PERSPECTIVEJuly 2019

The latest insights into global dairy markets

Your regular global overview of the dairy industry along with trends in milk production, commodity prices and dairy trade.

Welcome back to Perspective!July 2019

Like most of us, I enjoy bridging the gap between meals with a variety of tasty (and ideally healthy) snacks. In fact, research has shown that 61% of consumers enjoy snacking between meals 1, and Innova has reported that healthy snacking options had the fastest NPD growth over the last 5 years.

The combination of a growing snacking demand, and the ‘Adventurous Consumption’ trend, has created an environment where snacking preferences are advancing towards more premium, natural, nutritious and/or customisable. The aim for F&B Manufacturers is to help consumers keep pace with their busy lives through on-the-go snacking options, without sacrificing health goals or curiosity for new ingredients, flavours or formats.

To provide insight into the growing snacking demand, we invited Marcia Mogelonsky from Mintel to be our feature writer this month. Marcia is the Director of Insight at Mintel Food & Drink, and details the three major snacking trends manufacturers need to know.

Four key movements for the month:

Production – Australia has shown significant monthly decline, whilst New Zealand’s season finished up comparably weak on the previous season. Steady growth in the EU, and US growth begins to ease.

Exports – Australia, New Zealand and EU export growth endures, whilst US exports show a large decline.

Imports – Latin America and Middle East & Africa continue to decline. The strong growth of imports into Asia and China continue.

Prices – GDT auction event 239 saw a drop across most of the listed products, resulting in the GDT price index down -0.4% to USD $3,302/MT. The largest decline came from Butter Milk Powder which dropped -11.9% to USD $2,500/MT. Whole Milk Powder held steady at USD $2,969/MT and Skim Milk Powder saw the only increase of +3.2% to USD $2,430/MT.

If you have suggestions for topics you would like to read about in Perspective, or any other general feedback, we would love to hear from you. You can contact us at nzmpbrand@fonterra.com or through your account manager.

Kind regards,

Alex Turnbull Director, NZMP Marketing

1. Global Data, Global Consumer Survey Q3,2018

In this issueFeature article 4

Global production 6

Fonterra milk collection 7

Global exports 8

Global imports 9

Tracking the global dairy market 10

Global indicators 11

Commodity prices 12

GDT results 13

Industry commentary 14

Glossary 18

3

FEATURE ARTICLE

Marcia Mogelonsky Director of Insight, Mintel Food & Drink

Marcia Mogelonsky is Director of Insight for Mintel Food & Drink and is a global analyst for the confectionery and snacks categories. Before joining Mintel in 2000, she was a consultant and speaker in the food industry and an editor at American Demographics magazine. She has also authored two books on demographics and food shopping.

Mintel is the world’s leading market intelligence agency. For over 40 years, Mintel’s expert analysis of the highest quality data and market research has directly impacted on client success. With offices in London, Chicago, Shanghai, Belfast, Düsseldorf, Kuala Lumpur, Mumbai, Munich, New York, São Paulo, Seoul, Singapore, Sydney, Tokyo, and Toronto, Mintel has forged a unique reputation as a world-renowned business brand.

Three major snacking trends you need to know

Snacking has become a definitive consumption occasion it is own right, and as a result companies around the world are stepping up to provide today’s consumers with more innovative snacks. But what are some of the major trends to take note of? Here, we discuss three major snacking trends that will help manufacturers meet the needs of today’s snacking generation.

Trend #1: It’s not just the taste

There’s no denying that taste is important when choosing a snack. However, taste is not the only factor. The snacking generation is also captivated by snacks that offer innovative colours, textures and aromas, as well as products that have a dynamic shape or appearance.

Flavour will never lose its importance, but consumers are also interested in snacks that have eye-catching colours and textures.

The buzzword of this modern world is ‘Instagrammable’; how shareable is

your new snack offering?

Will it stand out on social media? In fact, ‘Instagrammability’ goes beyond the snack; dynamic and dramatic packaging is also important.

Mintel’s 2018 Global Food & Drink Trend ‘New Sensations’ shows that texture is catching up to colour as a way to engage the senses and deliver share-worthy experiences. New snacks and confectionery that leverage crunchy, creamy, pulpy, foamy, crispy and other textural experiences provide another layer of interest.

