at the last auction.


Comments and questions

The rockstar economy keeps rocking on...

which one?

Portuguese dairy products have been promoted for the first time outside of Portugal in a meeting in Beijing, which included seven national companies and over a dozen Chinese entities of the sector. The seminar came as a result of a deal between the two governments in May that foresees Portugal exporting its dairy products to the Asian country. “We want to make China one of our main clients in food exports,” said the Secretary of State of Food and Agro-food Research, Nuno Vieira e Brito, and added that exports in the agro-food sector have increased 7.6% in 2012 and that the goal this year is to reach a “two-digit development”. The national productivity of the agro-food area has increased 28% in the last 10 years and in 2012 grew the most in exporting business, Vieira e Brito said. Vhumana, Lactaçores, Montiqueijo, Queijo Saloio, Bel Portugal, Indulac and Lactovil were the Portuguese companies that participated in the meeting. - See more at: July 12, 2013

Trade between China and the Portuguese language countries amounted to US$64.680 billion in the period from January thru June, up 6.83 percent year-on-year, indicate official Chinese figures released today in Macau....
Portugal occupies third place, ..., with trade worth US$2.285 billion (+23.08 percent) comprising exports from China worth US$1.479 billion (+23.88 percent) and imports from Portugal worth US$805 million (+21.65 percent).

Portas noted that last week China published, “the certification of 31 Portuguese companies which, from now on, will be able to export milk and dairy products to the Chinese market,” and added, “other negotiations in the agro-food sector are also going well.” The Portuguese deputy prime minister noted growth in Portuguese exports to China, which rose “from 220 million euros in 209 to 660 million euros in 2013,” adding, “in the first quarter of this year growth was even more spectacular.” According to Portuguese news agency Lusa, Portas also spoke to the Chinese president about the importance of establish a direct air link between China and Portugal, which could be “an enormous advantage for tourism ad business.”

Is Fonterra a monopoly?
Does the EU think Fonterra is a monopoly?
Does China think Fonterra is a monopoly?
Has Fonterra been treating their main customer(China) properly?
Will China do everything in its power to ensure that they source more of their dairy products from other countries to reduce their vulnerability to Fonterra?
If China decides that Fonterra is the last place that they should buy their milkpowder from, how long will Fonterra exist as a company?

the EU has repeatedly claimed that Fonterra's legislated stranglehold on dairy quotas through to 2007 for the EU and US markets makes it a de facto single-desk seller. (NZH 2003)

including single-desk selling and exclusive utilization of preferential market access quotas. (European Commission 2005). These pressures may have an impact on FONTERRA whilst not being a single desk seller many has that perception. (C Saunders)

The issue over the Cairns Group's "STEs" did come up at last December's WTO ministerial meeting in Hong Kong. Goff's line was that Fonterra's 12,000 dairy farmers did not enjoy Government subsidies (like US farmers) nor was Fonterra the beneficiary of soft state loans or financing guarantees (like most official STEs). So what's the problem? What seems to be at issue is the way New Zealand's competition laws were over-ridden to enable Fonterra to be formed through the amalgamation of two competing dairy producers and the Dairy Board. The EU maintains Fonterra is thus an "STE in disguise", as not only was it created by special Government legislation, but it also enjoys exclusive export rights in a raft of higher-value quota-controlled markets - again through legislation, not competition. The argument is that by controlling virtually all dairy production, holding exclusive rights to access high-value markets, and through continued moral and diplomatic support from the Government, Fonterra cross-subsidises its dairy exports. Using revenues generated in high-value quota-protected markets, Fonterra can sell into other more competitive markets at lower prices. Naturally, Fonterra and the Government deny this claim. (NZH 2006)

According to a survey carried out in over 25 provinces including Beijing, Tianjing, Heilongjiang and Henan, smallholder dairy production accounted for 76.8% of total dairy cattle (Li 2000). Milk is a perishable product. Absence of chilling facilities, high ambient temperatures and lack of hygiene are the major problems faced by smallholder producers in marketing milk. Milk production based on smallholder producers can be sustained only if facilities are provided to process and market milk. The government and/or private entrepreneurs have supported and financed the establishment of leading enterprises that collect, process and market milk as pasteurised milk, milk powder and/or fruit milk. However, the scale of these enterprises is not as large as in the giant dairy group.

Depending on the ownership of land and animals, there are several types of institutional structure for combining the efforts of enterprise and smallholder farmers in China.
Enterprises that do not hold land or farms
Enterprises that possess their own land or hold leases on land
Farmers or collectives who set up a joint-stock company as a leading enterprise
Enterprises that hold both their own milk-processing plant and dairy farms