DAIRY MARKET REPORT22nd April 2014

SUPPLY UPDATE• Production growth continues apace in the US (+1.0% for Jan/Mar 14 v 13, but slower

at +0.9% for Mar alone), the EU (+4.6% in January) and New Zealand (+6.4 % for the season to Feb, but +11.8% in Feb. Drought in N Island reported to slow down March/April supplies)

• Expansion plans by farmers and industry in NZ for next season (whole milk powder investment)

• Production has rallied in Oz: while season is down 1.4% to Mar, increases since Dec, and Mar was +3.7%.

• Floods in Argentina have affected main dairy regions badly.• EU: supplies were rising fast in January, in Germany (+4%), France (+3.5%), the UK

(11.4% for Jan, and unconfirmed 12.1% up for March - NB, UK still expected to finish the 13/14 year 10% under quota), The Netherland (+5.1%), Poland (+7.3%)

• Wet weather slowed Irish growth: Jan + 2.2%, but Feb - 4.4% • UK supplies are rising so fast that they are currently exceeding processing capacity

availability -> some distress milk sloshing about (some coming into NI??). “Spot” milk prices of 26-28ppl (31.6-34cpl) or less mentioned against “going rate” of around 33-34ppl (40-41.3 cpl)

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Stocks• EU APS butter/cheese – Zero• EU intervention butter/SMP - Zero• US butter – 80,000t (March 14 – trend up, but

30% less than same time 2013)• US SMP – 67,000t (Jan 14 – trend up, but 25% less

than same time 2013)• No info on private stocks, but buyers tend to

operate JIT as much as possible, so private stocks likely low.

• Chinese stocks reported “healthier” – i.e. less depleted, which has slowed demand.

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Market developments – China remains crucial

• Chinese demand growth slowing, stocks returning to “healthy” levels (they were bare till now)

• NZ tariff free quota filled up by April• Chinese domestic supplies ramping up with spring – but still behind

demand, and likely to remain so for some time• Forecast demand growth of 8.2% p.a. 2012 to 2017 (increasing

consumption, better distribution networks arising from increasing urbanisation), forecast supply growth 1.2% p.a. same period.

• 900,000t of shortfall in domestic supplies -> needs to be made up for by imports, and this is expected to firm up prices in the medium term.

• Forecast from traders: consolidation of global prices around current levels, possible rebound in market coming up to 2015 because of continued Chinese demand (due to domestic shortfalls).

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Market developments – what about Russia?

• Tension in Ukraine and possible trade sanctions a concern• Butter and cheese imports from Russia very important for

EU market balance. Massive imports and increases continue (see below).

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Market developments – EU markets

• Supplies well up• While cream prices holding up (avg EU around €4,100/t),

butter prices have eased (F and D butter around €3,550/t, Dutch price slightly higher, Irish butter price around €3,300)

• SMP was more stable at around €3,100, but now easing to around €3,000.

• Whey prices average around €950, with some lower reports (€900/t)

• Cheese markets are remaining firmer. Cheddar cheese markets in the UK are reported firm, with mild around £3,150/t and mature, depending on origin, up to £500/t above that.

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2/24/2

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3/26/2

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4/20/2

0140

50

100

150

200

250

300

350

400

450412

360

324307

375

355

403 399

104 95

EU AVERAGE DAIRY COMMODITY PRICES

JANUARY 2014 TO 20/04/201

BUTTERSMPWMPCHEDDARWHEYPOWDER

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BUTTER SMP WMP CHEDDAR0

50

100

150

200

250

300

350

400

450

360

307

355

399

276.4 286.2 287.8308.2

EU V GDT DAIRY PRICES - MID APRIL 2014

EU avg 20/04/2014GDT 15/04/14

Euro

per

100

kilo

s

GDT auction results – 15/04/1412

Total quantity traded:36,549 tonnes

IDB PPI INDEX13

Note: a milk price 31.45% above 2010 avg milk price (CSO) would amount to 38.47c/l+VAT

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RETURNS FROM AVERAGE EU DAIRY COMMODITY PRICES20TH APRIL 2014

WAS - 30th March 2014ESTIMATE OF RETURNS FOR REPRESENTATIVE IRISH PRODUCT MIX

Calculations 04/04/14Avg EU mkt price at 30/03/14 - €/t c/l equiv

Estimated coeff.

BUTTER 3650 SMP 3180 44.77 35% 15.67CHEESE 4000 WHEY PWDR 990 47.11 41% 19.32WMP 3640 45.15 8% 3.61OTHER* 38.05 16% 6.09 44.69ASSUMING THAT "OTHER" RETURNS 15% LESS THAN SMP/BUTTER

NOW - 20th April 2014ESTIMATE OF RETURNS FOR REPRESENTATIVE IRISH PRODUCT MIX

Calculations 24/04/14Avg EU mkt price at 20/04/14 - €/t c/l equiv

Estimated coeff.

BUTTER 3600 SMP 3070 43.56 35% 15.25CHEESE 3990 WHEY PWDR 950 46.76 41% 19.17WMP 3550 44.03 8% 3.52OTHER* 37.03 16% 5.92 43.86ASSUMING THAT "OTHER" RETURNS 15% LESS THAN SMP/BUTTER

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Returns for Irish SMP/butter = 42.59c/l

before processing costs

Milk price equivalent

37.59c/l + VAT = 39.47c/l incl

VAT

BUTTER/SMP and equivalent raw milk value (Germany)

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Outlook for milk prices in 2014

• Prices to Feb have either increased or stayed static at high level in all EU

• Some negative price signals in Lithuania, Estonia• Friesland Campina guaranteed price is to fall by 0.5c/kg

from March• UK -> main retailers with producer contracts have

increased prices, but all eyes are on Arla price• Irish prices: current levels comfortably sustainable at

current market returns (mid-late April)• Some easing likely thereafter. Extent? Timing?• IFA pushing for peak milk to collect strong milk prices.

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Medium term outlook remains very good

• Undersupplies continue in China – demand rising, should continue to underpin trade and prices

• Uncertainty re. Russia – but if no trade sanction and/or other crisis related to Ukraine -> imports continuing to rise

• Strong growth in Irish butter sales in UK, Germany, Russia and USA

• Powder prices also remaining relatively strong (though easier)

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New Milk Market Observatory

• Find it here: http://ec.europa.eu/agriculture/milk-market-observatory/index_en.htm

• Aims to provide EU Commission and operators with uptodate facts and figures to help with prompt decision making (especially re. market management measures).

• Same data as was available before, for the moment, but updated more frequently (not for everything)

• Work in progress, more info will be added.

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