To stand out from the competition, some confectionery brands have developed patented production techniques to deliver memorable textures and mouthfeel.

NZMP PERSPECTIVE JULY 20194

Trend #2: Every snack should tell a story

We want to know where our food comes from, how it was made and who had a hand in its production. Snacks with history and heritage have a following, and consumers still relate to snacks and candy they loved when they were young. But it is more than that; it is knowing that our snacks have authenticity, that they contain natural, familiar, simple ingredients that are easy to recognise, understand and pronounce.

With almost a third of snackers in the US reverting to the snacks of their youth, the time is now to renovate classic offerings, a tactic many big players are following. But there is also room for ‘new-stalgia’—new snacks that tell their stories: stories of careful, clean preparation with ingredients that are simple, novel and healthy.

New-stalgic snacks will become the nostalgic snacks of the future as

Millennials and Gen Z-ers share them with their children.

In essence, old snacks can improve their storytelling while new snacks can capture the next generation.

Trend #3: Telling our story is a bonus

Personalised and customised snacks and confectionery will find a following with consumers looking to be in control of their diets, health and lives. Mintel Trend ‘Make it Mine’ discusses the extent to which consumers want input into the products they buy. And it’s more than just the fact that we can have what we want and when; it’s that we as consumers want more.

We want our food to ‘tell our stories’. We want to make our snacks our own.

Our desire for ownership can extend to include flavour mixes or ingredients, the appearance of the product, and even the product’s name. Crowdsourcing is one way to have a ‘personalised snack experience’, but it tends to be a ‘one-to-many’ solution. Some consumers want a one-to-one snack that is theirs and theirs alone.

Cravebox, sold exclusively on Amazon, is a service that allows consumers to customise their own snack choices. It offers a number of pre-selected ‘care packages’, including options for those looking for healthy offerings or snacks to munch on while at work. Meanwhile, SnackBoxPros.com is another online offering that uses AI to uncover a customer’s ‘likes and dislikes’ based on previous snack options to predict—and promote—new snacks.

Disclaimer: The views expressed above are the opinion of the author, not those of Fonterra, and Fonterra is not responsible for any decisions taken in reliance on the same.

To learn more about snacking trends and NPD visit www.mintel.com

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Significant monthly production declines in Australia. New Zealand finished season up on weak prior season. Steady growth in the EU and growth easing in the US.

Sources: Data from Global Trade Information Services and from government and industry websites, including USDA, Eurostat, High Ground Dairy, Dairy Australia and Dairy Companies Association of New Zealand

GLOBAL PRODUCTION

EUROPEAN UNION

+0%Production change for the 12 months to April 2019

EU milk production for the 12 months to April was up 0.4% compared to the same period last year.

EU milk production increased 1% in April compared to the same period last year. Growth continues in Ireland, up 15.0% in April 2019, supported by favourable weather relative to the same period last year which was impacted by poor spring weather.

Key exporting countries where production declined were Austria, France, Germany and the Netherlands, at 1.6%, 1.0%, 0.5% and 1.7% respectively.

NEW ZEALAND

+2%Production change for the 12 months to May 2019

New Zealand milk production for the 12 months to May was 2.2% higher than last year, which was considered a weak production year due to unfavourable weather.

New Zealand milk production was down 0.1% in May compared to the same period last year.

New Zealand weather improved in May with temperatures above average across the country and rainfall near or above average in the Waikato, Taranaki and most of the South Island.

UNITED STATES

+0%Production change for the 12 months to May 2019

Milk production for the 12 months to May was 0.5% higher compared to the same period last year.

US milk production decreased 0.4% in May, compared to the same period last year.

Poor profitability is leading to an increase in culling which is likely to continue to impact growth over the next few months.

AUSTRALIAN COLLECTION

-6%Production change for the 12 months to April 2019

Production for the 12 months to April is down 6.1% on the previous 12 months.

Australia milk production decreased 13.7% in April compared to the same period last year.

High input costs have led to lower milk production and low farmer confidence. Reduced supplemental feeding, increased cow cull rates and farm exits continue to impact production.

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NZMP PERSPECTIVE JULY 20196

FONTERRA MILK COLLECTION 2018/19 SEASON

Sources: Fonterra Global Dairy Update, November 2018

FONTERRA MILK COLLECTION

AUSTRALIAN COLLECTION

-31%Decrease for May 2019 compared to May 2018

-19%Season to date 1 July to 31 May

NEW ZEALAND COLLECTION

-3%Decrease for May 2019 compared to May 2018

+1%For the 2018/19 Season compared to the Previous Season

2018/19

2017/18

2016/17

Fonterra’s milk collection across Australia for the eleven months to 31 May reached 115 million kgMS, down 19.8% on the same period last season.

Fonterra collections in May were 8 million kgMS, down 31.4% on May last season. Fonterra’s share of monthly collection continues to reduce due to poor seasonal conditions and high input costs, leading to an increase in cow cull rates, farm exits in key regions, and declining share in a highly competitive market.

Dairy Australia continues to forecast a milk production decline of between 7% and 9% for the 2018/19 season.

Total collections for the season were 1,523 million kgMS, up 1.2% on last season which was a weak production season.

Conditions in May were more favourable across many regions compared to recent months, but overall still 3.5% behind the same month last season. May production last season was stronger on the back of favourable autumn conditions.

Forecast Milk Collection for the 2019/20 season is 1,520 million kgMS.

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.2

.4

.8

7

Sources: Data from Global Trade Information Services, US Dairy Export Council, EU Milk Market Observatory, Dairy Australia, High Ground Dairy and Eucolait

Exports from New Zealand, Australia and the EU continue to grow. Large decline in monthly US exports

GLOBAL EXPORTS

AUSTRALIA

+3%Export change for the 12 months to April 2019

Exports for the 12 months to April were up 3.9%, or 29,400 MT, on the previous comparable period.

Infant formula, fluid milk products, and whey powder made up most of the growth in Australian exports, up a combined 47,800 MT.

Australia dairy exports increased by 5.6%, or 3,500 MT, in April compared to the same period last year. This was primarily driven by infant formula, fluid milk products and cheese, up 7,400 MT. The increase was offset by declines in WMP and SMP, down a combined 4,700 MT.

EUROPEAN UNION

+1%Export change for the 12 months to March 2019

Exports for the 12 months to March were up 1.9%, or 101,300 MT, on the previous comparable period. SMP, lactose, WPC, MPC and infant formula were up a combined 196,900 MT. This was offset by a 100,100 MT decline in WMP, butter, AMF, and fluid milk products.

EU dairy exports increased by 5.7%, or 26,700 MT, in March compared to the same period last year. This was primarily driven by SMP, and fluid milk products up a combined 49,700 MT. This was partially offset by declines in WMP, cheese, whey powder, and infant formula, of a combined 22,700 MT.

UNITED STATES

-1%Export change for the 12 months to April 2019

Exports for the 12 months to April 2019 were down 1.9%, or 45,100 MT on the previous comparable period.

The US has seen a more than 100,000 MT decline in whey products to China in the last 12 months. This was partially offset by increases in SMP to Mexico and fluid milk products to Canada and Taiwan.

US dairy exports declined 21.2%, or 51,400 MT, in April compared to the same period last year. This was primarily driven by base commodities of SMP, whey powder, lactose, WMP and WPC, down a combined 46,400 MT.

NEW ZEALAND

+5%Export change for the 12 months to April 2019

Exports for the 12 months to April were up 5.4%, or 176,500 MT, on the previous comparable period. This was primarily driven by WMP, fluid milk products, AMF, and infant formula, up a combined 224,900 MT. SMP was down 43,000 MT.

Total New Zealand dairy exports increased by 13.6%, or 37,100 MT, in April compared to the same period last year. This was primarily driven by WMP and fluid milk products, up 32,400 MT. Butter had the largest decline in volume, down 3,100 MT for the month.

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NZMP PERSPECTIVE JULY 20198

Monthly imports into Asia and China show strong growth. Latin America and Middle East & Africa down in March

GLOBAL IMPORTS

ASIA

+6%Import change for the 12 months to March 2019

Imports for the 12 months to March were up 6.7%, or 309,100 MT, compared to the same period the previous year. Growth continues across a broad range of products with fluid milk products, SMP, WMP and lactose up a combined 232,800 MT.

Asia (excluding China) dairy import volumes ¹ increased 5.3% or 22,600 MT, in March compared to the same period last year. Increases were recorded across a broad range of products with SMP up 21,600 MT.

CHINA

+9%Import change for the 12 months to April 2019

Imports for the 12 months to April were up 9.8%, or 268,900 MT, compared to the same period last year.

Strong demand out of China continued with imports across all key categories, notably WMP, SMP, infant formula, fluid products and lactose, which were up a combined 277,200 MT.

China dairy import volumes increased 31.5%, or 64,100 MT, in April compared to the same period last year. This was driven by increases in WMP, fluid milk, infant formula and SMP products up a combined 76,300 MT but offset by whey powder which was down 11,500 MT.

RUSSIA

-12%Import change for the 12 months to April 2019

Imports for the 12 months to April 2019 were down -12.6% or -150,591 MT compared to the same period the previous year. This was mainly driven by Fluid and fresh dairy, Whey Powder, SMP, Cultured Products and WMP being down a combined -225,211 MT. Offset by Cheese, AMF and Butter being up 72,463 MT.

Russia import volumes were up +4.5% or +3,479 MT for April 2019 compared to the same month the previous year.

MIDDLE EAST & AFRICA

-7%Import change for the 12 months to March 2019

Imports for the 12 months to March 2019 were down 7.9%, or 329,000 MT, compared to the same period the previous year. The reduction was driven by cheese, fluid milk products, SMP, butter and WMP down a combined 300,800 MT.

Middle East and Africa dairy import volumes ¹ decreased 6.0% or 22,400 MT in March 2019 compared to the same period last year. Declines were recorded principally in cheese, SMP, butter, and WMP down a combined 37,700 MT. This was partly offset by growth in SMP of 20,200 MT.

1. Estimates are included for those countries that have not reported data. Sources: Data from Global Trade Information Services; EU Milk Market Observatory; FAO; Highground Trading Group

LATIN AMERICA

+5%Import change for the 12 months to March 2019

Imports for the 12 months to March 2019 were up 5.0%, or 94,400 MT, compared to the same period the previous year. Increases were recorded across a broad range of products with SMP, fluid milk products, and WMP up a combined 81,400 MT.

Latin America dairy import volumes ¹ decreased 1.1%, or 1,900 MT, in March compared to the same period last year. This was driven by declines in infant formula, and whey powder, down a combined 3,900 MT. This was offset by lactose, up 2,400 MT.

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Global Dairy MarketThe charts on the right illustrate the year-on-year changes in imports, exports and production for a range of countries that are important players in global dairy trade.

The absolute size of the bars represent the change in imports, exports or production, relative to the same period the previous year.

Averages are shown where data is complete for the regions presented.

TRACKING THE GLOBAL DAIRY MARKET

Sources: Government milk production statistics/GTIS trade data/Fonterra analysis

PRODUCTION

EXPORTS

IMPORTS

NEW ZEALAND EU27 UNITED STATES AUSTRALIA AVERAGE

MT

(00

0s)

JUL ‘18 AUG ‘18 SEP ‘18 OCT ‘18 NOV ‘18 DEC ‘18 JAN ‘19 FEB ‘19 MAR ‘19MAY ‘18 APR ‘19JUN ‘18-120

-80

-40

0

40

80

120

ASIA CHINA MIDDLE EAST & AFRICA LATIN AMERICA RUSSIA AVERAGE

MT

(00

0s)

-120

-80

-40

0

40

80

120

JUL ‘18 AUG ‘18 SEP ‘18 OCT ‘18 NOV ‘18 DEC ‘18 JAN ‘19 FEB ‘19 MAR ‘19MAY ‘18 APR ‘19JUN ‘18

NEW ZEALAND EU27 UNITED STATES AUSTRALIA AVERAGE

LIQ

UID

MIL

K (

M L

ITR

ES

)

OCT ‘18 NOV ‘18 DEC ‘18 JAN ‘19 FEB ‘19 MAR ‘19 APR ‘19JUN ‘18 MAY ‘19JUL ‘18 AUG ‘18 SEP ‘18-300

-200

-100

0

100

200

300

NZMP PERSPECTIVE JULY 201910

WeatherNew Zealand experienced better weather in May, with temperatures above average right across the country. Rainfall was also near or above average in Taranaki, Waikato and much of the South Island.

In Australia, drier-than-normal weather persisted in already drought-plagued southern Queensland and northern New South Wales. Western Australia also had unfavourably dry weather. South-eastern Australia, however, experienced near-normal rainfall.

May was wet for much of Eastern Europe, with showers also improving crop conditions over much of northern Europe. In contrast, there was intensifying drought on the Iberian Peninsula, with pockets of dryness also noted near the North Sea Coast.

Source: World Agricultural Weather Highlights USDA oCOE, Fonterra Ingredients Australia

EconomicComposite leading indicators (CLIs) continue to point towards easing growth momentum in the most major economies.

The early signs of easing growth momentum in the USA and Germany displayed in December 2018 have been confirmed in January 2019. Easing growth momentum also remains the assessment for the United Kingdom, Canada, Brazil, Russia and the wider euro area (including Italy and France).

Japan and the industrial sectors of China and India all present a stable growth momentum.

Source: OECD

Food PriceThe FAO Food Price Index (FFPI) rose for a fifth consecutive month in May 2019, averaging 172.4 points. This marked a 1.2% increase from April, but was still 1.9% below its level in May last year. While sugar and oil prices fell, the other sub-indices registered gains.

Those increases were led by the strong month-on-month firming of dairy product prices. The Dairy Price Index averaged 226.1 points for May, up 5.2% from April and pushing the index ever closer to a five-year high. A sharp upswing in cheese price quotations was the main factor in May’s strong increase.

Source: FAO

ConsumerThe EIU has lowered its global growth forecast from 2.6% to 2.5%, largely because the organisation no longer expects the US and China to end their trade war via written agreement this year. The revision also reflects their more pessimistic outlook for China, India and Mexico. Slower activity in several emerging countries is expected to weigh on global growth this year, with the slowdown more pronounced for the US, Japan and China in 2020.

Source: Economist Intelligence Unit

GLOBAL INDICATORS

11

Actuals

GDT Fonterra Dutch Dairy Board USDA Oceania

USDA NASS CME Spot EU Commission

Forecasts

NZX Futures CME Futures

Rabobank Oceania

June WMP price changes continue to be down across the board with Dutch Dairy Board (DDB) down -3.4% to USD 3,236/MT, USDA Oceania down -5% to USD 3,069/MT, and GDT price dropping by -5.1% to USD 3,097/MT.

Futures and forecasts for the next six-months are mixed. From July to September, both NZX Futures and Rabobank Oceania stay tight just below market rate around the USD $2,900/MT mark. From October to December we then see Rabobank Oceania lift to an average USD $3,200/MT.

There were some significant decreases in the butter prices in June. The largest drops coming from GDT and USDA Oceania both decreasing approximately -14% to USD $4,684/MT and $4,813/MT respectively. DDB saw a further -6.1% drop to USD $4,290/MT. Bucking the trend, we saw a +2.2% upswing on CME Spot to USD $5,265/MT.

Average futures and forecasts for the next six-month period have increased with CME Futures raising their forecast average +1.1% to USD $5,348/MT and Rabobank Oceania average prices jumping +7.7% to USD $4,550/MT.

Some notable developments in June cheese prices as we see both GDT and USDA Oceania drop significantly, reflecting the trend across all product groups this month. The EU commission increased +11.1% to USD $3,948/MT and CME spot price is up +6.5% to USD $3,944/MT. GDT dropped -22.4% to USD $3,525/MT, and USDA Oceania decreased -17.8% to USD $3,891/MT.

Average futures and forecasts for the next six-month period have increased to reflect the market with CME Futures forecast average at USD $4,061/MT and Rabobank Oceania average prices at USD $3900/MT.

Prices for June have tightened, with a drop in GDT (-10.4%) and USDA Oceania (-6.6%) and an increase in USDA NASS (+9.4%), SMP prices range between USD $2,242/MT and USD $2,432/MT.

Forecast and futures show a further tightening of SMP prices predicted, with the average 6-month price forecast between USD $2,391/MT and USD $2,456/MT.

Source: https://www.globaldairytrade.info/en/product-results/

COMMODITY PRICES

WMP

$1500

$2000

$2500

$3000

$3500

$4000

Feb

19

Ma

r 19

Ap

r 19

Ma

y 19

Aug

19

Sep

19

Oct

19

Dec

19

Dec

18

Jan

19

Jun

19

Jul 1

9

Nov

19

SMP

$1500

$2000

$2500

$3000

$3500

$4000

Feb

19

Ma

r 19

Ap

r 19

Ma

y 19

Aug

19

Sep

19

Oct

19

Dec

19

Dec

18

Jan

19

Jun

19

Jul 1

9

Nov

19

BUTTER

$1500

$2000

$2500

$3000

$3500

$4000

$4500

$5000

$5500

$6000

Feb

19

Ma

r 19

Ap

r 19

Ma

y 19

Aug

19

Sep

19

Oct

19

Nov

19

Dec

19

Dec

18

Jan

19

Jun

19

Jul 1

9

CHEESE

$1500

$2500

$3500

$4500

$5500

$6500

$7500

Feb

19

Ma

r 19

Ap

r 19

Ma

y 19

Aug

19

Sep

19

Oct

19

Nov

19

Dec

19

Dec

18

Jun

19

Jul 1

9

Jan

19

NZMP PERSPECTIVE JULY 201912

GDT SALES BY DESTINATION

TRADING EVENT 238

GDT Results

Financial Year to DateAuction 238

North Asia (including China)

South East Asia

Middle East and Africa

Latin America

Other

The New Zealand dollar declined in May as the Reserve Bank of New Zealand lowered interest rates, with additional weakness ensuing as increasing global trade tensions led to general safe-haven buying of the US dollar.

Source: https://www.globaldairytrade.info/en/product-results/

GDT RESULTS

TRADING EVENT 239

-0.4%usd 3,302

Change in GDT Price Index from previous event Average price (USD/MT, FAS)

WMP AMF SMP BUTTER

0.0% -1.9% +3.2% -4.8%

$2,969 $5,433 $2,430 $4,339

RENNET CASEIN CHEDDAR LACTOSE BMP

-3.9% -1.5% -1.1% -11.9%

$7,221 $3,756 $866 $2,500

Dairy commodity prices and New Zealand dollar trend

The next trading event will be held on 16 July 2019. Visit www.globaldairytrade.info for more information.

GDT PRICE INDEX NZD/USD SPOT RATE

PRIC

E IN

DE

X

23,633 MT

628,448MT

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USDA, Dairy OutlookPublished June 2019

INDUSTRY COMMENTARY

Recent developments

Milk production forecasts have been lowered for 2019 and 2020, due to recent declines in milk cow numbers, relatively high slaughter levels and higher expected feed prices. Production in 2019 is now forecast at 218.2 billion pounds, 0.5 billion pounds lower than last month’s forecast. The all-milk price forecast for 2019 is now $18.00 per cwt, 5 cents lower than last month’s forecast. Meanwhile, the 2020 milk production forecast has dropped 0.8 billion pounds to 221.9 million pounds. The all-milk price forecast for 2020 is now $18.90 per cwt, 10 cents higher than last month’s prediction.

NZMP PERSPECTIVE JULY 201914

From the week ending May 4 to the week ending June 8, price directions for domestic wholesale dairy product prices were mixed. Butter saw the biggest change, rising by 10.0 cents to $2.3488 per pound. The price for 40-pound blocks of cheddar cheese increased to $1.7094 per pound, however, the price for 500-pound barrels dropped slightly to $1.6227 per pound. Meanwhile, the price for non-fat dry milk (NDM) rose to $1.0377 per pound, with the price for dry whey falling to $0.3667 per pound.

USDA, National Agricultural Statistics Service (NASS) estimated US milk production at 18.430 billion pounds in April, up 0.1% from April 2018. Milk cows numbered 9.328 million head in April, with milk-per-cow averaging 65.0 pounds per day for the month, 1.1% higher than April 2018.

Dairy exports weakened in April. On a milk-fat milk-equivalent basis, they were 776 million pounds for the month – 82 million less than March and 284 million less than the same time last

Source: USDA

year. On a skim-solids milk-equivalent basis, exports were also down, sitting at 3.431 billion pounds, 288 million less than March and 1.057 billion less than April 2018. Exports of butterfat products, cheese, non-fat dry milk and skim milk powder (NDM/SMP), whey products and lactose also declined month-on-month.

Meanwhile, dairy imports generally strengthened in April, with imports on a milk-fat basis at 561 million pounds, 54 million higher than March and 45 million higher than April 2018. On a skim-solids basis, imports were 501 million pounds, sitting 127 million higher than March and 56 million higher than April 2018. Imports of milk protein products were nearly twice as much as March, at 22 million pounds.

April ending stocks on a milk-fat basis were 17.127 billion pounds, 160 million pounds below the same time last year. However, April ending stocks on a skim-solids basis were up 22 million on April 2018, totaling 11.075 billion pounds.

15

Dairy forecasts for 2019The forecast size of 2019’s milking herd has been lowered by 10,000 head to 9.335 million, following declines in milk cow numbers, an increase in slaughter levels and higher expected feed prices.

Those feed prices should also affect yields, so the milk-per-cow forecast for 2019 has also been lowered by 25 pounds to 23,375. The milk production forecast for the year is now sitting at 218.2 billion pounds – 0.5 billion pounds lower than previously predicted.

Forecasted imports on a milkfat basis for 2019 are the same as last month at 6.5 billion pounds. The export forecast for the year on a milkfat basis, meanwhile, has been lowered by 0.5 billion pounds to 9.7 billion, with higher expected cheese exports to Mexico only partially offsetting lower expected exports of butterfat products.

Ending stocks on a milk-fat basis have increased by 0.1 billion pounds since last month’s forecast, with 13.1 billion pounds now expected. However, the forecast for domestic use has been lowered 0.1 billion pounds to 214.5 billion for 2019.

Imports on a skim-solids basis are forecast at 5.4 billion pounds for the year, up by 0.3 billion from last month’s prediction. This is due to higher expected imports of milk

protein products. Lower expected exports of NDM/SMP and lactose has seen the export forecast decrease by 0.6 billion pounds to 42.0 billion. China’s additional tariffs are expected to limit lactose exports to some extent. The ending stocks forecast for 2019 remains unchanged at 10.2 billion pounds for the year, while the forecast for domestic use on a skim-solids basis in 2019 has increased by 0.3 billion pounds to 180.8 billion.

Cheese price expectations are lower due to recent price movements, with the price forecast for 2019 now $1.64 per pound, 1 cent lower than last month’s forecast. The whey price forecast has also been affected by price movements and a continued weakness in exports, and has been lowered by half a cent to $0.390 per pound. Meanwhile, prices for butter and NDM have been raised to $2.325 (+3.5 cents) and $1.015 (+1.0 cent) respectively, in part due to the lower expected milk production.

The Class III price forecast for the year has been lowered 15 cents to $15.90 per cwt, off the back of lower price forecasts for cheese and whey. However, the Class IV price forecast has risen to $16.40 per cwt, due to the higher butter and NDM forecasts. The all-milk price for 2019 is now sitting at $18.00 per cwt, 5 cents lower than the previous forecast.

INDUSTRY COMMENTARY

Source: USDANZMP PERSPECTIVE JULY 201916

Blimling reports limited volume available for export out of Australia is opening up doors for other regions. For example, exports from the US to Japan increased by 13% year-over-year in the first quarter to reach 26 million pounds. However, European exports may have the most to gain, with a new trade deal with Japan and the most competitive prices globally. Australia’s decreased milk supply could also open up opportunities into the country, potentially boosting US sales to the region.

Meanwhile, Blimling says block cheese prices will find some support, so long as future milk and fresh cheese supply remains in questions. They also believe the tight cream supplies through the northern summer could keep market participants nervous and butter prices supported. Blimling says it would be no surprise to see the market overreact to this upside before autumn.

Blimling also believes global prices for NDP/SMP will gradually creep higher, supported by lighter supply-side dynamics and steady demand. The limited supply buffer globally increases the risk of higher-than-forecast prices.

However, unless there is a turnaround in the African Swine Fever situation or new avenues for US whey exports, dry whey prices will remain weak.

Blimling, Forecast UpdatePublished June 5, 2019

Source: Blimling17

AMF Anhydrous Milk Fat

BMP Butter Milk Powder

CME Chicago Mercantile Exchange

DDB Dutch Dairy Board

EIU Economist Intelligence Unit

FAO United Nations Food and Agriculture Organisation

Farmgate Milk Price The price for milk supplied in New Zealand to Fonterra by farmer shareholders

Fluid and Fresh Dairy The Fonterra grouping of fluid milk products (skim milk, whole milk and cream pasteurised or UHT processed), concentrated milk products (evaporated milk and sweetened condensed milk) and yoghurt

FTA Free Trade Agreement

GDI Global Dairy Intelligence group, Fonterra Cooperative Group Limited. GDI provides insights to Fonterra management based on a model of the global dairy market developed by GDI and populated with publicly available data. The model outputs referenced in this report do not reflect Fonterra’s non-public production or sales data

GDP Gross Domestic Product

GDT Global Dairy Trade auction platform

GDT Price Index is an index that provides a measure of the weighted average percentage change in the movement in price of all products sold on GDT. This provides a simple measure of changes in dairy price between trading events

IMF International Monetary Fund

Informa Informa Economics Inc., Dairy Group, Global Dairy Market Report

LME Liquid Milk Equivalent

MAT Moving Annual Total (this is data averaged across the 12 month period)

MEA Middle East and Africa

NDM Non-fat Dry Milk

NZX NZ Stock Exchange

OECD Organisation for Economic Co-operation and Development

Q[1] [First] Quarter

Reference Products The dairy products used in the calculation of the Farmgate Milk Price, which are currently WMP, SMP, BMP, butter and AMF

SEA South East Asia

Season New Zealand: A period of 12 months to 31 May in each year. Australia: A period of 12 months to 30 June in each year

SMP Skim Milk Powder

TE GDT Trading Event

USDA NASS US Department of Agriculture National Agricultural Statistics Service

USDA Oceania US Department of Agriculture Agricultural marketing service price series for specific products in the Oceania region

WMP Whole Milk Powder

YOY Year-on-year

YTD Year to date

Fonterra draws the information in this update from a variety of principally external sources listed below. Also included are defined acronyms for better understanding.

GLOSSARY

NZMP PERSPECTIVE JULY 201918

Tracking the global dairy market Production, Export and Import chartsThe production, export and import charts illustrate year-on-year changes in production, exports and imports for a range of countries that are important players in global dairy trade.

The absolute size of the bars represents the change in production, exports or imports compared to the same month the previous year. The portion of the bar below zero represents a year-on-year decrease and the portion above the line shows the year increase for that country. Where countries are not shown this is likely due to the data not yet being available.

Weather Source (Page reference – 11)Comments on weather are obtained from various government weather sites as well as independent reports including Martell Crop Projections. Global milk production data is sourced from government and industry websites including US Department of Agriculture (USDA), EuroStat, Dairy Australia, Dairy Companies Association of New Zealand (DCANZ) and others.

REFERENCES

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Important note: The information and commentary contained in this ‘Perspective from NZMP’ is based on publicly available official government statistics; industry association reports; other published industry reports together with data and insights developed by Fonterra’s Global Dairy Intelligence group (‘GDI’). These sources are identified as appropriate in this ‘Perspective from NZMP’. GDI insights and data are derived from a global dairy market model populated by publicly available data. The model inputs and outputs do not reflect Fonterra’s non-public production, pricing or sales data. Fonterra Co-operative Group Limited and its group members involved in the manufacture or sale of NZMP branded products (‘Fonterra’) has provided this ‘Perspective from NZMP’ for informational purposes only. It does not constitute recommendations or advice for the purposes of making financial decisions regarding trading in dairy products or commodities, or dealing in financial instruments relating to dairy commodities. Although every effort is made to ensure the accuracy of reproducing and interpreting such information, no warranty or representation of such is made and Fonterra shall have no liability in respect of any reliance placed on such information in the formulation of any business decision.